A benefit of customer complaints is that it offers insights on the things you might miss. When you think everything goes well, customers will not hesitate to tell you when something is not right. All the people would not like it when they became the subject of complaints. However, if you take advantage of these complaints and use it as an opportunity to employ Six Sigma project to improve the situation, you will find they will be far more profitable than you ever imagined.

It’s hard to make process improvement based solely on the information and opinions from employees or staff of your own company. This is because they feel bias about what is happening in the company. All brands may also have an opinion and the same view. Customers, however, is not biased in any way, and will provide frank explanations about what is really wrong, how can be improved, and what they expect from your service. So, accept complaints be happy because they will provide all the information you need for Six Sigma process.

Insight you get from customer complaints really valuable to your success. It was always seen as a negative thing for most companies, but there is no time like the present to accept the complaint and challenge your company to use the Six Sigma process to see what you can do better to make more satisfied customers and remain a client loyalty.

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Consumers are increasingly becoming aware of the quality of services being offered to them, making it essential for the services industry to implement quality improvement techniques like Six Sigma for conforming to customer expectations. This is especially true for the insurance industry where the relationship between the insurer and the insured is still largely governed by sustained personal contact. By implementing 6 Sigma programs, insurance companies have been able to offer quality services at affordable rates to their customers.

Identifies Key Business Processes

Unlike other quality management practices such as Total Quality Management (TQM) whose effectiveness is difficult to measure, Six Sigma based improvement programs make use of statistical tools, which can measure the effect of changes being made in a very short time. 6 Sigma focuses on process orientation, enabling organizations to identify key business processes that are necessary for improving customer satisfaction. This helps managers in understanding the exact requirements of their customers and in altering business processes to suit customer needs and expectation.

Follows A Disciplined Approach

Six Sigma has helped insurance companies in improving quality as well as reducing costs of services offered. It has enabled insurance companies to follow a disciplined approach, which has helped in preventing errors, minimizing hand-offs, and eliminating rework and workarounds. It has also helped in increasing the speed of business processes used in the insurance industry.

Helps In Making Informed Decisions

6 Sigma has enabled managers in taking informed decisions based on statistical data. With the use of Six Sigma tools and techniques, managers no longer have to rely on their perceptions or gut feelings for rendering the level of services promised to policyholders, clients, and prospects.

Helps In Building Customer Loyalty

6 Sigma emphasizes on understanding the needs of the customers before making any changes to business processes. This helps insurance companies in building customer loyalty among their policyholders, which is necessary for the long-term success of any business organization. Insurance companies can also hope to increase their market share, as satisfied customers are most likely to recommend a company that offers quality services while advising a friend, relative or business associate.
Helps In Reducing Costs

Six Sigma tools and techniques aim at streamlining business processes in such a way that helps in reducing costs. This helps insurance companies to improve their savings and avoid drastic cost-saving measures such as downsizing, which can have a negative effect on employee morale. It can also create doubts in the mind of policyholders and prospects as downsizing usually attracts a lot of negative publicity.

6 Sigma has helped the insurance industry in bridging the gap between planned strategies and actual operations by providing analytical and in-process performance measurement tools. These tools are used for comparing planned goals and objectives with actual outcomes and for finding the reasons as to why a particular business process is not giving the desired results. Once the exact problem has been pinpointed, managers can make the necessary changes that will help in improving overall quality of services rendered to policyholders and prospects.

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One of the most undervalued tools I learned, grasped, and forgot about for lack of use, is the SIPOC. Lately, I’ve been getting a lot of use out of it.

Our teams were faced with the daunting task of defining about 40 new organization-wide business policies.  These processes were paramount in getting sponsoring for a major initiative

How do you do this?  Well, that’s simple.  Doing it isn’t, unless you properly plan.  Your efforts don’t stop at planning, but convincing key people – higher up on the ladder most often than not – that your plan is the best.

A fool-proof way of doing this is demonstrating – preferably on one PowerPoint slide – how you’ll map these processes properly the first time and get everybody’s buy-in.

Out comes the SIPOC, a catchy sixties Star Trek-sounding acronym for a Vulcan illness.  Not quite so.  It is a smart acronym for Supplier, Input, Process, Output, Customer.

The SIPOC Identifies

1. Major tasks and activities
2. The boundaries of the process
3. The process outputs
4. Who receives the outputs (the customers)
5. What the customer requires of the outputs
6. The process inputs
7. Who supplies the inputs (suppliers)
8. What the process requires of the inputs
9. The best metrics to measure

Supplier – Know and work with your supplier.  Help your supplier improve.

Input – Strive to continually improve the inputs.  Make it easier to get it right the first time.

Process – Describe the process at a high level, but detailed enough so that an executive or a lay person would understand.  Mistake-proof the process.  Know it inside out.  Know what works.  Eliminate what doesn’t

Output – Strive to continually improve the outputs.  Be the best with metrcis!

Customer – Keep the customer’s requirements in sight.  Stay on target.  Remember the Critical to Satisfactions (CTS’).

sipoc

The great thing about the SIPOC is that it’s an excellent team building tool and I put emphasis on inter-departmental cooperation here.  Mapping processes at a high level is more than just writing ISO instructions or making flashy “Visios”.  I love the sound of crickets in front of eight noisy people in a closed room brought on by their awestrickeness when they see how long it takes to map a SIPOC – and that’s me doing it for them on the white board not really understanding in great detail what their individual tasks are.

SIPOC Explained

SIPOC Steps

1. We need to get a 50,000 ft. view of the process first
2. Identify the process in simple terms
3. Identify External Inputs (raw materials, employees, etc.)
4. Identify the Customer Requirements (Outputs) (required temperatures, lot numbers, etc.)
5. Make sure to include all value-added and non value-added steps
6. Include both process and product output variables

SIPOC Example

SIPOC Airline Example

Next Steps

Once you have an agreed upon and more importantly, understood, SIPOC – understanding the SIPOC implies that you can easily identify opportunities for improvement – you can proceed to the next step in process mapping.

Value Stream Mapping? Spaghetti Diagrams? Flow-Charting? Swimming Lanes Diagram?  It all depends on many things.  Stay posted.

Metrics

I want to conclude by suggesting that all processes you map, should be able to indicate which key metrics to measure and report.  Here are some pointers for the not so obvious.

• Measure things that matter – to our customer (Critical to Satisfaction)
• Measure consistency reduce and understand variation (Critical to Quality)
• Monitor and evaluate performance (Critical to Delivery)
• Measure conformance to the process
• Identify improvement opportunities
• Make your metrics practical and graphical
• The right metrics drive the right behaviors

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Applying Six Sigma methods will help you understand business impacts of arising problems and your subsequent decisions and understanding. 6S also brings clear understanding of the Voice of the Customer and drives the Customer Voice into your product designs.

6s also enables and empowers you to reduce variation by detecting occurrences of defects from a process or product. Some ways that this is done is by reducing complexity and better understanding the entire value chain, smoothing and streamlining the flow of value from our suppliers through you to your customers.

One of the strengths of Six Sigma is the application of SPC or Statistical Process Control. This doesn’t mean you need to understand complex math, arithmetic, or statistics. You will be gradually introduced to basic quality and statistics tools, however. SPC is where much of the data-driven decisions are based on.

The methods of Lean thinking provide an efficient way to reduce operational waste, save time, save cost, and extend capacity of valuable resources.

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Over the past year or so I’ve had the opportunity to work on service improvement projects with 5 large technically based businesses. This has enabled me to observe and advise and I think I now know some of the reasons why these anomalies occur. I’ve also had the opportunity to test and learn what works, so I have a few suggestions for fixing the key problems.

I think the root of the problem often lies in the way technically based organizations approach improvement projects. They are usually highly skilled in the application of Total Quality, Lean Principles, Six Sigma, and/or whatever other process improvement techniques they favor, so they understandably turn to them when confronted with the challenge of improving a service experience. These approaches are undoubtedly excellent for what they were designed for, improving a process, but they are not as good at improving a service experience, which they were not designed for.

I have found this ‘process improvement’ approach to service can create three issues when used. I call them Heartless Systems, Paralysis through Analysis and Foreign Language.

Heartless Systems

There are two key elements in any service experience – competence and character. Competence is the efficiency, accuracy, speed, value for money, etc., of the product and/or transaction; character is the friendliness, honesty, attitude, ease of use, etc., of the systems and people conducting the transaction. Competence is a science; character is an art. Competence requires the use of your head; character requires the use of your heart. And that is the crux of this first issue.

Technical people will have been hired, and perhaps promoted to senior positions, because they are great at using their head for science. It’s natural to them, they love doing it, they’ve probably studied it and have qualifications and maybe even won awards for doing it. But using their heart for an art does not come as naturally to them. It perhaps makes them feel uncomfortable and awkward, and therefore it’s something they are likely to avoid if possible. So they tend to develop systems that are very efficient but dull, perfect but boring, slick but heartless.

Worse still, they often assume that so long as the process is right, it doesn’t matter if the person delivering it to the customer isn’t. So they invest lots of time and effort into removing variances and/or inaccuracies from the product or process but don’t go on to ensure the customer service people have a ‘natural’ ability and are trained and equipped to do it superbly.

So the nature, training and experience of technical people can easily make them blind to the fact that the character element of any service experience is just as important as the competence (some would argue it is more important).

Paralysis through Analysis

If you’re an engineer, a scientist, or an accountant you love numbers, formulae, measurements, and analysis. That’s probably why you chose that profession. So when you decide something needs improving, the first thing you do is measure and analyze things, looking for the facts that prove what you should do and why you should do it. There’s nothing wrong with that, service experience improvements benefit from good analysis; but they need a lot more. They also need imagination, creativity, and experimentation, and this is the core of issue two.

The natural and understandable approach of technology based organizations and people is to over analyze any service improvement challenge. This can result in paralysis, because the precise proof of what needs to be done can’t be found, or even the death of the project, because people get fed up and lose interest doing nothing practical and/or something else that needs to be done comes along and takes precedence.

This is not the fault of the ‘analysts’, it’s just what they’ve been trained to do. It’s their standard approach which works for them in process improvement projects. But it’s too narrow an approach for service improvement projects, where it’s difficult to predict how customers will react to something they haven’t previously experienced, so the best way to find out is to keep testing and developing techniques that will create the desired results.

Foreign Language

It’s really tricky (maybe impossible) to get someone to comprehend something if they don’t understand the language being used. The language service improvement people use is basically different to the language systems or process people use. There are however similarities, and this creates the third issue because we can easily then be fooled into thinking we’re talking the same language when we’re not.

For example, the phrase ‘service delivery’ can mean very different things. Service delivery to a process person usually means providing what was promised, perhaps as defined by a Service Level Agreement or a Key Process Indicator. But service delivery to a customers service person means (or should mean) the total experience a customer has, which involves what any SLA or KPI says it should be (competence), but it importantly also includes the way it is delivered and how that makes the customer feel (character).

I’ve found that realizing this is important so that any foreign language issues can be addresses and potential problems overcome.

So what works?

So if those are the challenges, what have I found are the best ways to overcome them? My recommendations for success are as follows.

Create Systems with Heart

The goal is not to replace the science based approach with an emotional one, it is just to ensure that both key components, competence and character, are given equal prominence.

I’ve found that in all the organizations I’ve helped, there are always a few people that ‘get’ the emotional, character stuff. Often though, because they are surrounded by people that don’t get it, and maybe resist or mock it, they go native and keep their emotional side hidden in order to ‘blend in’. The key is to find them, ensure they have equal status on the planning and implementation teams, give them tools and techniques to work with that will help them find and develop the emotional customer connections and then encourage and recognize the part they are playing.

Turn Analysis into Action

There’s nothing wrong with doing some measuring and analyzing, it’s a good way to find where best to focus attention, the key is to ensure that it is used as a step towards taking some action and doesn’t become the only action that is taken.

So as soon as the results of any analysis start to show through, get people thinking of as many ideas for improvements as they can and then ensure they go and test them with customers to find the ones that work best. What’s important is to quickly find things that show success (‘quick wins’). They give a boost to morale, show the efforts are worthwhile and encourage people to carry on and perhaps start tackling the things that may take longer but will be worth the extra effort in the long run.

Find a Common Language

In his best selling book ‘The 7 Habits of Highly Effective People’, Dr Stephen Covey explained that one of those habits is to ‘Seek first to understand, then to be understood’. I think this is the best way to approach the ‘Foreign Language’ issue. Before you have any right to expect people to speak your language, you must first to make the effort to understand theirs.

For me this was not too difficult because my early career was spent as an electrical engineer. However I still needed to do a lot of studying of the latest process improvement techniques so as to feel confident talking to the likes of Six Sigma Black Belts and Lean Practitioners. But then I found I could express the service experience concepts in a language with terminology they were familiar and comfortable with. This enabled us to eventually find a ‘common language’ for service improvement in their organization that worked.

General principles

There are also a few general principles I’ve learned that are important to understand.  There are:

Prove the case – Science based people need proof before they will accept anything new. Just because you know something to be so is not enough for them, they need to find it out for themselves. It’s therefore important to be prepared for this and have the examples, case studies, existing customers, bench marks, etc., available as necessary. I have found that it’s hard (sometimes impossible) to make any worthwhile progress until the case for change is conclusively proven.

Transfer the knowledge – Technical people don’t want you to do it for them; they want to do it for themselves. So the best approach is to commit to helping them learn all the techniques (and their sources) so they can do their own research and decide for themselves which ones are most appropriate to their situation. (I have found that the Experience Engineer Black Belt Training I’ve developed can be really helpful with this)

Support the challenges – All change initiatives throw up unexpected challenges, no matter how much analysis and planning has been done in advance. It’s a step into the unknown, so precisely what will happen is obviously unknown. People therefore need to understand this, that’s it’s OK to stumble and flounder a bit as they get started and feel their way, and that there will be ongoing support and encouragement for them to find success.

Conclusion

This article posed the question is this a marriage made in heaven or a road to hell? My experience suggests that if the challenges are approached correctly this is definitely a marriage made in heaven.

The opportunities for technically based businesses to use service as a source of differentiation and competitive advantage are I believe, immense; especially in today’s ever more competitive markets.  It’s also a fact that in most markets, if one supplier gets a reputation for having a service experience that is substantially better than the competitors, it can lead to many other worthwhile business benefits. I would therefore encourage all leaders to investigate this and discover for themselves how they too could make service excellence a key element of their competitive strategy.

* Chris Daffy is one of the UK’s best known customer service fanatics. He is a Companion of the Institute of Customer Service and founder of The Academy of Service Excellence. His experience and expertise has taken him all over the world as a conference speaker and enabled him to work with organizations a varied as AXA, BAE Systems, Dorchester Hotel, Microsoft, Pizza Express, Toyota & Xerox .

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1. Perseverance
2. Patience
3. Approachability
4. Managerial Courage
5. Embraces the Voice of the Customer
6. Posses the potential and desire to have excellent communication skills (verbal and written)
7. Managerial Courage
8. You’re not easily intimidated or bullied
9. Ability not to freak out or panic when times get tough
10. Ability to prioritize and stay organized

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The need for continuous innovation is the result of growing customer demands and technological challenges.
Determine the Customer

The important point that arises here is which customer to listen to. There will be a large range of customers who are being catered to by most companies. For example a credit card company will have customers ranging from retired people, newly married couples, high earning singles, and so on.

They may even be miners, farmers or self-employed customers. Each segment will have its own demands, and the organization has to decide which voice to listen to.

Market Matrix

One way to decide which customer to listen to is by making a product or market matrix – a matrix of products and their targeted markets. This will help companies understand which products are suited to which market, and most importantly, the variance in the product lines which will provide a direction to the voice of the customer.

Some criteria to identify which market or product to use would be the market size, growth rate, the margins in the product, market share and the competitiveness of the product. The Six Sigma team can identify the problem by talking to the customers and employees, compute the cost of these problems and identify the solution to remove these problems in the beginning. The positive result from this is an increase in profitability and the building of loyal customers.

Elimination of products from the Six Sigma project would be done depending upon the outcome of this study. For example, home mortgages would be suited for new married couples and high earning singles more than retired customers. Not that they would not be useful for retired customers, but Six Sigma efforts will have to be based on the voice of the other groups of customers.

In short, the Six Sigma project will not invest in the retired customer segment as much as married couples or self-employed people.

Value for Money

Customer satisfaction is not the voice of the customer. It is not linked to market performance. Happy customers may not necessarily be loyal customers or profitable ones. In spite of having good scores in customer satisfaction, some companies have realized that their market share is down.

To increase market share, prices don’t necessarily need to be reduced – but companies do need to check if they are giving value. Between quality and price, what the customer wants is value, and value proves to be the best forecaster of market share.

For Six Sigma initiatives to succeed, knowing which customer to listen to is most important in developing a consistent long-lasting strategy. Giving value to the customer means adopting new improved strategies that are aligned to the organization’s objectives.

Tony Jacowski

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At its recently hosted third annual Vendor Collaborative Summit in Atlanta,
Transplace and attending CPG customers identified the most pressing issues and
trends, including:

* Overall Cost Management
* Sustainability
* Inventory/Transportation
* Truckload Capacity, Market Conditions
* Changes in Network Tours
* Budgeting for 2010

Vice President of Value Chain Research for AMR Research, Lora Cecere said: "The
key for success in this economic environment and beyond is to look from the
outside-in. By viewing logistics from customers` eyes through the process, we
can better plan for forecast accuracy, which includes product launch and the
design of networks." 

Her example of success was demonstrated in the AMR Research Supply Chain Top 25
list. The majority of the companies that meet the required ranking in criteria
are IT companies, with only a few CPG companies represented, including
Colgate-Palmolive. 

"Most CPG companies have the capability and talent, but they also have longer
cycle times and more touches than IT companies, which leaves more room for
errors and inefficiencies," said Transplace vice president of operations Mark
McEntire. "There is definitely an opportunity for driving out the waste when
planning and designing the supply chain for the 2010 market. The drive for
supply chain excellence requires balance of return on assets, measured inventory
turns and consistent revenue growth. Most companies need assistance in at least
one of those areas." 

Driven by economic pressures, CPG companies are laser focused on driving cost
out of the supply chain. Transplace assists by measuring across all of their
customers the cost vs. benchmarks on a weekly basis. The company`s Lean Six
Sigma projects address the costs and identify areas for improvement. In
addition, this process is assisted by the company`s Microsoft Business
Intelligence dashboards, providing much-needed visibility to costs as well as
key performance indicators (KPIs). 

As sustainability was a focal point of the meeting, it continues to be an
important topic for CPG companies, not only for their social responsibility
goals, but also because of Wal-Mart`s recent announcement of its Sustainability
Index and survey for suppliers. Transplace is a strong supporter of sustainable
practices, especially where it makes economic sense for customers. In the past
year, Transplace has become one of only three third-party logistics companies to
win the EPA`s SmartWay Excellence award. In addition, Transplace helps its
customers such as Sunny Delight Beverages Company attain the SmartWay seal of
approval. As it gains momentum, Transplace is prepared to assist more companies
with preparing for the sustainable movement. 

About Transplace

Transplace is a non-asset based third-party logistics (3PL) provider offering
manufacturers and retailers the optimal blend of logistics technology and
transportation management services. From complete logistics management
outsourcing to intelligent transportation management systems (TMS) to supply
chain network planning and design to high-quality brokerage services, Transplace
has proven the ability to deliver both rapid return on investment and consistent
value to customers. The company is recognized among the elite 3PLs in North
America by a customer base that includes many of the largest shippers in the
world. 

In 2009, Transplace was awarded with the Global Logistics and Supply Chain
Strategies "100 Great Supply Chain Partners" distinction for the sixth
consecutive year and by Supply & Demand Chain Executive as a "Top 100" provider
in supply chain transformation for the fourth consecutive year. In addition,
Transplace was recognized by Inbound Logistics as a Top 10 3PL for the seventh
consecutive year. To learn more about Transplace and the people behind "I Am
Transplace," please visit www.transplace.com. 

Suzy Watson
sgwatson@outlookmarketingsrv.com
312-873-3423
or
Kecia Gray
kecia.gray@transplace.com
214-277-1667

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The Six Sigma management practice had its origin at Motorola in response to the challenge posed by its Chief Executive Officer back in the early part of the 1980s. He wanted the company to reduce its product-failure rates tenfold within the next five years. The Motorola CEO issued this challenge because the company was consistently defeated in the competitive marketplace by its foreign competitors that produced higher quality goods at lower costs. It was only in the middle of the 1990s that the company revealed how it was able to achieve their objective of eliminating defects in their manufacturing process. Since then, many manufacturing companies have adopted the quality improvement framework used by Motorola. The main goal of Six Sigma is to improve the level of customer satisfaction. Over the two decades that it had been practiced, the definition of Six Sigma had evolved. Some consider it as only a metric while others consider it a methodology or management system.

The Six Sigma management approach contends that with improved customer satisfaction, a company will benefit from increased profits, and at the same time, enjoy reduced costs that arise from defective products and processes. Aside from being a crucial factor in achieving customer satisfaction, reduction, and elimination of defects, it also influences such factors as high product quality, cost minimization, and schedule adherence. In order to achieve the goal of defect-free products and processes, the Six Sigma methodology is designed. The steps for this approach are “define”, “measure”, “analyze”, “improve”, and “control”. Usually, an improvement team is formed and tasked to oversee and identify processes, define what will be considered a defect, and come up with applicable measurements.

The “define” stage of Six Sigma requires the benchmarking of processes that need to be improved or its division into sub-processes. Potential effects of any organizational change are also studied at this stage. Once processes or projects have already been defined, it is easier to proceed to the succeeding Six Sigma steps. The use of certain performance measures or Six Sigma metrics is also crucial so as to easily monitor and assess the improvements undertaken. When choosing which metrics to use, it is important to distinguish and determine those that have an effect on the end result. Moreover, the use of the Six Sigma principle require that “quality” be given a new definition as is applicable. Quality is generally assessed through two concepts namely, actual quality and potential quality. Actual quality is defined as the current value added for each input unit. Potential quality, on the other hand, is the determined maximum value added for each input unit. The difference between these two is considered “waste.” In relation to Six Sigma metrics, the costs that are proven to be of no value to customers are eliminated. Quality is improved by reducing waste thereby, allowing organizations to produce goods and services faster, better, and cheaper.

by Sam Miller

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Concept of Value

Commonly, value pertains to the ratio of the benefit received relative to cost or expenditures. Benefit in turn is usually perceived as customer satisfaction or quality of products and services offered to consumers. Cost or expenditures cover both monetary and non-monetary costs arising in business activities. ( 1998) The wide ranging definitions of value and its components benefit and cost implies that for a business firm to achieve value it should be able to establish a definition of value according to its business context. It is only after developing a context-based definition of value that the business firm can define activities targeting the maximization of benefit and the minimization of cost to achieve high value.

Value Added

Value added comprises a concept that determines the approach to a specific business activity. This is based upon the perception that business firms should allocate resources, time and effort towards activities that increase the value of a company, brand, and products or services as well as eliminate the activities that decrease value. ( 1999) There is no existing generally accepted definition of value added but this is generally understood as the description for the achievement of business firms of their targeted level of value creation for the firm, brands, and products or services.

Moreover value added holds two fundamental components, which must arise for the company to claim that it has successfully enhanced value. One component is relevance. Relevance encompasses the areas of company vision, firm objectives, customer characteristics and expectations, and the production and delivery processes. ( 2000) Regardless of the activity, asset or product affected by business activities, these should be relevant to the needs and objectives of the company. It is in these areas that the activity directed towards value enhancement should be aligned. The other component is quality, which refers to the completion of value linked activities to the specific requirements of the firm or the task. If quality is below requirements, then there is a probability that the company will incur reworking cost while if the quality is above requirements, then the company may be incurring costs greater what is necessary to achieve the same result. ( 2000) Quality assessment may be done through the consideration of product usage, process defects, and brand image. If these correspond with the specific requirements, then the firm has optimized derived value.

In addition, value added constitutes a measure for certain business activities. This measure may be used as indicator of income shares of different chain links or international markets. Income share of chain links in production refers to the difference in the breakdown of expenditures relative to selling price with a higher difference indicating higher measure of value. Income shares of international markets pertain to the distribution of value in different countries determined through export-import data and reports from key informants, with a wider international market distribution indicating greater value. ( 1990)

Value Adding

After developing a context-based definition of value and the determination of value adding measures, global firms need to understand value adding in order to know the ways in gaining targeted value. Value adding generally pertains to the process of enhancing firm, brand or commodity value and specifically refers to actions or tasks under a process intended to meet all the values, as defined and perceived by consumers without wasting resources ( 1990). The idea of value adding is determining the ways to enhance the value of the company, brand or commodity relative to the needs and objectives of the company ( 2000).

Key Value Adding Activities & Competitive Global Positioning

There are a number of value adding activities available to business firms, including activities that generally apply and activities related to global positioning.

These value adding activities relate to various areas of operation aligned to particular competitive positioning goals.

(1990; 1998) developed the value chain concept [See Figure below], which categorizes the different generic value adding activities of firms. There are primary and support activities through which business organizations can achieve value adding.

Source:

Primary Value Adding Activities

Primary activities include 1) inbound logistics, 2) operations (production), 3) outbound logistics, 4) marketing and sales, and 5) services (maintenance).

Support activities comprise 1) human resource management, 2) administrative infrastructure management, 3) research and development (R&D), and 4) procurement. The overall goal of engaging in these value adding activities is the provision to customers of a value level that exceeds activity costs so that the endeavour leads to a profit margin.

Inbound logistics refer to activities of receiving and warehousing raw materials together with the distribution of materials to the manufacturing process as these become needed ( 1990). An example of inbound logistics activity is the establishment of the warehouse contiguous to the manufacturing plant to make save time and money in transferring raw materials from the plant to the warehouse. In doing so, the company is able to increase its profit margin by decreasing expenditure relative to revenue. ( 1998) Dell Computers is one company that utilizes inbound logistics as a value adding activity. The company locates its warehouses as near as possible to its assembly plant in order to make it easier for the assembly plant to pull out or exchange parts whenever necessary.  Also, since Dell has several assembly plants in different parts of the country, there are also warehouses in every assembly plant location equipped with all the parts that the assembly plant is expected to need. ( 2003) This allowed Dell to achieve a leadership status in the global marketing of custom-made computers based on the accuracy and speed with which it meets customer demands.

Operations refer to the activity of transforming raw materials into finished commodities for delivery to consumers with the application of cost efficiency ( 1990). An example of value adding through operations is the utilization of quality measurement systems monitoring the flow of manufacturing process to determine any possible flaws in the process and identify the particular production stage where these arise. Detection is made at the earliest possible time giving plant managers time to correct the flaw so this will not affect entire product batches that increase wastage. ( 2000) One quality measure is Six Sigma that developed as an aggregate strategy involving process deployment and methodologies. Process deployment refers to leadership and task organization geared towards the minimization of defects in the production process while methodologies involve the stages that managers and employees should follow in improving or developing new products and processes. ( 2004) Six Sigma has been utilized by a number of global companies in their operations as a means of value adding. This concept was initiated by Motorola to link its quality management strategy with its business context to achieve optimum levels of quality with minimal or zero defects. With the alignment of business needs and objectives with quality management, Motorola was able to improve its quality performance and propel the company as a global brand in mobile communications ( 1991). Ensuring quality through minimal or zero defects in mobile devices then constitutes an example of value adding activities in operations. General Electric and Honda also engaged in Six Sigma to achieve very minimal levels of defects in their products and add value to the brand and products in the global market to ensure them a top if not a leadership position in global competition. ( 2001)

Outbound logistics pertain to the storage in warehouses and distribution of finished commodities to the market ( 1990). Achieving value adding through outbound logistics refers to storage and pull-out organization as well as networking with the production, sales and distribution areas of the company to support fulfillment. This means that the activity involves organization as well as linkage. Organization involves the assignment of common codes to different products coupled with the location of products within the warehouse that allows ease in pull-outs. Linkage pertains to the sharing of information and confirmation in an accessible manner especially in global operations with large-scale warehousing and distribution activities. ( 1999) An important tool for adding value through outbound logistics includes innovations in information and communications technology (ICT) that allows network-based organization and linkage. Many global companies holding top or leadership positions in various industries have engaged in ICT tools in their outbound logistics. Common ICT tool involve a networked communications for purposes of file sharing, status monitoring, and fulfilment reports with information classified into general and authorized access. ( &  1998) Dell Computers has a full networked outbound logistics operation that encompasses the logging of orders and invoices on the computer for the warehouse personnel to determine which computers to pull out from storage for packaging and other preparations prior to delivery. The warehouse personnel then log the status of fulfilment whether the computer has been duly packaged, delivered and received by the customer. In this way, top management are able to monitor the process of production to actual deliver and ensure that what was delivered is exactly what the customer ordered. Dell is able to minimize complaints and returns that could add to cost. ( 2003) Customer satisfaction comprises the value that Dell is able to achieve in its outbound logistics.

Marketing and sales pertains to the consideration of customer needs together with generation of sales ( 1990). These value adding activities encompass market research, product development, marketing, and customer relations. Value accrues to the company, brand or product when the business firm is fully knowledgeable about what its target market demands and requires from the industry within which the company belongs and the firm is able to translate this information into fulfilment that in turn results to customer satisfaction. ( &  1999) When customers get what they demand at the price they are willing to pay and within the time they require, then value accrues to the company, brand or products. In doing so, companies are able to establish a market base that is required in enhancing firm position in a competitive global business environment. Moreover, the market base could support the exponential increase in customers when satisfied clients spread the word about the company to family members, friends, co-workers and neighbours who would do the same. In the long-run, the company increases its market base relative to global competitors. The company is able to not only establish its presence in the global market but it is also able to hold a relatively advantageous position coinciding with a higher profit margin.

One way of adding value through marketing and sales is through the application of customer relationship management (CRM) requires the company to collect, store and analyze customer information for purposes of determining and evaluating market strategy. Customer relationship management involves several aspects, including operational CRM that involves the automation of customer processes through service representatives, collaborative CRM such as through the direct communications with consumers, analytical CRM that involves the consideration of consumer information for particular purposes especially predicting consumer purchasing behaviour, and active CRM that involves the utilization of technology that supports comprehension and automation. ( 2002) Through the application of CRM, global business firms are able to connect and establish good relationship with customers resulting to company, brand or product patronage and customer loyalty that propels the global firm into an advantageous position in the international market relative to its domestic or international competitors.

Service covers the provision of support to customers after product or service delivery and acceptance ( 1990). This adds value to the company, brand or product by continuing the relationship with customers to ensure that they experience optimum benefits from the product or service that leads to their positive outlook of the company, brand or product (. 2002). Commonly, adding value through service is achieved through customer service that involves the assignment of personnel to meet the after sales purchase and technical issues of customers as part of customer satisfaction. With positive feedback from customers, firms are able to have loyal customers who support the company, whether directly or indirectly in promoting the company, brand or product in the market that results to more customers. Greater market saturation means higher profit margin, which is a measure of the competitive position of a company, brand or product in the global market ( 1990).

Value Adding Support Activities

The primary value adding activities constitutes a value chain, which means that these constitutes linked and continuous activities geared towards value adding. To tie-up the primary activities, there are support activities that business firms can engage in to give way to value adding.

Firm or organization infrastructure refers to the structure of the company, its control systems and company culture ( 1990). Optimizing value for the company, brand and product starts within the company. It is important that the organization is structured in a manner that supports quality enhancement with cost efficiency through the rationalization of the organizational structure, by preventing a number of personnel doing the same task when only one suffices. Through rationalization, the company is able to direct resources towards the implementation of the primary value adding activities. ( 2004)

Another related support activity is human resource management that involves the selection, hiring, training and compensation of personnel ( 1990). Key to this activity is matching personnel with job requirements together with the provision of training to ensure enhanced knowledge and skills that enables the company to ensure quality by minimizing mistakes ( 2004).

Technology development also supports the application of the primary value adding activities by providing tools with which companies facilitate communications and collaboration to ensure that the entire organization is working towards the same goal of adding value. ( &  1998)

Procurement refers to the support activity involving the purchasing of inputs including raw materials, equipment and other supplies (1990). This is covered by supply chain management, which involves meeting the input needs of the company through the selection of input sources offering quality with reasonable price so that the company can integrate inputs with its processes to meet customer requirements with utmost efficiency (1999). This adds value to the company that supports its achievement of an advantageous position in the global market.

Overall, these value adding support activities enable the company to achieve optimum value by integrating primary support activities towards the direction of meeting customer satisfaction.

Conclusion

The goal of applying the value chain is towards the maximization of the profit margin of the company. Although value encompasses monetary and non-monetary factors, the most common measure of determining value of the company, brand or product is through profit margin. Profit generation relative to cost and revenue values depends upon the effectiveness of the firm in performing the value adding activities covered by the value chain ( 1990). With great value, the price that consumers are willing to pay for the products and services offered by the company turns out to be greater than the cost of production. The difference between the price paid by the company and the cost of production determines the extent of profit margin of the firm. ( 2004) A higher profit margin then means greater value coupled with cost efficiency. Through the context-based application of the value chain, firms are opened to the opportunity of creating superior value.

Effectiveness of the value chain implementation also determines the core competency of the firm, which are differentiation, cost leadership or a combination of both. Differentiation means that the company is able to provide value that is unique from its competitors giving the firm a significant market share while cost leadership means that the company is able to offer a product similar to its competitors at a lower cost because of efficiency value. ( 1998) It is then these core competencies that determine the relative position of the firm in the global market. To achieve a top or leadership position, the company should effectively implement these value adding activities to derive superior value expressed in differentiation, cost leadership or a combination of both that solidifies the status of the company, brand or product in the international market.

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