Procter and Gamble's Business Strategies

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2 Value Chain Management

The theoretical background is defined around the central term value chain. Chapter 2 presents research concepts to manage the value chain structured by their area of specialization either on supply, demand or values. Secondly, within an integrated framework, the results of the specialized disciplines are combined with the objective to manage sales and supply by values and volume. Value chain management is defined and positioned with respect to other authors’ definitions. A value chain management framework is established with a strategy process on the strategic level, a planning process on the tactical level and operations processes on the operational level. These management levels are detailed and interfaces between the levels are defined. Since the considered problem is a planning problem, the framework serves for structuring planning requirements as well as the model development in the following chapters.

2.1 Value Chain
Value chain as a term was created by Porter (1985), pp. 33-40. A value chain “disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation”. Porter’s value chain consists of a “set of activities that are performed to design, produce and market, deliver and support its product”. Porter distinguishes between • primary activities: inbound logistics, operations, outbound logistics, marketing and sales, service in the core value chain creating directly value • support activities: procurement, technology development, human resource management, firm infrastructure supporting the value creation in the core value chain Fig. 3 illustrates Porter’s value chain.

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2 Value Chain Management

Firm Infrastructure Support activities Human Resource Management Technology Development Procurement Marg in

M arg in

Primary activities

Inbound Logistics

Operations

Outbound Marketing Logistics & Sales

Service

Fig. 3 Value chain by Porter

Porter formulates the general strategies for the value chain of cost leadership and differentiation to reach competitive advantage (Porter 1985, pp. 62-163). These cross-value chain strategies established a principle that competitive advantage can be reached only by managing the entire value chain as a whole including all involved functions. Some authors argue that Porter’s value chain is characterized by classical functional separation and thinking in organizational units instead of processes, since not processes but activities are listed by organizational function (Corsten 2001, p. 93). Over the years, the value chain was further enhanced towards • cross-company-orientation defined in the term supply chain • network-orientation defined by the term supply chain network Supply Chain and Supply Chain Network Porter’s value chain is one basis for the development of the supply chain. The term supply chain was created by consultant Keith Oliver in 1982 according to Heckmann et al. (2003). Compared to the company-internal focus of Porter’s value chain, the supply chain extends the scope towards intra-company material and information flows from raw materials to the endconsumer reflected in the definition of Christopher (1992): “a supply chain is a network of organizations that are involved through upstream and downstream linkages in different processes and activities that product value in the form of products and services in the hand of the ultimate consumer”. Core ideas of the supply chain concept are:

2.1 Value Chain

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• a better collaboration between companies in the same supply chain will help to improve delivery service, better manage utilization and save costs particular for holding inventories (Alicke 2003) • individual businesses can no longer compete as solely autonomous entities, but rather as supply chains (Christopher 1998) Various illustrations and definitions for the supply chain exist as shown in fig. 4....
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