Impact of ERP on Value chain (Porter’s Value chain Model)
- Supply Chain Planning
Supply chain planning is a process of selecting proper marketing channels, promotion, and regulating the stock quantities and inventory required to ensure that production is able to keep up with the consumer demands. ERP systems thus offer a trouble-free and ductile way to establish and change the limits within which the supply chain operates.
- Global Visibility
ERP software has always been known for the role-based or permission-based access to view the SCM data. The ERP allows manufacturers to know how and where the inventory is located throughout the chain management. This will allow the management of drafting a well-planned production. This means they have data at their disposal regarding the inventory levels, purchasing and production performance etc.
- Evaluate Vendor Performance
ERP systems make it easier for an organization to measure quantitative and qualitative factors of respective vendors. This helps the management in making better decisions and performance improvements in the current market. It helps the purchasing department to select the supplier or vendor and facilitate continual monitoring. Data of this kind can help to better negotiate at the time of switching vendors.
- Information Management and Integration
ERP is a natural extension and provides a comprehensive management system that integrates and manages your transactions and other important data in one single system. Many companies fail to cope up with the growing consumer demand due to discrete data which delays the supply chain functions. ERP system keeps all your data in one system with enterprise-wise visibility.
- Enhanced Collaboration
ERP systems help organizations to control all suppliers and distributors. This helps the managers to understand who is doing what operations at all the given times. ERP also bridges the gap between all the supply chain partners. Hence, it is possible for all the members of the organization to share vital information about demand, forecasting, production status and transportation plans in real time.
- Helps Decision Making
In the current business scenario, information is the key resource for any organization. If organizations do not have sufficient mechanism that gives them the power to make effective decisions then there are chances that their future will always be a mystery. With the implementation of ERP, an organization will be able to function as a single entity that will improve the accuracy and integrity leading to a better decision-making process.
- Improved Supply Chain Network
ERP systems provide complete visibility throughout the supply chain network which isn’t possible in the manual processes. By implementing ERP, an organization can monitor all the statuses and activities of suppliers, plants, warehouse and stores, and all other members involved in the supply chain. This, in turn, helps in effective tracking and monitoring process management.
- Decrease in Delays
Supply chains who did not implement an ERP already placed complaints about poor business relationships with the loss of business. Many factors have negative impacts on businesses and therefore results in negative impact with the customers who are the main force of attraction for a supply chain. With the implementation of ERP, all the activities can be co-ordinated and executed ensuring higher levels of on-time delivery across the chain.
- Manage Risk and Prevent Fraud
An intelligent ERP system not only prevents fraud and theft but also helps ensure compliance with legal requirements and rules. A traditional ERP system facilitates user-based roles to access and modify data that prevents theft.
- Automates Customer Service Process.
Enterprise resource planning comes to help too many organizations that look forward to streamlining their customer service experience. ERP’s streamline customer service experience that allows employees ensure that their customers are getting a consistent experience and the back office process is not interrupted. Automation of all other resources helps organizations to respond to customers quickly and forecast new products.
The Value Chain activities
Porter’s Value Chain Analysis consists of a number of activities, namely primary activities and support activities. Primary activities have an immediate effect on the production, maintenance, sales and support of the products or services to be supplied. These activities consist of the following elements:
These are all processes that are involved in the receiving, storing, and internal distribution of the raw materials or basic ingredients of a product or service. The relationship with the suppliers is essential to the creation of value in this matter.
These are all the activities (for example production floor or production line) that convert inputs of products or services into semi-finished or finished products. Operational systems are the guiding principle for the creation of value.
These are all activities that are related to delivering the products and services to the customer. These include, for instance, storage, distribution (systems) and transport.
Marketing and Sales
These are all processes related to putting the products and services in the markets including managing and generating customer relationships. The guiding principles are setting oneself apart from the competition and creating advantages for the customer.
This includes all activities that maintain the value of the products or service to customers as soon as a relationship has developed based on the procurement of services and products. The Service Profit Chain Model is an alternative model, specific designed for service management and organizational growth.
Support activities of the Value Chain Analysis
Support activities within the Porter’s Value Chain Analysis assist the primary activities and they form the basis of any organization. In the figure dotted lines represent linkages between a support activity and a primary activity. A support activity such as human resource management for example is of importance within the primary activity operation but also supports other activities such as service and outbound logistics.
This concerns the support activities within the organization that enable the organization to maintain its daily operations. Line management, administrative handling, financial management are examples of activities that create value for the organization.
Human resource management
This includes the support activities in which the development of the workforce within an organization is the key element. Examples of activities are recruiting staff, training and coaching of staff and compensating and retaining staff.
These activities relate to the development of the products and services of the organization, both internally and externally. Examples are IT, technological innovations and improvements and the development of new products based on new technologies. These activities create value using innovation and optimization.
These are all the support activities related to procurement to service the customer from the organization. Examples of activities are entering into and managing relationships with suppliers, negotiating to arrive at the best prices, making product purchase agreements with suppliers and outsourcing agreements. Organizations use primary and support activities as building blocks to create valuable products, services and distinctiveness.
Using the Porter’s Value Chain Analysis
Porter’s Value Chain Analysis: There are four basic steps that have to be followed if you wish to use the Value Chain as an analysis model. By following these basic steps the organization can be analyzed using the Value Chain.
Step 1: identify sub activities for each primary activity
For each primary activity, sub-activities can be determined that create a specific value for an organization.
There are three categories of sub activities, namely:
- Direct activities (for instance online sales from Marketing& sales)
- Indirect activities (for instance keeping the CRM up-to-date from Marketing& sales or organizing a golf tournament for customers)
- Quality assurance (Proofreading and editing advertisements from Marketing& sales).
Step 2: identify sub activities for each support activity
Here it concerns the idea how value support activities such as firm infrastructure, human resource management, technology development and procurement can create value within the primary activities. Use the same distinction as in step 1 for direct and indirect activities and quality assurance. For example, consider how human resource management can create value to inbound logistics, marketing & sales and service. This will also have to be done for the other support activities.
Step 3: identify links
This is a crucial and time-consuming step because this is about finding the links between the added value you have identified. This part is of importance for an organization when it concerns increasing competitive advantage from the value chain. For example, a development within a CRM solution can have a link with increasing production and sales volumes through certain investments. Another example is the link between the complaints that have been recorded within the primary activity and the increase of unfilled vacancies (human resource management) within the primary activity outbound logistics.
Step 4: look for opportunities/ solutions to optimize and create value
After you have completed the value chain analysis it is important to determine what activities are to be optimized in order to create added value. This is about quantitative and qualitative investments that can eventually contribute to increasing your customer base, competitive advantage and profitability. Creating business cases will help you give priority and return on investment (ROI) to the possibly required added value creation of a primary or support activity.