Principles of Management Lecture 3 - Value Chain Management

The development of a set of functional-level strategies that support a company’s business-level strategy and strengthen its competitive advantage

• Product development function
• Marketing function

Inputs: new product ideas, marketing research, component parts

• Materials management function
• Production function

Changed into (conversion): People's ability and knowledge, machines, computers, functional skills

• Sales function
• Customer service function

Outputs: goods and services

• Improving quality
• Improving efficiency
• Improving innovation
• Improving responsiveness to customers

Result in competitive advantage from low costs and differentiation.

Successful companies know what their customers want...

• Customer Relationship Management (CRM)
  Not just about sales and marketing. Use IT to develop an ongoing relationship with customers to maximize the value an organization can deliver. Access to market intelligence!
   

• What do customers typically want?
  - Lower price
  - High-quality
  - Quick service and good after- sales service
  - Products with many useful / valuable features
  - Products that are tailored to their unique needs

High-quality shows in design, features, reliability and after-sales support...

Impact of increased quality on organizational performance: Two dimensions

• Increased reliability leads to higher prices and higher profits
• Increased productivity leads to lower prices and higher profits

Implementing Total Quality Management (TQM) or Six Sigma

A core definition of total quality management (TQM) describes a management approach to long-term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.

• Build organizational commitment to quality.

• Focus on the customer.

• Find ways to measure quality.

• Set goals and create incentives.

• Solicit input from employees.

• Identify defects and trace them to their source.

• Introduce just-in-time inventory systems.

• Work closely with suppliers.

• Design for ease of production.

• Break down barriers between functions.

A technique used to improve quality by systematically improving how value-chain activities are performed and then using statistical methods to measure the improvement

The fewer input resources required for a given output...

• Facility layouts: Designing the machine- worker interface to increase operating system efficiency
  - Product layout
  - Process layout
  - Fixed-position layout

• Flexible manufacturing: The set of techniques that attempt to reduce the costs associated with the product assembly process or the way services are delivered to customers
  - Aims to reduce time required to set up production equipment
  - By redesigning the process, setup times and costs can be drastically reduced
  - Able to produce many more varieties of a product than before in the same amount of time

• Just-in-Time inventory and efficiency: gets components to the assembly line just as they are needed to drive down costs
  - Major cost savings can result from increasing inventory turnover and reducing inventory holding costs.
   

Machines are organized so that each operation is performed at work stations arranged in a fixed sequence. Example: Mass production (cars)

Self-contained work stations are not organized in a fixed sequence.
The product goes to whichever workstation is needed to perform the next operation to complete the product.
Example: Customised products (furniture)

The product stays in a fixed position and components produced at remote stations are brought to the product for to final assembly.

Example: Large structures (aircraft)

Radical versus incremental innovation

• Quantum product innovation
  The development of new, often radically different, kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries

• Incremental product innovation
  The gradual improvement and refinement of existing products that occur over time as existing technologies are perfected

Strategies to promote innovation and speed-up product development

• Involve both customers and suppliers
• Establish cross-functional teams
• Establish a stage-gate development funnel

Stage-Gate Development Funnel

• Stage 1: Come up with as many project ideas as possible (e.g. 3M), Proposals evaluated at Gate 1.
• Stage 2: Cross-functional team drafts detailed product development plans. Plans are reviewed by management at Gate 2.
• Stage 3: Product development starts with accepted projects. Team members sign contract book.