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Cocoa Value Chain Analysis

Seminar Paper 2018 14 Pages

Business economics - Accounting and Taxes

Excerpt

Content

1 Introduction

2 Value Chain according to Porter

3 Concept of Global Value Chains

4 The Cocoa Supply Chain

5 Analysis of the Cocoa Supply Chain

6 Interpretation of Results

7 Conclusion

8 Bibliography

1 Introduction

The aim of this paper is to apply the basic principles of value chain analysis to chocolate production. Although the underlying chain of activities is presented as a mere supply chain, the analysed data are expanded by assumptions about the respective imputed in­terest charge for each member. It offers good insight into the values created by the sev­eral participants, and challenges the general believe of an unfair profit distribution along the value chain.

In the literature reviewed for the paper, the terms "value chain" and "supply chain" are often used synonymously without a clear definition for the one or the other. In the under­lying paper and according to the definition used in the course Financial Value Chain Con­trol, the supply chain concept focuses on the optimization of material flows and logistics, whereas the value chain concept expands that model by profit and value creation factors. Different to pure supply chains, the optimization of a value chain requires a global coord¡- nation function by a member of the chain (the so-called focal enterprise) or by an exter­nal unit like a consulting firm, as "the participating partners are often unable to recognize their individual contribution to the end product"[1].

The paper is structured in two parts. The first part summarizes the theoretical concept of value chains whereas the second part focuses on the analysis of the value chain of choco­late production in particular. Interestingly, neither the relative profit contribution nor the relative value creation for the first stage of the supply chain, i. e. the farmers, is as low as generally reported.

2 Value Chain according to Porter2

Porter defines the value Chain as a collection of activities that a firm operating in a specific industry performs to design, market, deliver, and support its product.[2][3]The value chain concept is a framework that helps to analyse which activities drive a company's value ere- ation. The idea of the value chain is based on the process view of organisations: A manu­facturing (or service) organisation is seen as a system made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and out­puts involve the acquisition and consumption of resources - money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines cost and affects profits. The profit margin is the result of the value created and the cost of creating that value.

illustration not visible in this excerpt

Figure 1: “Corporate Value Chain”, Wheelen, Hunger (2008), p.113, adapted from Michael E. Porter "Competitive Advantage"

Most organisations engage in hundreds, even thousands, of activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities that all businesses undertake in some form.

According to Porter, the primary activities are:

- Inbound Logistics: This activity involves relationships with suppliers and includes all the activities required to receive, store, and disseminate inputs.
- Operations: are all the activities required to transform inputs into outputs (prod­ucts and services).
- Outbound Logistics: This activity includes all the activities required to collect, store, and distribute the output.
- Marketing and Sales: M&s activities inform buyers about products and services, in­duce buyers to purchase them, and facilitate their purchase.
- Service: includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered.

Secondary activities are:

- Procurement: Procurement is the acquisition of inputs, or resources, for the firm.
- Human Resource management: consists of all activities involved in recruiting, hir­ing, training, developing, compensating and (if necessary) dismissing or laying off personnel.
- Technological Development: pertains to the equipment, hardware, software, pro­cedures and technical knowledge brought to bear in the firm's transformation of inputs into outputs.
- Infrastructure: serves the company's needs and ties its various parts together, it consists of functions or departments such as accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management.

While value chains have been recognized as the best business model for creating sustain­able competitive advantages, their success relies on the involved functions sharing a com­mon vision and common goals.[4]

3 Concept of Global Value Chains

The model of the (corporate) value chain that has been introduced in the previous chap­ter can also be translated into a global value chain of independent players cooperating for the special purpose of producing a certain product or service.

illustration not visible in this excerpt

Figure 2: “Global Value Chain”, Weiblen (2017), slide 29

A globalised and more and more integrated business environment places high importance on the challenge of managing time, quality and price efficiently. Additionally, shorter product life-cycles and development times require companies to focus on their specific core competencies. With increasing international competition and a lesser degree of the companies' vertical integration[5], the activities of the corporate value chains become ex­panded across companies' and countries' borders turning it into a global value chain.

Secondary activities are outsourced to partners who are specialists in their areas of com­petency, thus taking advantage of the respective strengths and making the resulting value chain competitive. The battle between companies turns into a battle of value chains.[6]

[...]


[1]Weiblen (2017), slide 26.

[2]­Cambridge University: Institute for Manufacturing (2018).

[3]­See Porter, Michael E. (1985), p. 36.

[4]See Felfel (2011), p. 3.

[5]­See Metze (2010), p. 1.

[6]­See Poluha (2010), p. 4.

Details

Pages
14
Year
2018
ISBN (eBook)
9783668684362
File size
1001 KB
Language
English
Catalog Number
v420490
Institution / College
Pforzheim University
Grade
1,0
Tags
Value Chain Financial Value Chain Global Value Chain Value Chain Controller Analysis

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Title: Cocoa Value Chain Analysis