Case study: Value Chain Analysis of Williams Instruments Inc. Essay Example

Case Study: Value Chain Analysis of Williams Instruments Inc.

Introduction

It is universally acknowledged that, before deciding on a new business idea, an individual must determine the most profitable business activity for them to venture in (Hofmann & Belin, 12). Additionally, this is of utmost importance especially for those individuals who possess limited resources and therefore cannot risk venturing into the wrong business or market sector. In this case, the costs, revenues as well as the value margins should be compared including the investigation of the potential for expanding and the required investments so that each and every value chain factor is included (Baker & English, 50). By so saying, it means that, the analysis of margins, revenues, and costs ensures that an individual is able to determine how viable its business activity is or rather the value of its channels (Hofmann & Belin, 15). Therefore, in order for any business to succeed, it must ensure that its value chain analysis is as effective as possible in order increase the productivity margin which in the end will increase the company’s revenue.

A value chain framework for Williams Instruments Inc. to help in decision making

Value Chain Analysis by definition is a tool that is employed in analyzing the internal firm Activities of a company. In this case, Williams Instruments Inc. needs to recognize the most valuable venture of its operation since its primary goal of operation is to engage in the most profitable venture by identifying those areas that are underperforming in order to look for ways to improve on their performance. Owing to this fact, conducting a value chain analysis will be of utmost importance to Williams Instruments Inc. since it will help it identify where its competive disadvantages and advantages lie by evaluating its internal activities. However, when evaluating its value chain analysis, it must be noted that, Williams Instrument Inc. has realized its competive advantage through differentiation, excellent customer service and the reliability of its products.

Calculations,

The cost of operations process is $ 600 multiplied by the number of units (400) which will be equal to 240,000. Additionally since the purchased parts amount to 800 dollars and the total operations cost is 240000, the total cost of production by purchasing parts from outside is (240000 + 800) which will total to 240,800 excluding labor costs. If Williams Inc. chooses to manufacture the materials, then the cost will be 240000 plus (400 multiplied by 100) plus 500 (since out of the $ 800 material cost, $ 300 includes the cost of those material that can be manufactured at Williams Instrument Inc.) which will amount to 280,500 excluding the cost of labor. By outsourcing the materials from Matrix Concepts Inc. to help in servicing, distributing and marketing of the product, it would help Williams save $ 75, 000 in labor costs and monthly materials .However, the cost required to service , market and deliver the product will be equal to (125 multiplied by 400 units) which will amount to 50,000.

From the above calculations, it can be noted that, buying the material parts is a more viable venture since it will help Williams Inc. save, $ 39,700 (280,500-240,800) excluding the monthly labor costs. Although major activities of the company may add constant value to the organization’s production process, they are not basically more significant than the company’s support activities since in the modern times, a firm’s competitive advantage revolves around its innovative activities and technological improvements. Therefore, since outsourcing will help Williams save $ 75, 000 in monthly labor costs and materials when it comes to marketing, distribution and product servicing, Williams Instrument Inc. Should therefore, offer the contract to Matrix Inc. as explained in the table below.

Williams Instrument Inc. primary activities

Purchasing materials and components

Sales, marketing, and distribution (Matrix Inc.)

Manufacturing materials (Williams Instrument and Inc.)

Saves 39700 than manufacturing the materials

Saves $ 75000 in monthly labor costs and materials

Does not offer cost advantage as compared to other ventures

Offers cost advantage than manufacturing materials

Offers differentiation advantage

Therefore, of the three ventures, outsourcing to Matrix Inc. is the most profitable venture since Williams obtain competitive advantage from offering unique and reliable products to its customers. By so saying, it means that Matrix Inc. offers a more in terms of the quality and service to customers. Besides, Matrix Inc. helps save approximately $ 75, 000 in monthly labor costs and materials.

Qualitative and quantitave factors that should be considered when making the above decision

Quantitative factors

Quantitative analysis in value chain analysis plays a very crucial role in identifying the current company’s situation and inefficiencies that the company needs to address in order to increase competitiveness (Baker & English, 56). Additionally, it involves mapping the value added distribution patterns along the chain: determine the measure of profitability, production capacity, and productivity; as well as comparing the value performance of the company, the value chain against its competitors (Bidgoli, 32). Moreover, quantitative analysis basically deals with factors that offer a cost advantage to the firm. However, this approach is only employee in companies that compete on costs and want to basically comprehend the sources offering them a cost advantage and factors that drive those cost advantages or disadvantages. By so saying, since Williams Instrument Inc. derives its competitive advantage via product reliability and excellent customer services, cost advantage is not a priority to them as compared to service delivery and product reliability which fall under qualitative analysis.

In order to effectively perform a value chain analysis using quantitave factors, the following should be taken into consideration: First, the firms support and primary activities should be identified. By so saying, it means that, all the activities undertaken including storing and receiving of materials as well as after sales support should be identified and clearly separated from each other. In this case, the cost of purchasing materials, transportation, and the cost of labor employed will be considered prior to decision making of the most valuable venture. Second, the relative importance of each firm’s activity is also factored in while evaluating a chain value analysis (Baker & English, 56). By way of explanation, the total costs involved in producing the blood pressure measuring device is broken down in order to establish the viability and how profitable the venture is to the firm whether through manufacturing the materials or purchasing the materials needed to produce it. Third, another factor considered is identifying the linkage that exists between production activities. In other words, costs reduction in one production activity such as the costs of materials, distribution costs and labor costs may result into further costs reduction in the successive activities.

Qualitative factors

Qualitative factors are basically those factors that enable the company to compete on the basis of differentiation rather than cost. In this case, the source that offers a competitive advantage emanates from establishing unique and superior products, as well as satisfying customer needs by adding more customer related features which in one way or the other may result in a very high cost structure (Baker & English, 56). It is therefore important to look at the value creating activities of Williams Instruments Inc. when analyzing the viability of its value chains. One of the factors considered when conducting such kind of value chain analysis is identifying those activities that create value to the customers. In this case, it is important to concentrate on those activities that offer more value as compared to others (Bidgoli, 30). For instance, production of high quality instruments might not be enough to offer a competitive advantage, outsourcing to Matrix Inc. in terms of marketing and distribution may help Williams Instrument Inc. to have a competive advantage as compared to its competitors.

Another qualitative factor that may be used in value chain analysis is evaluation of differentiation strategies that are used to improve customer value. By so saying, it means that, those activities that focus on the responsiveness and service of customers, customization, as well as complementary products should be taken into consideration before choosing a viable value chain venture (Bidgoli, 33). For instance, by using Matrix Inc. in distributing and servicing of its products, Williams Instruments Inc. is able to save $ 75000 in monthly labor and material costs. Additionally, identification of the best sustainable differentiation strategy is also an important qualitative factor that is considered when conducting a value chain analysis (Baker & English, 56). However, as much as the best differentiation strategy will be a combination of interrelated activities, it is important to note that, the best combination of the available activities should be employed in such circumstances. In simple terms, changes in financial and cost structures of any organization may alter the effect as well as the implication of the value chain analysis based on differentiation strategies (Bidgoli, 36).

Conclusion

Value Chain analysis offers companies with an overarching technique for improving their resource allocation and strategic planning (Hofmann & Belin, 12). Additionally, the main objective of chain value analysis revolves around helping the management with enough and sufficient options in order to realize its competitive edge in a more dynamic business environment. Taking into consideration Williams Instrument Inc., differentiation and cost analysis via the value chain is significant in realizing the most profitable venture that offers a competitive edge (Baker & English, 56). However, it is important for a company to employ a more modern accounting technique or a value approach in chain analysis since it focuses on both internal and external activities of the company, employs the most appropriate cost drivers, and continues to monitor the chain of the company that provides competitive advantage. Therefore, value chain analysis is of utmost importance since it adds value to the company activities by identifying its strengths and weaknesses.

Work Cited

Baker, H. K., & English, P. Capital budgeting valuation: Financial analysis for today’s investment projects (2011). Hoboken, NJ: Wiley.

Bidgoli, H. The handbook of technology management. (2010). Hoboken, N.J: John Wiley & Sons.

Hofmann, E., & Belin, O. Supply Chain Finance Solutions: Relevance — Propositions — Market Value. (2011). Berlin: Springer Berlin.