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1. Process Process decisions concern the design of the physical production system. E.g.
choice of technology, facility layout, process flow analysis, facility location, line
balancing, process control, and transportation analysis.
2. Capacity Capacity decisions concern determination of optimal output levels for the
organization— e.g. forecasting, facilities planning, aggregate planning,
scheduling, capacity planning, and queuing analysis.
3. Inventory Inventory decisions involve managing the level of raw materials, work in
process, and finished goods. E.g. what to order, when to order, how much to
order, and materials handling.
4. Workforce Workforce decisions are concerned with managing the skilled, unskilled,
clerical, and managerial employees.
5. Quality Quality decisions are aimed at ensuring that high-quality goods and services
are produced. E.g. quality control, sampling, testing, quality assurance, 11
BY: Woldetsadik Kagnew (Assist. Prof.)
and
cost control.
4. Research and Development (R&D)
• Research and development expenditures are directed
at developing new products before competitors do,
improving product quality, or improving
manufacturing processes to reduce costs.
5. Management Information Systems
It is also referred to as information technology
management. The study of information systems is
usually a commerce and business administration
discipline, and frequently involves software
engineering, but also distinguishes itself by
concentrating on the integration of computer systems
with the aims of the organization.
In business, information systems support business
processes and operations, decision-making, and
competitive strategies.
BY: Woldetsadik Kagnew (Assist. Prof.) 12
B. Value Chain Approach
• A value chain is a systematic way of viewing the
series of activities a firm performs to provide a
product to its customers.
• Value chain disaggregates a firm into its
strategically relevant activities in order to
understand the behavior of the firm’s cost and its
existing or potential source of differentiation.
• Value chain analysis considers where and how a firm
adds value (i.e. the internal factors that drive
profitability).
• Every firm can be viewed (disaggregated) as a
collection of value activities that are performed to
design, produce, market, deliver, and support its
products.
• As portrayed in a figure below, these activities can
be grouped into nine basic categories for virtually
any firm.
BY: Woldetsadik Kagnew (Assist. Prof.) 13
• Through the systematic identification of these
discrete activities, managers using value chain
approach can target potential strength and
weakness for further evaluation.
• The capability of the organization depends on the
quality of co-ordination across these activities,
not just on competence in each individual
activity.
• So strengths and weaknesses are based on how
well value chain activities are performed.
• Building linkages will increase value added.
• This provides a further mechanism to
differentiate your company from its competitors,
and thereby create ‘margin’ (as indicated on the
right hand side of the value chain figure ). 14
Margin
Support activities
Technology Development
Procurement
Margin
Services
Operations
Primary activities
BY: Woldetsadik Kagnew (Assist. Prof.) 15
• The basic categories of activities can be grouped
into two broad types: primary activities and
the supporting activities.
• Primary activities are those involved in the
physical creation of the firm’s products, its
delivery and marketing to the buyer, and its
after sale support.
• The primary activities are generally quite
distinct, having different economies and, in large
organizations, separate cost centers.
• Overarching each of these are support activities,
which provide input or infrastructure allowing
primary activities to take place on an ongoing 16
basis.
BY: Woldetsadik Kagnew (Assist. Prof.)
• The primary (i.e. the main value-adding) activities
are grouped into five main areas:
a. Inbound Logistics – concerned with receiving,
storing, and distributing inputs;
b. Operations – transforming the inputs into the
final product/service;
c. Outbound Logistics – moving the product to
buyers (including warehousing and distribution);
d. Marketing and Sales – bringing the product to
buyers and inducing them to buy and use it;
e. Service – activities to enhance or maintain the
value of the product service (including
installation, repairs, maintenance, training and17
other services).
BY: Woldetsadik Kagnew (Assist. Prof.)
Primary Activities and Factors for Assessment
Inbound Outbound Marketing & Sales Customer
Logistics Operations Logistics Service
Soundness of Productivity of Timeliness and Effectiveness of Means to solicit
material and equipment efficiency of market research to customer input
inventory compared to delivery of identify customer for product
control that of key finished goods segments & needs improvements
systems competitors and services Innovation in sales Promptness of
Efficiency of Appropriate Efficiency of & promotion attention to
raw material automation of finished goods Evaluation of customer
warehousing production warehousing alternate complaints
activities processes activities distribution Appropriateness
Effectiveness channels of warranty and
of production Motivation and guarantee
control systems competence of sales policies
to improve force Quality of
quality and Development of customer
reduce costs image of quality and education and
Efficiency of a favorable training
plant layout reputation Ability to
and work-flow Extent of brand provide
design loyalty among replacement parts
customers and repair service
Extent of market
dominance within
18
the market segment
or overall market
BY: Woldetsadik Kagnew (Assist. Prof.)
• Each of these five primary activities is linked
with four supporting activities:
a. Procurement: processes for acquiring
resources;
b. Technology Development: covering product,
process and raw material development and
‘know-how’;
c. Human Resource Management: including
recruitment, training, development and
rewards;
d. Firm Infrastructure: chiefly the management
systems, e.g. planning, finance accounting and
quality control.
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Step-5:
the total weighted score can range from a low of 1.0 to a high of
4.0, with the average score being 2.5. Total weighted scores well