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Cost Management-final                                                                                                       11

downstream activities in output logistics, marketing, sales and service. Beyond being able to make a watch cheaply, the Swiss had to lower their costs of distribution and service. They came up with the hugely successful Swiss watch, which, besides being inexpensively priced, was virtually indestructible and could be distributed through numerous low-cost channels, from department stores to discount houses.

Value chain of Petroleum Industry in India

                  ONGC:produces Petroleum (Sweet or sour)

         Natural Gas                                                          Crude oil                                  Refine

                 User: ONGC

IOC, BPCL, HPCL, MRPL

By fractional distillation

PowerCH4          LPG          C2C3

BPCL        EPR

HPCL

FertilizerLPGPetrolDiesel    Kerosene

  GAIL

  GAS Cracker

 CNG

For car    Naphtha

 Propylene                   Butylenes

Holdia Petro Chemical

      PVC

High density

Polythene (Pipe)

Plastic                                                                                      Propylene                                  Butylenes

chair

Products Backaline, Film, X-Ray plate, Color Estar, Bitumen  

Vertical linkage analysis includes the following steps;

1.

Identify the industry's value chain and assign costs, revenues and assets to value-creating process;

2.

Diagnose the cost drivers for each value-creating process; and

3.

Evaluate the opportunities for sustainable competitive advantage.

1. Identify the industry's value chain and assign costs, revenues and assets to value-creating processes : Because vertical linkages can be complex and intangible, they are often overlooked by organisations. For example, the petroleum industry consists of numerous value-ling processes or activities, including exploration, production, refining, marketing and distribution. These processes define the value chain for this industry. One company may participate in all parts of this value chain; another firm may participate in only a few. This diversity of operations and organisations makes it difficult to adopt a standard approach for identifying industry value chain

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