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Chapter-3 SC Vs Demand Chain

This document discusses and compares value chain and demand chain. It explains that value chain consists of activities that add value moving from supplies to finished product. It was first developed by Michael Porter and includes primary and support activities. The primary focus of value chain is on benefits to customers. Demand chain relates to activities that transfer demand from market to suppliers and is referred to as customer pull. It discusses how integration between suppliers and customers through technology helps create and deliver value.

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63 views12 pages

Chapter-3 SC Vs Demand Chain

This document discusses and compares value chain and demand chain. It explains that value chain consists of activities that add value moving from supplies to finished product. It was first developed by Michael Porter and includes primary and support activities. The primary focus of value chain is on benefits to customers. Demand chain relates to activities that transfer demand from market to suppliers and is referred to as customer pull. It discusses how integration between suppliers and customers through technology helps create and deliver value.

Uploaded by

nidamah
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter-3

Supply Chain vs Demand Chain


Topics to be covered:
- Value Chain
- Demand Chain
Value Chain
 Value chain consists of vertically aligned activities that add value to the goods or services in
moving from basic supplies to the finished product.
 In typical marketing value chain, the value is acquired through procurement activity, the
value is added through manufacturing or processing, and value to the customer is delivered
through logistics and sales distribution.
 The value to the customer is created through processes, activities, organizations and
structures, all of which have to be aligned.
 Michael Porter first developed the concept of value chains in his work on competitive
advantage
 Porter has proposed the value chain as a tool for identifying ways to create (Figure 3.1) more
customer value. According to this model, every process is a synthesis of acquiring, adding
and delivering value to its products.
 Porter suggested that the firms should continuously evaluate their business strategy to
remain competitive. He further said that the firms should focus on their core
competencies and should outsource the non-core activities to the experts. The experts
can do the same job at lower cost and with speed. (Example of DELL)
 As per Porter’s value chain model there are two types of enterprise activities: primary
activities and support activities (Figure 3.2).
 With the help of primary activities there is direct creation of product or service and the
delivery of the same thereafter.
 The primary activities include inbound logistics, operations, outbound logistics,
marketing and sales, and service. The primary activities need supports for their
effectiveness and inefficiency.
 The support activities are called secondary activities and these are procurement,
technology development (including R & D), human resource management, and
infrastructure (systems for planning), finance, quality and information management.
 The primary and secondary activities together create value.
• The margin means the some total of all the value delivered by the business firm to the
customers. The ‘margin’ indicates the degree of differentiation in the way a business is
conducted and value is delivered.
• The competitive advantage can be gained by way of doing things differently than the
competitors. The firms may use new technology, new processes or new procedures
which will ultimately reduce the cost and time.
• It may have to optimize the activities and processes and create trade-offs in performing
different activities to create value. For example, product design with expensive
components and quality inspection may reduce after-sale service costs as the
breakdowns and repairs are rare.
• To reduce the cost in chain the activities need to be coordinated. The
coordination of activities allows better flow of information for control purposes.
• The management of activities and their linkages are in fact at the base of
competitive advantages. Thus, for creating competitive advantage the
management of the entire value chain as a system rather than management of its
parts is a must.
• The value chain is the tool for the company to know the sources of reducing the
cost and enhancing the value simultaneously
In essence, ‘customer value’ is the satisfaction of customer requirements at the lowest
total cost of acquisition, ownership and use.
It is achieved when requirements are met fully, reliably and cost effectively.
The primary focus in value chain is on benefits that accrue to customers. These are
interdependent processes, which generate value and finally generate demand.
Effective value chain generates profits. Value chain analysis is a useful tool for working out
how organizations can create the greatest possible value for the customers.
Value chain analysis helps the businesses identify the ways in which they can create value
for their customers, and then helps them think through how they can maximize the value.
The available alternatives are superb products, great services or jobs well
done. Value chain analysis is a three-step process:

Activity analysis: To identify the activities which should be undertaken to deliver


product or service.
Value analysis: For each activity, to think through what the business would do to add
the greatest value for its customer.
Evaluation and planning: To evaluate whether it is worth making changes, and then
plan for action.
Demand chain
 It relates to the activities that transfer demand from the market to the suppliers.
 See the case in the start of book
 Ideally the suppliers should keep close partnership with customers to create and
deliver value. But this does not happen with everyone. The reason is the absence
of integration between suppliers and customers. The integration process involves
investments in information technology.
 However, the emergence of Internet technology and the adoption of the ERP
system helped firms exchange data with speed and ease.
 Demand chain is referred to as customer pull.
 For example, to order a customized car, customers would be enabled to configure
their own vehicles, add options, select colors and accessories, and understand
how these decisions have an impact on product price.

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