Chapter 3
Value
Chapter Overview
Chapter 3 is devoted to the concept of value. It can be said that when you closely examine every operations decision, value is the most critical outcome. Without value, no one buys the product or service, and the business fails. If value is not great enough, there will not be a significant difference between the cost of production and the amount customers are willing to pay, leaving no room for profit. Again, the business fails. Even if value is created, and there is sufficient value to create profit, competitors can create more value, eroding the market share, and once again, the business fails.
Any discussion about value must include a focus
on the customer, because it is the customer that ultimately determines what the
value of any product or service will be. In Chapter 3, we acknowledge that a
close examination of customers for any product or service reveals differences in
priorities from one customer to another. We must also acknowledge that business
customers will needs that differ from those of consumer customers. While it is
certainly dangerous to depend on very neat, clean, categories for different
types of customers, we can identify various value determinants for B2B and B2C
relationships. Chapter 3 provides and extensive discussion of these value
determinants. Chapter 3 also introduces the concept of a supply chain. The
supply chain is a critical component of the creation of value because many
different firms contribute to what the customer finally views as a completed
product or service. Each member of the supply chain must add value or very
quickly they will no longer be needed.
|
Chapter Resources |
|
Esources |
|
| Esource 3.1 | Chapter 3 discusses outsourcing as a way of enhancing value by focusing on core competencies. MSX International is a dominant outsourcing firm in the automotive industry. The description of MSXI services provides an example of the breadth of services that can be outsourced. |
| Esource 3.2 | The ethical concerns of customers have become increasingly important for companies. As Chapter 3 describes, increased pressure has resulted in increased policing by companies. The Levi-Straus Global Sourcing and Operating Guidelines provide an example of how important ethical issues related to supplier working conditions has become. |
| Esource 3.3 | Commerce One.net is an example of the influence of auction services in B2B transactions. Most E-commerce businesses provide services beyond simple access to business suppliers and Commerce One.net is no exception. The description of Commerce One.net provides an overview of the business's capabilities. |
|
Reel Operations Video Clips |
|
| Reel Operations 3.1 | In Chapter 3, the importance of value as the basis for profitability is discussed. For many companies, customer definitions of value change as competition changes and as products are improved. Trek, a bicycle manufacturer, is known as a model for keeping up with customer needs. In Reel Operations Video 3.1, Trek Uses Numerous Approaches to Match Value Produced to Customers' Value Needs, Trek's ability to maintain product value as customer expectations change is examined. |
|
Supplementary Readings |
|
| Supplementary Reading 3.1 |
Style isn't the only issue for an athletic shoe company to be concerned about. They must also be aware of costs, productivity issues, etc. Improving productivity has frequently been used as a means to lower costs and increase profitability, but those improvements can be nullified by a cyclical downturn in an industry. Improving productivity can also have an impact on value, from the customer's perspective. In Burning Rubber at Reebock, (Business Week, 5/15/2000) how is value being improved by Reebock's each of their improvement efforts? |
| Supplementary Reading 3.2 |
We know that value is in the eye of the
beholder. It has also become apparent that the way customers are
treated by businesses is often as important as what they are purchasing. New
Rules: Why Values Beat Value, (Fast Company, June 2001), provides an
interview with Ryan Mathews, coauthor of the book "The Myth of
Excellence. In the interview, different views about what customers
value are presented. a. Do any of Mathews' revelations about what customers really want surprise you? Are they consistent with your values as a customer? b. How is what Mathews' described different than the way service quality is typically discussed? Is it different? or is it just a part of what should always be considered as service quality? |
|
Links to Operations On Site Companies |
|
| Operations On Site 3.1 | It isn't unusual for manufacturers and services to outsource to maintain focus and improve the value of their outputs. Starbucks goes one step further than most by outsourcing their music to an expert. Hear Music has an unusual role as a supplier because it supplies music for Starbucks' retail stores. |
| Operations On Site 3.2 | Home depot exists in a tough market, competing with other large home improvement retailers like Lowes. For a better understanding of what Home Depot's strategy is, check out their company overview at Home Depot.com |
|
OM Exploration |
|
Check it out: Internet Reference Sites for Chapter 3 |
|
| Outsourcing has become a common way for companies to maintain a focus on what they do best, yet still add value in a variety of ways. It has also opened up ethical concerns about exploitation of labor in third world countries. The following websites offer examples of outsourcing resources, outsourcing companies, and organizations devoted to eliminating the exploitation of laborers. | |
| Concentrek | |
| Staples | Stanford Global Supply Chain Forum |
| National Labor Committee | |
|
OM in Action |
|
| OM in Action 3.1 | Commerce One.net offers a variety
of services to companies wishing to take advantage of e-commerce opportunities. One of
these opportunities is to utilize internet auctions from a forward auction (supplier
selling inventory) or reverse auction (procurement department posting request for quotes
(RFQ's) to purchase. Explore the auction services
of Commerce One.net. a. Do the services provide a good way to purchase necessary materials? b. Do the services appear to be a good way to sell products? c. What are the risks associated with buying and selling through Commerce One.net? |
| OM in Action 3.2 | Suppose your firm was trying to identify an Internet partner to help
you sell excess inventory. The choices have been narrowed down to Commerce One.net
and Ariba. Explore the
capabilities and services offered by each. a. Which would you select and why? b. Which would be most attractive if you were going to purchase materials through their services? |
|
Online Business Tour |
|
| Online Business Tour 3.1 |
Manufacturers of commodity products must keep costs low because
price is typically the primary way to differentiate from competitors. Many
reduce costs by producing in very high volumes. The Monitor
Sugar Company is a typical commodity manufacturer. Take the Monitor
Sugar Company Tour. |
|
Letters from the Top |
|
| Letter from the Top 3.1 | Costco has been in a growth mode for several
years. In his letter to shareholders in 1999
(page 2 of the pdf file), President and CEO Jim Sinegal described the year's
achievements. As we know, price is a key component of the customer's
perception of value, but not the only component. a. Other than price, what else does Costco offer value-sensitive customers? b. Are all of Costco's offerings important to you? How would you prioritize these offerings? |
| Letter from the Top 3.2 | In the 1999
letter to UnitedHealth Group shareholders, Chairman and CEO William McGuire
lists "customer-defined value" as one of three key principles. a. Does his concept of "customer-defined value" differ from how value is traditionally defined? b. Is his definition of value consistent with your definition, as a healthcare consumer? |
|
Putting It All Together: A Virtual Case Study |
|
| Putting It all Together 3.1: Capabilities and Value at Marriott |
Hotels have recently begun to utilize technology to better match their
services to customers. Marriott, for example,
utilizes Siebel software to help them remember
peculiar needs of past customers. See (Special Report: How Marriott
Never Forgets a Guest, Business Week, 3/21/2000). Ritz-Carlton, a Marriott luxury hotel brand, was a
Malcolm Baldrige National Quality Award Recipient
in 1999. Their ability to access customer preferences played a role in their winning that
prestigious award. Their profile is available at the
National Institute of Standards and Technology website. a. As a potential Marriott customer, how important is customer service to you? b. What would be the most important service-oriented value attributes for you? Is Marriott's ability to know your preferences important? Which preferences would be most important? How would Marriott's knowledge of your preferences improve the value you receive as a customer? From the value attributes of consumer customers presented in Chapter 3, which value attributes would be enhanced by this capability? c. How do the capabilities of Siebel software contribute to the value offered by Marriott? In Marriott's 2001
letter to shareholders (beginning on page 6), it is made clear that
the previous year was not a financial success. |
|
Additional Reading |
|