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ValueMathics THE MAGIC PALLET Every time a shipment sails to its final destination, seller and buyer have done business because the transaction ©2004of TGVC represents a value for each them. The same applies whenever a service is delivered to the buyer Then again, seller and buyer have different perceptions of “value”. “The Magic Pallet” explains the different elements of those perceptions. Value COST OF MEANS SELLER COST OF OWNERSHIP VALUE ADDED BUYER PERCEIVED BENEFITS SELLER For the seller, value is the sales price of his goods minus the cost of means (fixed and variable costs); the net profit on the transaction Seller’s sales/buyer’s purchase price Value COST OF MEANS SELLER COST OF OWNERSHIP VALUE ADDED BUYER PERCEIVED BENEFITS SELLER For the seller, value is the sales price of his goods minus the cost of means (fixed and variable costs); the net profit on the transaction BUYER For the buyer, value is the worth in monetary terms of the perceived benefits in return for the price he pays plus the additional costs incurred, called “total cost of ownership”. This is the “value proposition” of the seller. D EE SP Q UA L IT Y ValueMagics uses concise concepts with precise descriptions to identify the elements that constitute the value proposition of a firm CUST OMER VALU ES CHANGE CHANCE COST OF OWN ERSH IP UE L VA ED D AD E IMAG DESIGN Let us first agree on some definitions…. CUSTOMER VALUE VALUE CHAIN The chain of activities performed by a single firm, which add value for its customer The sum of perceived benefits – in monetary terms- in turn for the total cost of ownership TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT TECHNOLOGY PRODUCTION LOGISTICS MARKETING TECHNOLOGY SUPPORT PRODUCTION LOGISTICS MARKETING TECHNOLOGY SUPPORT PRODUCTION LOGISTICS MARKETING SUPPORT VALUE COST OF OWNERSHIP The set of value chains that come together including suppliers, manufacturers processors, distributors, traders, etc. PERCEIVED BENEFITS VALUE SET We now can start loading the pallet…… The costs of means are the comparative resources of a firm or sector. MATERIALS MACHINES MAN POWER MONEY MINDS For most, these costs are a given - hard to improve upon BUYER SELLER MINDS MONEY MAN POWER MACHINES MATERIALS = = = = = Cost people with a higher education and/or creativity. Cost of own financial resources or financing Cost of skilled, proficient or experienced workers Cost of machines, infrastructure and other means. Landed cost of raw materials, seeds, ingredients a/o The second crate……. ……..…..contains the value added; the value chain of a firm or sector, which is the source of competitive advantages. TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT Not the comparative “What do you have?”, but MATERIALS MACHINES MAN POWER MONEY MINDS “What do you do with it?” BUYER SELLER TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT = = = = = Creating new, developing or adapting existing products Transformation of inputs into a final product All in-bound, in-house, out-bound movement of goods Attracting new and retaining existing customers All pre/after sales support, personalization of processes This is the value proposition of …… COST For the buyer, that value proposition has two sides: his total cost of ownership…….. MATERIALS CHANCE CHRONO CONFLICT BUYER SELLER COST CHRONO CHANGE CHANCE CONFLICT ….the seller to the buyer. CHANGE MACHINES MAN POWER MONEY MINDS TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT = = = = = Purchasing price on a DDP basis Time involved in purchasing, control and corrective actions Change and adaptation to new products, processes or suppliers Number of potential suppliers, reliability, barriers, distances Disputes on incompetence, unresponsiveness, non-transparancy MATERIALS CHANCE CHRONO ……………..perceived benefits from the purchase. These benefits can be of technical, social, economic or any other nature and are related to the product and processes CONFLICT BUYER SELLER PRODUCT ACCESS SPEED IMAGE SERVICE COST CHANGE MACHINES MAN POWER MONEY MINDS TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT PRODUCT ACCESS SPEED IMAGE SERVICE The last crate contains the………. = = = = = Design, shape, color, taste, feel, texture, packing Compliance with product and process standards and norms Availability and/or delivery time, convenience of purchasing Contribution to profit by reputation supplier/country or brand Level of pre- and after sales service, customization of processes COST OF MEANS COST OF MEANS SELLER COST OF OWNERSHIP VALUE ADDED BUYER BUYER PERCEIVED BENEFITS SELLER PERCEIVED BENEFITS Higher cost of means – MMMMM- will cause higher cost of ownership –CCCCCwithout necessary increasing benefits -PASIS COST OF OWNERSHIP Competitiveness…. Higher value added –TPLMS- will lead to higher benefits –PASIS. Therefore, higher MMMMM need to be compensated by higher TPLMS. Business or no business …… COST OF MEANS SELLER COST OF OWNERSHIP VALUE ADDED BUYER PERCEIVED BENEFITS If total cost of ownership –CCCCCis higher than the benefits –PASIS-, the buyer will not buy, postpone the purchase or look for other suppliers. The business equation VALUE ADDED Comparative advantages COST OF MEANS SELLER BUYER PERCEIVED BENEFITS Competitive advantages COST OF OWNERSHIP The value proposition of a seller is composed by his cost of means –comparative advantagesplus value added –competitive advantages That value proposition should contain more perceived benefits than the total cost of ownership for the buyer Value addition and profits Though not designed to be a mathematical model, The Magic Pallet serves to give indications of value to players in global supply chains Capturing Value in Global Networks: Apple’s iPad and iPhone, Distribution of profits iPhone 2010, Kenneth L. Kraemer, Greg Linden, and Jason Dedrick, University of California, Irvine, University of California, Berkeley and Syracuse University From B2B to B2C Behind the buyer are the end users or consumers. They also have a perception of value. But –other than the buyer- the end user’s perception of benefits and sacrifices is not strictly monetary. Less tangible issues play an –often dominant- role in the purchasing decision. Like environmental and or social considerations. And –last but not least- psychological motives to buy or not to buy. These customer values complete The Magic Pallet PERIL PEOPLE PLANET PROFIT TECHNOLOGY PRODUCTION LOGISTICS MARKETING CHRONO CHANGE CHANCE CONFLICT COST PRODUCT ACCESS BUSINESS MATERIALS MACHINES MAN POWER MONEY MINDS SPEED PRICE QUALITY SUPPORT TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT PRODUCT SPEED IMAGE IMAGE SERVICE BUSINESS SERVICE CONSUMER Though not designed to be a mathematical model, The Magic Pallet serves to give indications of value to players in global supply chains See www.valuemagics.com SELLER COST MATERIALS CHANGE MACHINES MONEY MINDS In the SWAT analysis, we show how to use The Magic Pallet to find the most successful road to global markets. MAN POWER TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT PRODUCT ACCESS SPEED IMAGE SERVICE ValueMagics applied…. CHANCE CHRONO CONFLICT BUYER