The Value for Money Philosophy in the Business Environment - Dissertation Example

University

Abstract

The main aim of this paper is to evaluate the concept of value for money (VFM) in supply chain. The value for money in the business concept is very vital as it has numerous benefits to the organisation that utilizes. The literature that will be reviewed will be based on value for money in the supply chain, value for money in procurement, Just-in-time (lean), cost reduction, and material management. All these are aspect that can enhance the philosophy of value for money in a particular organization. The methodology used to investigate this concept was both quantitative and qualitative, the data collected were also primary and secondary but the primary data was mostly utilized. Three production managers were interviewed to ascertain how they enhance the concept of value for money in their organization. The question were based on the manner that the managers enhance VFM in supply chain, procurement, through Just-in-time (lean), cost reduction, and material management. The results indicated that Just-in-time (lean), cost reduction, and material management are important tools that can enhance the concept of value for money in an organisation. Therefore, the paper ascertained that the only way that a business organisation can enhance VFM is application of Just-in-time (lean), cost reduction, and material management as part of their operations.

3.0 Chapter 3: METHODOLOGY

This section presents the methodological consideration of this paper by focusing on different research approaches such as research philosophies, qualitative and quantitative approaches, inductive and deductive approaches and sources of data for this investigation. The section will also provide an overview of the rationale for research method of research used.

3.1 Research Philosophies

Philosophies of science are provide a basis for studying the nature and development of knowledge. Researchers adopt a specific research philosophy based on the vital assumptions of the research and the view of the world. The choice of research philosophy is often made between the entrepretivist and positivist view of the world. The positivist perspective views the social entities as independent of the perceptions of the social actors (Snieder and Larner, 2009). On the other hand, the interpretivist perspective shows social actors as major influencers that shape the perception and subsequent actions through construction of social phenomena. Hence, according to this philosophy, reality is socially constructed and largely depends on social actors for its functionality. A positivist researcher is concerned about the observable social reality and acts as a value –free actor during the research period while the entrepretivist researcher is more concerned about the humans and their construction of the reality in the context of the research (Saunders et al., 2009). Since this research seeks to study the provide a broader understanding of the concept of value for money (VFM) philosophy in the business environment based on the construction of the social actors, the entrepretivist philosophy will be adopted.

3.2 Qualitative v Quantitative

Researchers make a distinction between qualitative and quantitative research approaches in methodology literature by referring to qualitative research in terms of literature and quantitative research in terms of numbers (Saunders et al., 2009). Quantitative research methods applies various forms of statistical analysis to make sense of data. In this context, the researcher plays a great role controlling a direction of research and interpretation of data after analysis (Saunders et al., 2009). On the other hand, qualitative research is presented in form of unstructured exploratory methodology as data is collection is based on small samples for purposes of giving insights into the understanding of an area of study (Silverman, 2005). This research chooses to apply qualitative research to collect data using semi-structured questionnaires which will then be analysed using the exploratory methodology.

3.3 Inductive v Deductive

Deductive and inductive approaches to research are essential in scientific research in determining the direction of research (Gulati, 2009). In inductive approach, research is conducted by comparing empirical results with existing theory while in a deductive approach, the researcher begins analysis of a research topic with a researcher hypothesis based on existing theories to attempt to confirm or reject the formulated hypotheses (Hultin, 2004). Since this research focuses on studying the nature of Value For Money as applied specifically in a medical Factory in China, it will apply the inductive approach to ensure collection of specific, applicable information.

3.4 Secondary and Primary Data

Both secondary and primary data will be used for purposes of achieving the research objectives. Primary data will be collected from three managers working in the medical factory in China; the production lead manager, the manufacturing engineering manager and the materials manager. The data will be collected through semi-structured interview research instruments. Secondary data will be sourced from the company documents and other important sources such as books, journals, annual reports and company documents (Saunders et al 2000). Secondary data is important as it complements primary data (Pelissier, 2008). This research will use secondary data to provide an overview of existing research on VFM in business and showing how that literature operates in the medical factory in China.

3.5 Research Instruments: Interviews and Questionnaires

There are various research instruments that are widely used to collect primary data: interviews and questionnaires. Interviews are managed verbal exchanges between a researcher and a respondent. The interview can be conducted across a spectrum from ‘structured’ to ‘unstructured’ questions (Beiske, 2007). Structured interviews are closed questions while unstructured questions allow for interaction and observation. A semi-structured interview is found along the continuum and allows for broader analysis of the research topic while using a guided framework (Ritchie and Lewis, 2003). On the other hand, a questionnaire is aimed at collecting information to address a defined problem and can collect data over a widely-dispersed population than interviews. The analysis of data from the questionnaire allows for efficient analysis so as to produce results that leads to a better understanding of the problem. Questionnaires can be posted, distributed, or mailed. Hence, their response rate is lower than that of interviews (Silverman, 2005). For purposes of this research, semi-structured interview questions will be used to collect data as it allowed for use of questioning, discussion and conversation, thereby providing the researcher will reliable and clarified information.

3.6 The Semi structured interview

There were three managers who were interviewed in this research: the production lead manager, the manufacturing engineering manager and the materials manager (transcript in Appendix). The rationale for the selection of these managers is that they are actively involved in various areas of production in the factory and are in charge of areas where the concept of VFM is applied such as the supply chain cost reduction, lean production, JIT and material management. All the managers were asked the same question to answer according to their perception and the roles they play in the factory. The interview was scheduled according to the free time of the managers and took the same amount of time which is one hour.

4.0 Chapter 4: FINDINGS AND DISCUSSION

4.1 Findings and Results

4.1.1 Value for Money

On question 1, the production lead manager said that the company values value for money as it allows us to stay competitive in the market by producing high quality products on reduced costs. The manufacturing engineering manager reiterated that the company values value for money as it helps use distinct in the market, thereby increasing the value of our products. Lastly, the materials manager said that the company is committed to achievement of value for money as it is the key to achievement of efficiency in business. This question helps recognize that value for money is an essential part of business as it is linked to achievement of a competitive edge.

On question 2, the production lead manager agreed that the company employs cost effectiveness analysis to assess VFM and determine the most plausible form of investment. Both the manufacturing engineering manager and the materials manager said that the company uses the cost utility analysis method. This question shows that the company uses various methods of achieving value for money for purposes of increasing its profitability.

On question 3, the production lead manager confirmed that the company strives to achieve value for money by lowering production costs, and achieving maximum effectiveness and efficiency of the business, enhancing procurement efficiency, efficiency of medical equipment. The manufacturing engineering manager says that the company achieves VFM by designing, producing and distributing their medical products in a way that meets the value, quality and design and quality of the customers, corporates, and industry and government regulations. The materials manager says that the company achieves value for money by ensuring that only quality raw materials are sourced and purchased and that the required quantity of production is produced to the quality standards of the target customers while limiting wastage. This shows that the company adopts various strategies to ensure achievement of value for money.

On question 4, the production lead manager says that cost and quality are important in achieving competitive advantage and increasing profitability. The manufacturing engineering manager says that cost and quality help in increasing profitability of the company while the materials manager says that cost and quality help in increasing profitability of the company. The analysis of this question reveals that the company should have an efficient trade-off between cost and quality or optimal efficiency.

4.1.2 Just In Time

On question 1, all the managers say that they have heard about Just-in-time inventory system. This shows that this inventory system is common in companies seeking to enhance their value for money.

On question 2, the production lead manager says that the company has applied the Just-in-time inventory system and it was very beneficial in terms achieving effectiveness in the production process. The manufacturing engineering manager says that the inventory system has benefited the company in terms of ensuring that any mistakes that occur during the engineering phase are identified and corrected to prevent huge losses. Lastly, the materials manager says that the inventory system has the effect of reducing the need for raw materials in the production process by balancing the required orders, finished products and the work-in-progress.

On question 3, the production lead manager says that the company applies lean theory in the production process by manufacturing only specific orders to help both the customers and the company to minimize wastage and it can be challenging to process a huge and unexpected order sometimes. The manufacturing engineering manager says that the current application of lean theory in the company significantly reduces wastage while the materials manager says that the current application of lean theory seeks to ensure that there is a small stock of finished products at all times.

4.1.3 Cost Reduction

On question 1, the production lead manager says that reducing production cost in the company means investing in operations that have a high turnaround as opposed to the slow ones. The manufacturing engineering manager says that reducing production cost in the company requires a balance between operating costs and the market value of our products while the materials manager says that it is a process of lowering the production costs for purposes of increasing the profitability of a company.

On question 2, the production lead manager says that reducing waste and cost during the production process helps maximize investment on highly productive processes so that we have enough funds at our disposal, the manufacturing engineering manager says that this is achieved by coming up with new designs that reduces production costs while enhancing quality. Lastly, the materials manager says that it is achieve by application of lean production. The analysis of this question reveals that the company is committed to reduction of waste and costs as a way of achieving value for money.

On question 3, the production lead manager says that the company uses activity-based costing for cost reduction, the manufacturing engineering manager says that R&D is the primary method of reducing cost in the engineering department while the materials manager says that adoption of the lean theory in the materials management department helps in lowering costs. The analysis of this question reveals various methods used by businesses to reduce costs are selected based on their relative advantages and disadvantages.

4.1.4 Management of Materials

On question 1, the production lead manager says work-in-progress is the main strategy that the company uses to manage its materials. The manufacturing engineering manager says that the company adopts the strategy of combining inputs that maximise customer satisfaction and reduce cost of materials to prevent wastage of materials. Lastly, the materials manager says that the major strategy of manufacturing engineering manager material management in the company involves the use of work-in-progress. This question reveals that there are various ways used by various departments in the company to manage materials.

On question 2, the production lead manager says that the market factors primarily drive our company to focus on material management. The manufacturing engineering manager says that various factors play a role in directing the company’s focus on material management including technological, social, market and environmental factors. Lastly, the materials manager says that environment factors such as natural disasters drives the company to focus on material management. Hence, the understanding of the factors that influence material management is key to achievement of competitive advantage.

On question 3, the production lead manager says that value for money is achieved by balancing between work-in-progress and finished products, the company is able to control the flow of materials. The manufacturing engineering manager says that value for money is achieved by ensuring that designs are engineered with the capability of utilising the available resources in giving the customers maximum satisfaction. Lastly, the materials manager says that achieving value for money is enhanced through a strategic effort of a trade-off between priority and capacity. This is because materials management is key to achievement of value for money.

4.2 Discussions

4.2.1 Application of VFM through the Concept of Just-in-Time (JIT)

The manager of the medical factory plat in China confirmed that JIT is an important element used in business to achieve value for money. The managers reveal that the application of Just-in-time inventory system has benefitted the company immensely in ensuring that the company only produces the products that they need to satisfy the customer’s need. Worth noting is the application of lean theory in the production process, which allows the company to control the investment of inventory and the amount of time that its takes to convert the supplies to finished products. Moreover, it shows that businesses can enhance their value for money by testing new methods of production as JIT prevents wastage that is imminent in companies that produce mass volumes and store them in the warehouses awaiting buyers. These results are consistent with the research reported by Davis, Aquilano and Chase (2003) which implies that JIT enhances value for money by improving their responsiveness to the customers, through flexibility and timely delivery of products. Worth noting is the relationship between JIT and lean theory or production as lean technique is essentially used to enhance productivity and eliminate wastage during production, thereby giving customers quality products for less as expressed by Drew, MMcCallium, and Roggenhoffer (2004).

4.2.2 Application of VFM through cost reduction

The interview of the managers shows that the concept of cost reduction plays a key role in enhancing the value for money of businesses. Since the three managers in charge of different areas of the production process, they indicate the different ways in which cost reduction is achieved at all levels of production. One of the fundamental areas where cost reduction is achieved is in the supply chain, outsourcing of supplies and adopting the lean technique of production. The company employs activity-based costing to reduce costs in area where it is possible to lower the cost of production without compromising on the quality of the overall output of the company. This finding is consistent with research conducted by Pettersson and Segerstedt (2012) which indicates that a company can achieve value for money by reducing the investment on specific processes and operations that do not affect the quality of the output. Moreover, Tummala et al. (2006) supports the notion of reducing cost by making necessary changes to the supply chain to ensure that the company is able to make additional investments in areas where it has competitive advantage while reducing investment on weak areas. Due to the dynamic nature of business today, the medical factory demonstrates its high responsiveness to customer needs by staying updated on new ways of enhancing its value for money through cost reduction.

4.2.3 Application of VFM through management of materials

The results from the interview indicates that the management of material in a business is an important way in which businesses use to achieve value for money. One of the strategies through which the factory uses to management materials is through the work-in-progress. Controlling the monitoring work-in-progress prevents the company from investing heavily in raw materials when the analysis of work-in-progress takes longer to process. Work-in-progress inventory is used to balance the time spent for suppliers in the production process and the cost of acquiring them (Gopalakrishnan and Haleem, 2015). By reducing investment in materials that take long in the production process, the company can achieve value for money by redirecting the investments with faster turnaround time. These findings are consistent with Hill’s (2000) views that materials management enhances value for money by maximising customer satisfaction through efficient allocation of materials, while simultaneously enhancing the efficiency of the company’s resources. Moreover, the results concur with the findings in Chopra, Meindl and Kalra (2007) where all departments are required to be part of materials management. Material management should ensure balance between the level of customer service and the cost of delivering the products and services to the customers (Vernon et al., 2007).

Chapter 5: CONCLUSION

This paper provides a critical analysis of the importance of Value for Money (VFM) in a business organisation for purposes of ascertaining that value for money is a concept that enhances productivity in business, which is mainly due to the fact that value for money enhances economy, efficient and efficiency (Kelman, 1990). The main use and consideration of value for money philosophy in business environment is that it enables the business to attain minimal cost in its operation. The philosophy of value for money (VFM) philosophy has also been investigated in the supply chain, as the cost of goods and services are measured. Supply chain is one of the business operations that has the capability of ensuring that value for money is achieved, especially in the procurement element. This is due to the fact that procurement ensures that goods are purchased in the right quantity and in the right time. This analysis undertakes a critical analysis of the available literature on the concept of value for money in relation to Just-in-Time (JIT), cost reduction and management of materials.

In order to critically investigate the concept value for money in the business environment, this analysis sought to fulfil the main aim which is to evaluate VFM in business.

Objective 1: To investigate the concepts of Just-in-Time (JIT) in business

The review of the literature and the interviews conducted on the three managers of the factory reveal that the concept of JIT is vital any form of business as it enhances the concept of Value for Money (VFM) in its supply chain strategies especially when considering taking procurement procedures. The concept of JIT enhances value for money in a business environment by enhancing the efficiency of business operations at various stages of the supply chain including the procurement, logistics, design, manufacturing and delivery to the customers. JIT also enhances the flexibility and delivery of products (Davis, Aquilano and Chase, 2003). The managers interviewed confirmed the reviewed literature regarding the benefits of using Just-in-time in their business as it is very beneficial especially due to the fact that it makes it possible for businesses to experience the concept of value for money, which can then be translated to the market in form of competitiveness. The association of Just-in-time and lean theory has also been confirmed. One of the main aspect that has been ascertained in this paper is that value is specified from a customer’s perspective if lean principles are used. The business organisations that use lean considers the value of customer to a large extent, which implies that they are customer centred (Dennis, 2002). The business organisations that uses lean also have a tendency of identifying sources of waste, and this creates more value to their production system.

Objective 2: To identify the areas of cost reduction in organizations for VFM

The critical review of the literature suggests that ‘Cost reduction’ is an essential aspect of business that is applied in practical contexts to enhance value for money. With the increasing demand from customers claiming reduced prices of goods and services they purchase from various business organisations, it becomes essential for a business to reduce the cost of product for purposes of ensuring that it can effectively reduce the market prices of its products to achieve a competitive edge. The data collected from the interviews of the three managers provided important insights into ways in which various companies understand the term ‘cost reduction’ since it can take various forms. The extent to which companies use cost reduction in their production as well as the specific strategy revealed that the application of cost reduction strategies such as cost utility analysis and cost effectiveness analysis depend on the nature of the business and the stages of the supply chain upon which the strategies are employed. The evaluation established that cost reduction is a tool that can be used to create value for money in various companies as confirmed the managers interviewed in this research. Huan et al. (2004) indicated that the concept of supply chain cost (SCC) is a tool that that be used to serve as a measure of company’s success as well as using its component in improving the supply chain.

Objective 3: To examine the management of materials for VFM

The effective management of materials in a business context is an essential element of business that helps prevent unnecessary loss or wastage. Businesses manage their materials throughout the various production stages so as to enhance the value of the finished product and ensure that the value of the product in the market is not affected by the high cost of production. It is therefore prudent to conclude that materials management is also another concept that businesses can take advantage of with an aim of enhancing value for money. The manner in which material management enhances the value for money in a company’s supply chain is by ensuring efficiency in the handling of the materials, suppliers and the conversion of raw materials to finished product as the three managers interviewed confirmed. As such, managing the work-in-progress becomes a valuable aspect of achieving value for money.

Chapter 6: RECOMMENDATION

The paper provides a comprehensive analysis of the concept of value for money philosophy and its application in a business environment. Important insights into the operation of businesses and the concept of value for money has been revealed in relation to the concepts of Just-in-time, cost reduction, and material management. The study sought to evaluate VFM in business by focusing on how the concepts of Just-in-time, cost reduction, and material management serve to enhance the value of money.

Objective 1: To investigate the concepts of Just-in-Time (JIT) in business

Businesses strive to find new ways of operation that enhance their efficiency for purposes of ensuring that costs and materials used in the production can be used as a competitive advantage. In this context, they should strive to adopt the concept of value for money, which can be enhanced through utilizing proper production practices. This concept is vital to making sure that the company boosts its customer delight. The concept of JIT is also linked to amusement of customers, which is a very important aspect in today’s global market, and it will mean also if the specific business will excel in the competition. Just-in-time can be enhanced by incorporating aspects such as variety in products, swift response to customer’s demand, and innovation in the products. These aspects are essential factors that help woo customers in any business environment as well as ensuring that value for money is enhanced. Therefore, as the companies are trying to utilize the concept of value for money by utilizing just-in-time principles the management in the supply chain department should ensure that stringent measures are put in place to come up with models that will ensure value for money as a result of using just-in-time and at the same time ensure that customer delight is achieved.

Objective 2: To identify the areas of cost reduction in organizations for VFM

All businesses are made with an intention of maximising the value for the shareholders. This can be a complicated situation where the cost of production gets very high that the company cannot market its products at a competitive price. It is therefore prudent for businesses to recognise the need for ensuring application of cost reduction strategies that are aimed at reducing the cost of production, while at the same time reducing the price of products for the customers. Cost reduction is an important aspect in achieving value for money as the managers interviewed suggested. However, cost reduction can be confronted by resistance from the shareholders and other stakeholders of a company. Therefore it is very vital to come up with methods that will ensure that the cost reduction is sustainable and it is long term. If the cost reduction techniques adapted by a particular company are not sustainable, there is a great chance the customers will lose confidence with that company prompting them to consider other companies that have sustainable cost reduction techniques. All the departmental managers should also work together to make sure that value for money is achieved as well as enhancing cost reduction at the same time.

Objective 3: To examine the management of materials for VFM

Material management as assessed this research indicate that material management is very vital in enhancing value for money in most enterprises. According to Jacobs, Chase and Aquilano (2009) indicated that material management is also known as logistics management or distribution planning and control. Therefore, material management in the quest to enhance value for money should integrate it with Management Information Systems (MIS) so as to manage distribution and logistics efficiently. Computerized systems in management so as to deliver the expectations of consumers effectively and at that same time ensure value for money.

5.3 Further Study

Further research should be carried to investigate the concept of value for money in the business environment since there are some areas that the literature and this research have not captured but are important. The concept of just in time in enhancing value for money by increasing the consumers’ expectations should be considered for further research. Future research should focus on how to implement JIT techniques that create value for money from a customer’s perspective and from the organisation’s perspective. Further research should also consider the outcome of Just-in-Time on responsiveness especially on flexibility, which influences the supply chain. This will be very vita in ensuring that value for money is achieved. Delighting a customer is very helpful and this can be achieved by ensuring that the customer can testifies that he or she gets value for money from that particular business organisation. Therefore, future studies should be aimed to focus on how JIT and consumer delight can be coined together in order to ensure that value for money (VFM) is achieved both from a customer perspective and organisation perspective.

Further studies should also focus on the how aspects such as just in time, cost reduction and material management can give a business a competitive edge as well as ensure that it has maintained the value for money. Competition is a very important factor that should be analysed in any business environment, therefore the link between value for money and competition should be analysed. Cost reduction as analysed in this paper is also very vital in ensuring value for money, however future research should consider how a company should devise ways that can help in making sure that the cost reduction strategy devised is sustainable. Finally, future research should focus on devising agile models that can be incorporated in the management systems of a companies in the quest of achieving value for money. This is due to the fact that most management systems have not factored the concept of value for money in their systems.

5.4 Acknowledgement

The completion of this dissertation was made possible with the support and support of several people. I therefore express my sincere gratitude to all these persons for making me make a recommendable step in my academic journey. First, I would like to thank my research instructor [name of instructor], for his support and valuable scholarly input throughout the research proposal. My instructors were very supportive, and they were always there to give me any technical or clarifications that I needed despite their busy schedule, I consider myself as very lucky and humbled to have worked under this scholars. The support that my instructors gave me during the entire research proposal makes me believe that the research will assist managers of business organisation in achieving and implementing the concept of value for money (VFM) philosophy in their organisation. I would also like to acknowledge the cooperation that the three managers I interviewed gave me since they made it very possible to collect first hand data regarding my research topic. The managers gave their honest insights on this research topic, they were so kind to me and made they offered me their valuable time despite their business schedule on their respective companies. If not for these managers the field study would have been more complicated and difficult. Finally, I render my utmost gratitude to my family members and colleagues that gave me unmeasurable support emotionally, spiritually, and financially so as to make sure that I completed this dissertation successful with less or no hurdles. Above all, I owe everything to the Almighty God for granting me the wisdom, strength and health to undertake this dissertation and finally enabling me to complete it swiftly.