This essay will explain the value chain analysis as a tool that is used by management to establish what they can do and how they can do it to add more value to the customer experience. Our case study is going to be Bakers Inn a subsidiary of Innscor Africa Limited. Bakers Inn opened its first retail outlet in Harare, Zimbabwe, and later expanded a highly successful footprint across Africa, more specifically in Zimbabwe, Kenya and Zambia. The brand has consistently updated its offering to suit the changing needs of its customers, and now offers a selection of bread including white, brown, whole-wheat, seed, and low GI.
Irresistible treats on offer include chocolate and cream doughnuts, cakes, muffins, as well as various meat pies, buns and rolls. The idea of value chain analysis was first suggested by Michael Porter (1985) when he was illustrating how the activities within an organisation add value to the products and services that are produced by the organisation.
Porter was of the opinion that if an organisation wants to gain any substantial competitive advantage all the activities that the organisation perform that leads up to the delivery of its product or service must be run at an optimal level.
Kaplinksy and Morris (2000) describes the value chain as an analytical tool that helps understand the way in which firms (large or small) are integrated and linked in the value chain. The value chain describes a full range of activities which are required to bring a product or service from the time the product is only an idea to the time when it is produced, processed, delivered to final consumers and disposed of after use.
John Shank and V Govindarajan (1993) state that “the value chain for any firm is the valu-creating activities all the way from basic raw material sources from component suppliers through to the ultimate end-use product delivered into the final consumers’ hands” This description views the firm as a part of an overall chain of value-creating processes. According to Shank and Govindarajan (1993), the industry value chain starts with the value creating processes of the suppliers, who provide the basic raw materials and components.
It continues with the value creating processed of the different classes of buyers or end use consumers and then culminates in the disposal and recycling of materials. The value chain analysis is a three step process, which begins with Activity Analysis. This is the first process in the value chain analysis; you are required to list all the activities that you undertake in order to deliver product or service. This usually takes the form of a brainstorming session and lists the steps that are performed leading to selling a particular product or service to customers.
Once these activities have been listed they must be laid in the form of a flow chart showing the value adding activities in their order of performance. The second step is value analysis. When you get to this stage you begin to list what you can do to add more value for each activity that you would have listed in step one. In this step you begin to list the things that your customer place value on in the manner in which that particular activity is conducted.
Value factors can be expressed in terms of time, money and right next to each activity you must write down the factors that your customers perceive as value addition as well as what you have to do to convey such value to your customers. The third and final step in the value chain analysis is to evaluate changes and formulate a plan of action to execute them. This third step comes in three step process as well. The first being to implement the value factors that are easy to implement as well as provide you with high results at an insignificant cost to your team and your organisation.
For example picking up the phone before three rings, smiling to customers as well as being cheerful in your service to the customer. Second, you reject and screen the more expensive and difficult changes to implement and drop them off, especially the high cost low yield value factors. Third, prioritise the remaining tasks and make a realistic achievable plan of delivering a step by step improvement in your product or service delivery. Michael Porter believed that if value is properly conveyed to the customer that customer will continually come to make more purchases without being persuaded.
Porter suggested that the activities of any organisation can be split into two forms of activities namely primary and support activities. The primary activities consisted of five generic activities inbound logistics, operations, outbound logistics, service, marketing and sales. Inbound logistics refers to the raw materials that the organisation acquires and use in the production of the end product, whereas, operations refers to the process were the raw material are processed to manufacture the final product, this is the step where the value addition usually begins.
The next activity is outbound logistics which this is concerned with distribution of the finished goods. The raw materials have already been processed and manufactured into finished products which are ready to be delivered to their various distribution centres. For example, retailers, wholesalers or directly the end user. Marketing and sales is the activity that ensures that the product towards its targeted consumer group using the marketing mix to devise the most appropriate marketing strategy.
The final activities fall under services this refers to the support services that the organisation confers to their customers after they purchase their product. On the other hand there are supportive activities, these are activities that assist the organisation to realise its competitive advantage. These include procurement, technology development which involves the use of technology to obtain a competitive advantage. This include the internet which allows the customer to make order in the comfort of their own home at any time of the day.
There is also Human resource management to maintain its status quo and maintain its competitive advantage the organisation must recruit the qualified people and train them. The first stage is to perform our activity analysis, the activities that lead up to the delivery of their confectionary services. These include obtaining flour from suppliers, sorting out the different types of flour, baking the bread, cooling, slicing and packaging. Then follows the delivery of the bread to retailers and Bakers Inn outlets, marketing and customer care services.
It has further been established that Bakers Inn customers’ place a lot of value in quality of the bread as well as the quality of service, time, savings in time. When obtaining the flour from suppliers the value factors are cost savings and high flour quality. To achieve this we need to use our large scale business operations to negotiate for bargains and bigger discounts, negotiate with the suppliers to deliver the flour to us at their cost and purchase high quality grade flour.
Innscor bought National Foods Operations which is a big producer of flour, hence, Bakers Inn can get their flour at a cheaper price and in turn this will make their bread cheap. To give our customers the value factors of cost saving and higher bread quality we must upgrade our storage facilities in order to maintain the quality of the flour as well as reduce wastages. Bakers Inn can conduct surveys or monitor sales logs so as to ascertain the amount of their products bought at any given day. By this, they can produce according to this information and hence this will lower the amount of leftovers .
In terms of technology and human resources, the company must invest in state of the art equipment. For example, they should buy a mixer which will mix up all the ingredients before passing the dough into the baking oven. This will reduce the amount of man power needed and hence will lower the company’s wage bill. The purchase of such machinery will help improve efficiency and increase customer satisfaction as people would prefer products that are machinery produced than handled by people as they are smarter.
Bakers Inn needs to train more drivers who are able to off-load flour from the trucks into the silos as at the moment there is only one driver who is able to do that. In the event of this guy falling sick, they can be doomed. Our customers value convenience in terms of our distribution of our outlets and they would love to have Bakers Inn outlets in their residential suburbs. To give them this kind of value we have to open more outlets. This will help to increase sales as the company’s products are accessible easily from all over the country.
Our clientele would like to spend less time in queues in our outlets, to feel welcome in our outlets and feel valuable. Change should always be available so that customers are not forced to buy little items that they do not need because of lake of coinage for change. To allow our customers to save time in our outlets we have to increase the number of payment points in each outlets. Also we need to train our selling personnel to smile and be polite and courteous to our customers. This will also have a bearing on revenue into the company.
Currently, Bakers Inn only has two production plants in Harare and Bulawayo. This means that, they incur transportation costs to deliver their products to their various outlets across the country. Bakers Inn should look at building more plants as this will help them save on transport costs in the long run. If their transport breaks down or fuel becomes scarce and expensive, they are left stranded and unable to make deliveries. Final consumption is also a factor Bakers Inn should consider.
Even though their main product is bread, the company should also look into maximizing profits for their other products. They need to analyse where their products are normally sold and to which social classes of community. This can also help them better understand the type of products in demand that they might offer. This can help them better understand customer preference. For example, they might introduce samosas as their new product for people on the move that might need a snack on the way. Bakers Inn needs to adhere to government regulations in order to avoid fines and penalties.
They need to maintain the weight of the loaf of bread and the number of slices per loaf. Health standards should be met all the time. Their food handlers should be examined medically and certified. Their shop licences should be renewed in time to avoid fines by the City of Harare Inspectorate Department. The value chain analysis encompasses the whole organisation. It looks at how primary and support activities can work together to help the organisation create a superior competitive advantage. If an activity is performed well it is said to add value.
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