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Cost Management-final                                                                                                       1

1(d).Value Chain Analysis: A Way to profit improvement & cost Reduction

Learning Objective

1.

how to identify the value added activity

2.

how to rectify the non –value added activity

3.

application in profit planning & cost reduction

INTRODUCTION

Competitive advantage for a company means not just matching or surpassing their competitors, discovering what the customers want and then profitably satisfying, and even exceeding their expectations. As barriers to inter-regional and international trade are diminishing and as access to goods and services are growing, customers can locate after identification and «the best of what they want, at an acceptable price, wherever it is in the world. Under growing competition and, hence, rising customer expectations, a company's penalty for complacency becomes even greater.

A strategic tool to measure the importance of the customer's perceived value is value chain analysis. By enabling companies to determine the strategic advantages and disadvantages of activities and value-creating processes in the market place, value chain analysis becomes essential for assessing competitive advantage.

Value analysis or value engineering is one of the most widely used cost reduction techniques.  It can be defined as a technique that yields value improvement.

It investigates into the economic attributes of value. It attempts to reduce cost through

a.

design change,

b.

modification of material specification,

c.

change in the source of supply and so on.  

Suppliers                                     Orgnisation                                                            Customers       

Customer

Service

  Distribution

Marketing

production

Design

 Research

       &

Development  

It  emphasises on finding new ways of getting equal or better performance from a product at a lesser cost without affecting its quality, function, utility and reliability.  

SCOPE

The aspect of value chain analysis is addressed to managers, and more specifically to management  accountants, who may lead efforts to implement value chain analysis in their organisations.

The concepts, tools and techniques of value chain analysis apply to all those organisations which produce and sell a product or provide a service.

DEFINITIONS OF VALUE CHAIN
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