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One
of the biggest steps forward in modern management
is the change of the approach that places the
focus on providing the utmost value in the eyes of
customer and consumer. Since the cost cutting and
price-off strategy is not enough guarantee for
sustainable market advantage on the long run, it is necessary
for the company to provide the value that will
justify the price of the product.
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One
of the biggest contributors to customer centric approach
through value creation is the Michael
Porter. One
concept in particular that Michael Porter has brought to
a wider audience is the concept
of Value Chain.
Competitive
advantage can be understood by looking at segment
of a firm rather
as a whole. The
company activities reflects in
designing, manufacturing,
marketing, distribution,
and supporting its product. Each of these activities can
contribute to a company
cost position and create a basis for differentiation.
The value chain dismembers a firm into its strategically
relevant activities in order to understand the behavior
of costs and the existing and potential sources of
differentiation. A company
gains competitive advantage by
performing these strategically important activities more
efficiently
or or
more effective than their
competitors competitors.
Value
chain activities can be categorized into two types –
primary activities ( logistics, manufacturing,
marketing and sales, and service) and support activities
(infrastructure, human resource management, development
and procurement). These activities are integrating
functions that expand
across the traditional functions of the firm.
Competitive advantage is gained
from the way in which firms organize and perform these
activities within the value chain.
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gain competitive advantage over its competitors, a
company must deliver value to its customers by
performing these activities more efficiently than
its competitors or by performing the activities in
a unique way that creates greater differentiation
from competitors.
The
product of Michael Porter's theory is that
organizations should look at each activity in
their value chain and assess whether they have a
real competitive advantage in the activity. In
case that they do not, then perhaps they should
consider outsourcing that activity to a partner
who can provide that cost or value advantage. This
concept is widely accepted and has produced to
massive shift to outsourcing activity. There are
many examples in every industry
The
effect of outsourcing is to extend the value chain
beyond the boundaries of the business. In other
words, the supply chain is transformed into value
chain. Value is created not just by the focal firm
in a network, but by all the partners that
participate in that value chain.
Outsourcing
has made supply chains more complex and therefore
has made the need for effective supply chain
management even more pressing. Today it is
impossible to keep all activities within the walls
of the company. The outsourcing is the way of
successful value chain creation.
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Recommended
reading:
An
Introduction To Supply Chain Management
Making
The Most Of Your Supply Chain Metrics To Leverage
Competitive Advantage
Supply
Chain Management 101
The Fundamentals Of Supply Chain ROI
Supply Chain
Concept
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