STRATEGIC COST MANAGEMENT & PERFORMANCE EVALUATION
Introduction to Strategic Cost Management
Value Chain, Porter’s Value Chain Analysis & Value Shop Model
(Theory Type - Case Study)
Value Chain –
Value Chain Analysis –
Primary Activity - Primary activities are those which are directly involved in transforming of inputs
(Raw Material) into outputs (Finished Products) or in provision of service.
» Inbound Logistics: Activities related to receiving, storing and distributing the inputs (raw
materials) to the production process.
» Operations: Activities involved in transforming raw materials into final products. These would
include machining, packaging, testing and equipment maintenance.
» Outbound Logistics: Activities involved in collecting, storing and distributing the products from
the assembly line to the end user customers. This includes finished goods warehousing, delivery
vehicle operation, order processing and scheduling.
» Marketing and Sales: Activities such as advertising, promotion, distribution channel selection,
sales force management, pricing policy and such other activities that make the customer aware of
the product would be listed here
» Service: Activities related to after sales service such as installation, repair and part replacement
would be classified here.
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STRATEGIC COST MANAGEMENT & PERFORMANCE EVALUATION
Introduction to Strategic Cost Management
Secondary Activity - Secondary activities (also known as support activities) support the primary
activities. Though, secondary activities are not directly involved in creation of product, it doesn't mean
that they are of less importance as compared to primary activities.
» Procurement: Procurement refers to the processes of acquiring various products and include
activities like identifying sources of these products, vendor selection, placing an order, purchase of
products etc.
» Technology Development: It includes activities like process automation, an Enterprise Resource
Planning (ERP) system, inventory management systems etc.
» Human Resource Management: This involves areas of recruiting, managing, training,
developing and rewarding people within an organisation.
» Infrastructure: This includes not only the physical infrastructure but also all departments of
management, finance, legal which are required to keep the company’s store operational.
Benefit of Value Chain Analysis –
» The analysis of value chain help a firm in obtaining cost leadership or improve product
differentiation.
» This model also helps in analyzing other firms within the same industry.
» The value chain will assist to determine ways to get best approach towards developing higher
level competitive performance.
» Through this analysis company may apply other relevant management techniques as well. Post
value chain analysis, company will be in a position to decide whether it is worthwhile to
continue the technique of benchmark (processes and performance).
» Value Chain analysis will also facilitate the development of performance metrics.
Criticisms of Value Chain Analysis –
» This value chain analysis cannot easily be applied to firms belonging to service industries.
» Often this model is seen as complicated and perhaps could be a source of frustration for the
management of a firm.
» This analysis has a linear approach and ignores the concept of value networks.
» Often value chain analysis is perceived as time consuming and expensive as a whole.
Value Shop Model –
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STRATEGIC COST MANAGEMENT & PERFORMANCE EVALUATION
Introduction to Strategic Cost Management
The model has the same support activities as Porter’s Value Chain, but the primary activities are
described differently. In the value shop they are:
» Problem finding and acquisition
» Problem solving
» Choosing among solutions
» Execution and control/evaluation
Question Source Topic
Q1 Study Material Primary Activity - Porter's Value Chain Analysis
Q2 Past Attempt Question July 21 Value Chain + Value Chain Activity Classification
Primary Activity - Porter's Value Chain Analysis + Issue in
Q3 Study Material + RTP May 18
Performance Measurement + Balance Score Card
Q4 Study Material Map Activity to Value Chain Model (Primary + Secondary)
Study Material + Past Attempt Primary Activity - Value Chain Analysis + Balance Score Card +
Q5
Question May 19 Performance Prism
Q6 Study Material Benefit & Criticism of Value Chain Analysis + Value Shop Model
Primary Activity - Value Chain Analysis + Product Life Cycle + Risk of
Q7 RTP Nov 19
Outsourcing
Q8 Case Study Digest Value Chain + Competitive Advantage + Value Chain Effect
Traditional Vs Strategic Cost Management + Traditional Cost
Q9 Case Study Digest Management Limitation + Difference & Similarities - Value Chain
Analysis + Value Shop Model
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