Value chain
Generally, the value chain is a model of business integration showing the way that business activities are organised. This model is based around activities rather than traditional functional departments (such as finance). A key idea is that it is activities which create value and incur costs.
The activities are split into two groups: primary ones which the customer interacts with directly and can ‘see’ the value being created and secondary ones which are necessary to support the primary activities.
By identifying how value is created, the organisation can then focus on improving those activities through its performance measurement system (the dashboard at MS).
Another feature of the value chain is the idea of a chain. This is the thought that value is built by linking activities and so there must be a flow of information between the different activities and across departmental boundaries. In performance management terms, this will affect:
– information systems which will have to ensure good communication across functional boundaries and
– job descriptions and reporting hierarchies as these will have to reflect activities.
The chain does not stop at the organisation’s boundaries. This is likely to be obvious to MS given the importance of supply chain management but the value chain will allow the organisation to focus on those relationships on which value most depends.
Specifically for MS, the value chain would emphasise the importance of supplier management and lead times for new product development within inbound logistics, showing how this fed through to the launch of new products and relationships with distributors in outbound logistics.
The sales and marketing activity of MS is clearly one of its primary areas of value enhancement and its relationship with outbound logistics and the distributors of the products should be notable.
Although the chain shows procurement and technology development as secondary activities, they will be vital for MS. As MS does not currently manufacture their own goods, control of the price/quality balance of supplier relationships will be important and linked to the importance of management of the supply chain noted for inbound logistics.
As for sales and marketing,product (technology) development is one of the strategic areas of profit generation for MS and so should be treated as a keyarea for management activity and thus for performance measurement.
[Tutor note: This answer is lengthy as it tries to cover a large number of acceptable points which can be made in answering this part of the question.]
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