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Implications for Value Chain Management Networks - Assignment Example

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The objective of this assignment is to describe the concept of the value chain within the production process. Furthermore, the assignment will highlight the benefits of incorporating a value chain network principles into the management of existing suppliers and business operations…
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Implications for Value Chain Management Networks
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?VALUE CHAIN MANAGEMENT EXAM PAPER - 4 OUT OF 8 MINI CASE QUESTIONS Table of Contents VALUE CHAIN MANAGEMENT EXAM PAPER - 4 OUT OF 8 MINI CASE QUESTIONS 1 Table of Contents 2 Question1 3 Question 2 5 Question 3 9 Question 4 11 Implications for Value Chain Management Networks 11 Protection of IP 12 Benefits 13 References 15 Question1 Question: Within the context of value chain network theory what is it that Brambles are attempting to achieve? What are the net benefits for Brambles’ customers? The acquisition of CAPS by Bramble represents an attempt by Bramble to move up the value chain by undertaking a company that is engaged in downstream activities. This would allow an integration of the firm that would enable it to improve its primary as well as secondary activities that would enable it to move up in the value chain. In case of mergers and acquisitions the primary aspect with regards to value chain management involves an integration of two different value chains i.e., one of the acquirer and the other of the acquired company. There needs to be certain changes in the value chain that could help in undertaking an overall improvement in the value chain of the organization (Ray, 2010, p.46). In case of Bramble the primary motive behind the acquisition of CAPS is to undertake and utilise the primary and secondary aspects of CAPS’s value chain elements to generate an overall improvement in the value chain of Brambles that would enable it to move up in the value chain. This strategy of the firm is in tune with the popular theoretical belief that every organization has its own sets of key elements that includes internal as well as external factors. In the case of Bramble the company wants to acquire the knowledge and expertise of the primary and secondary elements of the value chain that includes its human resources, fixed assets as well as intellectual property that can help in improving the value proposition of the organization by helping its move up in the value chain (Bertoncelj, 2008, p.3). Figure 1: Value Chain in Mergers and Acquisitions for CGI (Source: CGI, 2009, p.2) The figure above shows how to improve the value chain by undertaking a merger and acquisition strategy. The figure above shows how a procurement based value chain can be used to generate an improvement in the entire value chain of the organization by using the expertise in the primary and secondary activities of the acquired organization. Brambles hope to leverage upon the existing expertise as well as client base of CAPS to generate long term profitability for the organization. Brambles hopes that with the acquisition of a company engaged in downstream activities it would be able to undertake a vertical integration of its business process. This would help in opening up business opportunities of the organization considering the vast and immense potential of the downstream activities. The company believes that with the acquisition of CAPS and the good client base of the organization the company would be able to provide better and augmented facilities both in terms of number as well as quality as the customers would find more facilities under a single roof. This would save the customers time as well as monetary resources that would have otherwise being incurred by taking the services of a different vendor for pellets and container services. This would motivate them to choose Brambles over its competitors as it would be offering greater value proposition to the customers. This would help in generating long term sustainable competitive advantage for the organization in the long run. The vertical integration would also help in generating more value in the value chain (Slide 31-35, Planning and performance in Value chain networks). The acquisition of CAPS would also boost the levels of customer service that would help in enhancing the value proposition in accordance with Holden’s value proposition theory that states customer service as one of the key areas that can be used by organizations to enhance their value propositions. Brambles can provide better array of services by providing greater number of services to the customers that would help in enhancing the value proposition of the organization (Slide 38, VALUE IN THE CONTEXT OF THE FIRM). The acquisition of CAPS would largely help the customers of Bramble as the firm would provide downstream services to its clients. Presently the clients of Bramble have to take the services of third party vendors for shipment. However with the acquisition of CAPS Brambles would be able to provide enhanced services that would add to the value proposition of the firm. A vertical integration into the downstream activities would help in generating greater value to the customers who can now find both the services in a single organization. This would save time as well as would lead to cost savings as it would lead to reduction of the number of intermediaries. Question 2 Question: How would you explain this to BP Stakeholders? The growing energy requirements of the world along with the growing perception towards use of eco friendly fuel has generated an interest among the corporate to source for alternate sources of fuel to meet the energy requirements. BP is one of the largest oil producing organizations of the world. The company recently acquired a majority stake in the Brazilian Ethanol producing firm that would allow the firm with an access to the manufacture of alternate energy sources that would on one hand generate a cost effective resource for the organization to meet the growing demands was well as generate the use of non polluting fuels that would help in compliance with the environmental laws that seek to reduce the dependence on fossil fuels as sources of energy. The acquisition of the Brazilian firm has helped BP to move up the value chain. The acquisition has also helped in introducing the aspect of reverse innovations as BP could use its market expertise and reach in the market to market the products of the Brazilian firm to the developed markets thus ensuring effective value addition in both the organizations (Slide 12, VALUE MANAGEMENT:PRACTICAL ISSUES AND APPLICATIONS). The figure above illustrates the manner in which the organization would increase the value proposition by acquiring the Brazilian firm. Figure 2: Enhancing Value Chain by Mergers and Acquisitions (Source: GTL, n.d., p.4) The same strategy was undertaken by GTL while acquiring ADA networks as it helped the firm to move up the value chain. The figure above shows how the acquisition of ADA would help GTL to move up in the value chain. Acquiring of the Brazilian company would also help BP to move up the value chain as it would allow the firm to establish a strategic presence in the Brazilian market that has a considerable demand for energy owning to the robust growth of its economy. The acquired plant would have a full capacity of producing 480million litres of ethanol that would have the capacity to generate approximately 34 GW hours of electricity (Renewable Energy Magazine, 2011). The move comes with the anticipated forecasts from industry experts who have predicted that bio fuels would be the leading sector in the energy industry in the coming years. The acquisition of the firm CNAA by BP would help in expanding the business of the firm into the segment that is believed to have a long term potential. This strategy is also in the line of the business strategy taken up by the firm in which it has pledged to increase its focus towards non renewable and alternative sources of energy towards meeting the future energy requirements. The acquisition of the Brazilian firm would also help the firm to augment its learning curve that would also help the firm to increase its value proposition. Moving into diversified energy segments would help ensure long term and future strategic business plans. Shareholders would be able to foresee a long term advantage while investing in the organization as it would largely hp in ensuring sustainable gains in the long term future that is expected to be dominated by non renewable and alternate sources of energy. The acquisition of this firm would also help BP in maintaining its sustainability program (BP, 2011). This would also showcase the commitment of the firm towards the society that has of late developed a renewed interest in environmental issues that arise from the use of fossil fuels. This strategy of the firm would help showcase the commitment of the company towards the environmental and the total society at large that would enhance the brand value of the organization. This in turn would make the form more attractive to the investors who would foresee a better value for their investments in the company. The company through its recent acquisition policy would generate strategic advantage as it would provide a platform for the company to increase its exposure in the non renewable segment as well as gaining a strategic foothold in Brazil that is ones of the developing markets. This would in turn increase the value for the company that would ultimately help in generating a greater value proposition for the firm as well as the different stakeholders of the organization. The acquisition would also help reduce the business risk for both the firms and improve the cash flow of the twp organization (Slide 5, SOURCING THE VALUE PROPOSITION). Question 3 Question: Is this an alliance for the short or long-term? Justify your answer The alliance between Daimler and BYD represents a fulfilment execution systems that implies an alliance between market players having efficiencies in diverse areas coming together to generate products and services that are distinct and unique in approach and have different set of expertise that can be combined together to generate excellence that can help segment the value proposition of the organizations (Slide 14, Sesion 10, Applications). The long term alliance between the two organizations would help in generating improvements in the primary value chain activities as it would involve betterment of partner values (Slide 25, Planning and performance in Value chain networks). Technology sharing between the two organizations would help in generating improvements in the value chain. The joint venture between the two organizations would help in better coordination and to improve the outbound order fulfilment process that would ultimately help in improving the value proposition (Parazoglou, 2006, p.78). The proposed alliance between Daimler and BYD China is a long term alliance. This can be easily inferred from the fact that electric cars are still in a stage of infancy and it is till sometime before the product becomes popular in the market. Hence it is quite imperative to have a long term alliance that would actually help in leveraging the opportunities of the market. Undertaking a long term alliance would also help in gaining a stronger foothold in the market. Considering the fact that electric cars are still in a stage of infancy hence entering into a short term alliance would not help in generating long term sustainability. On the other hand entering into a long term alliance would help the firm to analyse and consolidate the market during the initial phase and then use its learning curve to generate an advantageous position when the market picks up. A long term alliance would also help in generating first mover advantage that would actually benefit the firm when the markets become mature and the other market player’s start entering into the market as it would be able to create entry barriers for new entrants. A long term alliance would also have appositive effect on the brand image of the organization as it would have a favourable positioning in the minds of the target customers (Slide 25, SOURCING THE VALUE PROPOSITION). Customers owning to the long association in the business and being the pioneers would also help in customer being able to easily associate and identify the organization with the product that is expected to have a favourable demand in the future. Long term alliance in addition to improving the position of the firm in the value chain would also help in enhancing the learning curve of the organization. The joint alliance would also augment the research and development aspects of the organization that would help in generating a greater value proposition for the customers as well as the stakeholders. The alliance would also help in generating innovations that would help in generating advantage in the long run (Daimler, 2010). For example Li and Fung used collaboration techniques with other partners to gain expertise in the area of supply chain management. The long term relationship helped in improving the value proposition for the organization (Slide 6, ORGANISATIONAL AND INDUSTRY VALUE CHAIN NETWORKS). A long term relationship would help in generating transformation based partnering that would help use the individual expertise of the individual firms that would help in generating long term sustainable advantage by ensuring improvements in the primary as well as secondary activities of the value chain framework of the organization. Entering into a long term alliance would also help in improving the brand positioning of the organizations. The value chain based drivers of positioning include opportunities from the market for a product, time of delivery and quality aspects. These three value chain based elements act as drivers for positioning a product in the market. A long term alliance between Daimler and BYD would help in improving these value drivers that would help in improving the positioning of the brand and the product as well as induce a positive influence of the value proposition of the organization. Robbins and Sons leading apparel retailers used these elements to increase its value proposition and to generate a better positioning of the firm and the products in the mindset of the target market segments. Hence considering all these aspects it is clear that the alliance between Daimler and BYD motors is a long term strategic alliance aimed at increasing the value proposition of the organization. Question 4 What are the implications for Value Chain Management Networks? How might the individual manufacturers protect their IP? What benefits might emerge? Implications for Value Chain Management Networks The process of value chain is a series of small incorporations in the production process that at the end produces a product which has high value. An end product having high value signifies a product which is low on production cost and high on quality. The value chain management begins with Supplier / customer relationship management and ends with the delivery of the product to the end customer (Slide 5, ORGANISATIONAL AND INDUSTRY VALUE CHAIN NETWORKS). Small measures taken by management in each step of the value chain process adds to the value of the end product. An efficient value chain will reap a good percentage of profit for the organization (Johnson, Kevan & Whittington, 2008, p.136). The first step of the value chain begins with the relationship of the organization with the suppliers. The organization should try incorporating measures to make their interactions with their suppliers more cost effective. The suppliers should also be encouraged to make their internal process cost effective. If the suppliers are careful regarding the cost incurred from their end the cost of the product gets lowered. When the transportation cost and time is reduced at the supplier’s end the process starts on a faster and cost effective note. The next step includes making changes in the production process, employing effective labour force and applying effective methodologies can increase the volume of production (Slide 6, ORGANISATIONAL AND INDUSTRY VALUE CHAIN NETWORKS) . Having trained marketing and sales force can also add to the value of the product. Trained marketing and sales force ensure that the end product reaches to the maximum number of target customers. By implying Value chain network the management can lower the investment incurred as fixed costs and working capital. This in turn mitigates the risk related to each project. The operation cost also gets reduced by implementing optimal economies of scales. Value chain network also increases the response of the customers which reduces the acquisition cost by customer but increases transaction values (Slide7, ORGANISATIONAL AND INDUSTRY VALUE CHAIN NETWORKS) . The business risk in decreased thousand folds as the marketing and budgeting is done in a cost effective way. A properly managed Value chain network can generate positive cash flow (Koontz & Weihrich, 2006, p.442). Protection of IP Certain measures taken in value chain process by individual manufacturers give them competitive advantage. For instance the frugal innovation, the latest trend in the manufacturing business is not about restructuring the product design but rearranging the production process. Rearranging the production methods followed by an organization can reap a lot of profit for the organization and can be easily repeated by the competitors. The individual manufactures should thereby keep certain measures taken by them as patent process. This will help the company to retain the position it attains by redesigning its process. Applying for patent, especially for the production process is not easy unless the organization comes up with a measure that has been only devised by the organization. Organizations should thereby evolve their technology used in the production process to obtain patent. Once the production process is patent the organization can have a secure process. Having their own research and development division helps the organization to create technology that can be patent by them. Organizations thereby should give enough emphasis on the development of technologies and unique production process. It will be easier for the organization to apply for patent (Arai, 2005, p. 159). In Pharmaceutical industries companies like GlaxoSmithKline always patent their production process to have an advantage over their competitors. Benefits There are many benefits of incorporating value chain network and applying for IP rights for the production technology. Incorporating value chain network in the production process benefits the organisation in many ways. Incorporating value chain network increases the revenue growth of the organisation along with the market response (Slide 39, SOURCING THE VALUE PROPOSITION). Value chain network also increases the effectiveness of fixed assets of the organisation. The organisation is able to utilise their assets in optimal way with proper production planning. Value chain network also helps the organisation to manage the working capital effectively. Thereby the scale of production is increased but not the cost incurred. Value chain networking also helps the organisation to plan their expenditure in an intelligent way (Slide 40, SOURCING THE VALUE PROPOSITION). The costs incurred in labour cost and material procured can be cut down with the implementation of proper value chain networking (Slide 41, SOURCING THE VALUE PROPOSITION). VCN also helps in utilising the production time in an effective way (Salonen, 2010, p.117-120). References Arai, E. (2005). Knowledge and skill chains in engineering and manufacturing: information infrastructure in the era of global communications. Springer. Bertoncelj, A. (2008). VALUE CREATION CHAIN IN MERGERS AND ACQUISITIONS. [Pdf]. Available at: http://www.ifm.eng.cam.ac.uk/cim/symposium2008/08proceedings/16%20-%20Andrej%20Bertoncelj.pdf [Accessed on June 3, 2011]. BP. (2011). BP Announces Expansion of Biofuels Business in Brazil. [Online]. Available at: http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7067592 [Accessed on June 3, 2011]. CGI. (2009). Acquisition management. [Pdf]. Available at: http://www.cgi.com/files/brochures/cgi_broc396_cgi_federal_acquisition_solutions_offset_e.pdf [Accessed on June 3, 2011]. Daimler. (2010). BYD Company Limited and Daimler AG Sign Joint Venture Contract to Develop Electric Vehicles in China. [Online]. Available at: http://media.daimler.com/dcmedia/0-921-656186-1-1298518-1-0-0-0-0-0-11700-0-0-1-0-0-0-0-0.html [Accessed on June 3, 2011]. GTL. (No date). Acquisition of ADA Cellworks Acquisition of ADA Cellworks. [Pdf]. Available at: http://www.gtllimited.com/downloads/investors/financial_reports/ADA%20_Acquisition.pdf . [Accessed on June 3, 2011]. Johnson, G., Kevan, S., & Whittington, R. (2008). Exploring Corporate Strategy: Text & Cases, 7/E. Pearson Education India. Koontz, H., & Weihrich, H. (2006). Essentials Of Management. Tata McGraw-Hill Education. Parazoglou, M.P. (2006). E-Business Organisational & Technical Foundations. Wiley-India. Ray, K.G. (2010). Mergers and Acquisitions. PHI Learning Pvt. Ltd. Renewable Energy Magazine. (2011). BP in $680 million deal to acquire Brazilian bio-ethanol firm. [Online]. Available at: http://www.renewableenergymagazine.com/energias/renovables/index/pag/biofuels/colleft/colright/biofuels/tip/articulo/pagid/14532/botid/75/ [Accessed on June 3, 2011]. Salonen, T. (2010). Strategies, structures, and processes for network and resources management in industrial parks. BoD – Books on Demand. Read More
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