Article

Value Chain Analysis in interfirm relationships Henri C.Dekker

Click to edit Master subtitle style Mariyanti Abdul Majid (809135) Syaratul Ain abdul aziz (807462) Teo Chai Lie (809173)

30 Jun 2012
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Interfirm Relationships

New challenge for management accounting(MA) Is the provision of information for the coordination and optimization of activities across firms in a value chain Value Chain Analysis(VCA) useful tool Few empirical evidence recorded in written form
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Case study on the use of Activity-

Intoduction

In the Past, very little attention on Interfirm relationships on the agenda of MA researchers and only recently more attention given for the accounting literature Why? Due to the implication for organizational design and management control within and between organizations based on decision making 7/5/12

Cont.

Focus the use of VCA in buyersupplier relationships for coordinating supply chain interdependence (J.Sainsbury and its suppliers) Porter VCA is to analyze the value chain for strategic improvement Shank & Govindarajan core idea of CVA is to break up the chain activities that runs from basic raw 7/5/12 materials to end-user customers into

Cont.

Case analysis How J.Sainsbury used VCA to manage the supply chain in cooperative relationships with suppliers Sainsbury has developed an ABC model to support its SCM practices with a group of suppliers no empirical evidence published

In-depth of description of interfirm cost management practices is provided and key features of Sainsburys VCA practices are identified

Case observation based on organizational 7/5/12 theory and transaction cost economics

Part 1

Management accounting in interfirm relationships Value chain analysis as a coordination mechanism in interfirm relationships
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Managing interdependence in the CV Accounting information for VCA Performing a VCA The hazards of VCA in interfirm relationships Empirical evidence on CVA

Management accounting in interfirm relationships

Seal et al.(1999) important roles of MA in interfirm relationships

To make-or-buy decision that can lead to the initiation of a partnership The use of management accounting in the actual management of a partnership The partners responsibilities to each other, which creates a role for performance measurement

Tomkins(2001) the use of 7/5/12 information in interfirm relationships

Cont.

Gulati and Singh(1998) purposes of governance in interfirm relationships

i.

The coordination of interdependent tasks (organization theory Thompson 1967)

The need for coordination varies with to the degree of interdependence and the uncertainty of tasks performed within the interfirm relationship -Thompson, 1967 Creation of value by interfirm coordination The greater the task interdependence and uncertainty, the more coordination is required -Thompson, 1967

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Cont.
ii.

The management of appropriation concerns (transaction cost economics Williamson 1985)

Partners in interfirm relationships need to safeguard their interests against the potentially opportunistic behavior of the others Manage it in related to the charecteristics of the transaction taking place and characteristics of human being Trust in the others goodwill is an important informal control mechanism that adds the partners level of confidence that opportunism will not occur, and thus influences the level of formal control required Information required to warrant trust as Type 1 information (Tomkins 2001)

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Cont.

Require the use of control mechanisms and can have significant implications for the role of management accounting in interfirm relationships SMA the VCA is a technique that can play an important role in the management of supply chain relationships (based on the concept of VC) Dekker, a VCA is used to analyze,

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VCA as a coordination mechanism in interfirm relationships Managing interdependence in the VC

Porter (1985) strategic cost analysis, to better manage linkages between buyers and suppliers in VCA Type of relationships in VC a) Relationships between activities b) Relationships between Business Units of the firm c) Relationships between firm and its buyers and suppliers (vertical linkages) Can reduce costs and to enhance differentiation Thompson (1967) interdependence needs to be managed by Click to edit Master subtitle style coordination mechanisms, in order to achieve efficient and effective outcomes VCA is a structured methods to analyze the effects of strategically important activities on the costs or differentiation of the VC CVA is a mechanism that facilitates the optimization and coordination of interdependent activities in the VC, which may cross organizational boundaries

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Cont.

Accounting information for VCA

v

Porter, 1985 traditional accounting systems unable to adequately support VCA Shank, 1989 fundamental problem of the value added concept is that it start too late and it stop too soon. Hergert and Morris, 1989 deficiencies of traditional accounting systems
i. ii.

Do not focus on critical activities Do not account for interdependence between activities

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Cont.

Performing a VCA

Interdependence between activities of buyers and suppliers To analyze the behavior of costs and the sources of differentiation Develop and maintain competitive advantage use the outcomes of the analysis to control cost drivers better than competitors do or to reconfigure the VC

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Shank and Govindarajan either by reducing cost while keeping value constant, or by

Cont.

Empirical evidence on VCA

Limited and ambiguous a frigment of academic imagination (Lord 1996) Survey evidence on SMA and VCA practices, but the adoption rates are based on global descriptions of the VCA methods, no insight is gained into what these practices actually consists of Internally oriented VCA not an analysis

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Part 2

The use of VCA by J.Sainsbury

Research design SCM at Sainsbury A cost model for VCA

The initiation and goal of the model The design of the model The content of the model The use of the model An example of a supply chain analysis Decision making and negotiations

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Part 2

The use of VCA by J.Sainsbury

Research design SCM at Sainsbury A cost model for VCA

The initiation and goal of the model The design of the model The content of the model The use of the model An example of a supply chain analysis Decision making and negotiations

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Research Design

An interview in three different topics

Company information The management relationships with suppliers & SCM practices The cost model

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SCM at Sainsbury

Founded or came to UK in 1869 Sainsbury is the 2nd ranked in supermarket chain in UK after Tesco Market share 16.1 in London Stock Exchange Over 23,000 products and 4,000 suppliers Around 1993;
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cooperative relationship with

SCM at Sainsbury

In 1998;

Comprehensive MIS-system called SIDto coordinate activity with suppliers SCM supported by Logistics Department 3 types of suppliers:

Core suppliers-major impact, SID to exchange info Middle-large suppliers-cross-docking Small-suppliers-little impact,small products,EDI(web based)

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A cost model for VCA

The initiation and goal of the model

Until 1996, cost of supply chain were based on the yearly distribution costs (lack of control, hi cost, little information, interdependent xtvt very low) Sainsbury senior management requested Logistic Department to develop ABC For greater u/standing of total supply

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A cost model for VCA

The design of the model

Included are all xtvts involved from end supplier production line to supermarket shelf Costs of both parties were allocated to xtvts This model considered the costs of xtvts in the supply chain

Analyze costs from different perspective(eg: supplier network, 7/5/12

Scope of cost model

Supply chain structure

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A cost model for VCA

The content of the model

36 participate suppliers are were mainly core suppliers because of the large volume and leads to large benefits. Suppliers have to provide a reliable cost data and cost driver quantities

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A cost model for VCA

The use of the model

After data updated, cost analyses can be perfomed Suppliers-received part of the analyses (incl. own xtvt costs, Sainsbury xtvts costs related to them, average xtvt costs of supplier network) Discussions(Sainsbury & suppliers)-three types of analyses:

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Benchmark analyses-compare supplier vs network

A cost model for VCA

An example of a supply chain analyses

Plastic crates for chilled products Sainsbury & large suppliers discussed about the use to improvise efficiency of product handling xtvts The model were used to calculate cost consequences of adopting or not Benchmark analyses shows differences and cost adv for adopting suppliers Strategic what-if analyses analyze

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A cost model for VCA

Decision making and negotiations

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Discussion

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Discussion

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Discussion

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Discussion

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Conclusion

How firms attempt to manage interdependence in the value chain using cost information and which obstacles they may encounter in the efforts. Integrated cost date was used for 3 specific purposes

To analyze the cost performance of supply chain activities To calculate the cost consequences of changing supply chain operations

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