International Business: Value and Supply Chains - Essay Example

International Business Introduction For me, the utmost goal of a company, aside from maximizing the value of its shareholders through ensuring the huge inflow of revenue and profit is to see to it that customers get enough value for their money. Ensuring customer satisfaction by offering them a wide array of products to suit their needs proved to be a successful marketing strategy. As businesses are becoming more and more market driven and customer oriented, it is imperative to offer goods and services that would maximize consumer value. The creation of customer value revolves in the production process of a company. It is only logical that as a product goes through the latter stages in production, it should render more valuable to its target market. This exemplifies the concept of value chain. The Value Chain The concept of value chain was introduced and popularized by Michael Porter in his bestseller, Competitive Advantage: Creating and Sustaining Superior Performance (Value Chain 2005). In this book which was published in 1985, he clearly describes what value chain is. He has identified a set of interrelated activities common to a wide range of firms. Value chain is "a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers (What is value chain 2005)." This is possible, since Michael Porter, as stated above, has already devised a way to classify the activities of a firm in its operation. Value chain therefore, categorizes the "value-adding activities of an organization (Value Chain 2005)." Michael Porter classified business activities as either primary or support activities. Primary activities include: inbound logistics, production, outbound logistics, sales and marketing, maintenance. Meanwhile administrative infrastructure management, human resources management, R&D, and procurement comprise the support activities. The value chain framework is being utlized by managers in assesing the overall situation of a business entity and aids them in the strategic planning. Through a value chain analysis, customer value is maximized while costs of operation is minimized (Value Chain 2005). Figure 1 shows the primary activities in the typical value chain of a business organization. Primary activities involves those activitieswhich starts as the procurement of raw materials from suppliers to bringing them to customer. Inbound logistics involve the "receiving, warehousing, and inventory control" of the company's input. Meanwhile, operations comprise the value adding activities which transforms the raw materials into the final output. Outbound logistics are the activities which are necessary to bring the finished product to customers like storage, order fulfilment, warehousing, etc. Marketing and sales are the company's effort to attract buyers to purchase the products (The Value Chain 2004). Maintenance and ehancement of products' value through customer support and repair services. All these activities in the value chain are designed to add value that the customer derived from the company's products or services. Figure 1. Primary Activities of the Value Chain The main goal of support activities is to facilitate the primary activities. Procurement is essentially the purchasing of raw materials and other inputs utilized in value adding activities. On the other hand, technology and development, process automation and other technologies which are used to simplify and aid in the company's production. Human resource management involves the process of recruitment, development, motivation, and compensation of employees working for the business. Firm infrastructure is comprised of activities such as finance, legal quality, management, etc (The Value Chain 2004). This paper will look at the value chain of Dell Incorporated. It will focus on the trends currently happening in the global market and how these changes may influence the value chain of the business entity. Dell Incorporated and its Value Chain Dell Incorporated was founded in 1984 by Michael Dell, who is also regarded as the computer industry's longest tenured chief executive officer. Dell Incorporated is one of the most famous manufacturers of computer worldwide, which caters to the needs of individual and corporate clients with a very unique business concept (About Dell 2004). Throughout its entire supply chain, the computer manufacturer has designed and employed a unique business model, which is very different from the traditional ones. The company's aggressive effort to minimize cost while maximizing customer value is indicative of its unique business concept of introducing radical reforms its value chain. Dell has streamlined its processes through the reduction of production time, elimination of inventory, and shifting from the typical assembly line, and eradication of intermediaries by directly marketing to consumers. Dell Incorporated is essentially customer oriented and market driven. This can be seen by the customized products they offer to their clients. It should also be highlighted that the company employs the Just-in-Time production and inventory system, which necessitates zero inventory. The value chain starts when a customer places an order, requiring unique specification for a computer system. These requirements are communicated to the company's supplier who delivers the input to Dell. With its workforce, the computer is assembled in four to eight hours depending on the specification of the customer. It is notable that Dell, in contrast with other manufacturing firms is not utilizing an assembly line in its production. A computer system is assembled by a group, which specializes in each of the production process. After assembly, the computer is directly delivered to the customer displacing the distributors and other intermediaries in a typical distribution system. After sales service is given to customers for maintenance and computer repairs (Lutz 2004). Trends which Influences the Supply Chain The global village, which once was envisioned, to unify the processes and facilitate the free mobility of goods and services across geographic boundaries is now a reality. The advent of technological innovations has facilitated the creation of new trends in business processes. One of the technologies which greatly aided the elimination of boundaries is the internet technology. Another is more efficient transportation and communication. Outsourcing is one of the most significant trends that are currently affecting the value chain of almost all the business entities. Business process outsourcing is becoming a more efficient alternative for companies to cut cost and concentrate and enhance their core competencies. More and more companies are identifying the processes which can be outsourced less costly and more efficiently and subcontract these processes abroad. These companies are realizing the gains from outsourcing as it is often less expensive rendering them more profitable. It is projected that the global outsourcing industry will grow steadily in the coming years. In the domestic market, it is estimated that only 5% of business processes are outsourced. However, this figure is expected to mount to 15% in the coming 2015. Outsourcing significantly reduces the company's cost of operation as workers abroad are usually paid less than the local workforce. Also, investment in real estate abroad is relatively cheaper than other countries than in the United States. Through outsourcing, the company can focus on its core competencies and improve its main processes. The global leader in outsourcing is India, which holds the largest pie in business process outsourcing contracts. Other sites of outsourcing are the Philippines and Australia. One of the important trends among business entities is the stronger partnership and collaboration among manufacturers and their suppliers. This close collaboration of the players in the company's value chain always leads to economic clustering. Economic clustering, in turn facilitates the freer movement of inputs from one company to another. The skyrocketing prices of oil in both the domestic and global market is also a current trend. This is expected to persist, as there is a shortage of supply and large demand globally. Considering that almost industries are dependent on fuel for energy, this can significantly affect a company's value chain. Implications of Trends on the Company's Value Chain Looking at the company's value chain, it is evident that Dell is employing one of the world's most advanced business concepts. The company is currently admired for this advancement, which resulted in a lean production system, fast turnover, shorter marketing channel. Should the company opted to outsource its business processes like customer service and back-office processes like financial and data processing, it would significantly reduce its cost of operation as it will be hiring skilled employees with lower wages. Dell would also probably introduce more innovations in its value chain since it now has more time in improving its research and development. This is a direct result of the company's freeing more time and transferring other processes offshore. Innovative solutions will lead to more customer value and satisfaction. Economic clustering or closer collaboration between suppliers and Dell will facilitate the faster movement of inputs in the supply chain. Since clustering always entails the suppliers and manufacturers to locate near each other, time for inbound logistics drop improving company's efficiency through reduced time. It also lessens the company's cost of transportation as the distance covered is shortened. Increase in oil prices can adversely affect production as it always signals increase in production and operation cost. With regards to logistics, it can compel Dell further stay close to its suppliers to economize on fuel. Conclusion Dell Incorporated's value chain is highly sensitive to the other factors surrounding it. The rise in business processes outsourced abroad, closer collaboration between suppliers and manufacturers and higher oil prices are the factors which are expected to reform or eradicate its current value chain. References About Dell (2004). Retrieved Nov. 7, 2005, from http://www1.us.dell.com/content/topics/global.aspx/corp/en/homec=us&l=en&s=corp Lutz, J. (2005). Living in Dell Time. Retrieved Nov. 7, 2005, from http://www.fastcompany.com/magazine/88/dell.html Maney, K. (2003). Dell business model turns to muscle as rivals struggle. Retrieved Nov. 7, 2005, from http://www.usatoday.com/money/industries/technology/2003-01-19-dell-cover_x.htm Scharge, M, (2002). The Dell Curve. Retrieved Nov. 7, 2005 from http://www.wired.com/wired/archive/10.07/dell.htmlpg=2&topic=&topic_set= The Value Chain (2004). Retrieved Nov. 7, 2005, from http://www.quickmba.com/strategy/value-chain/ Value Chain (2005). Retrieved Nov. 7, 2005, from http://en.wikipedia.org/wiki/Value_chain Value Chain Analysis. Retrieved Nov. 7, 2005, from http://www.netmba.com/strategy/value-chain/ What is Value Chain (2005). Retrieved Nov. 7, 2005, from http://1000ventures.com/products/screensavers.html Read More