Strategic procurement aims to facilitate added value across the entire value chain, not just reduce costs. A value chain displays the total value created by a firm through its unique activities and margins. Porter's value chain model divides activities into primary and support activities. Primary activities directly relate to product creation and support, while support activities underpin primary activities through functions like procurement, HR and infrastructure. Firms gain competitive advantage by configuring activities to create more value for customers than competitors.

1. Strategic Procurement &
Value Chain
CONSTRUCTION SUPPLY CHAIN
MANAGEMENT (MGT60803/QSB 2433)

2. Objectives Today
• Strategic Procurement
• What is Value Chain?
• Porter’s Value Chain
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3. Strategic Procurement
• Procurement is the process of obtaining goods
and services from another while a strategic
procurement objective is to facilitate added-
value.
• Procurement has been seen as a function for
reducing costs instead of adding value.
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4. Strategic Procurement
• Procurement strategies, however, cannot be
developed in isolation, they need to be
integrated with corporate strategy to succeed.
• Hence, a strategic procurement does not only
add values to the procurement process but
the entire value chain.
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5. What is Value Chain?
• A value chain is a set of activities that an
organization carries out to create value for its
customers. (E.g. Paper  Birthday Card)
• Porter proposed a general-purpose value
chain that companies can use to examine all
of their activities, and see how they are
connected.
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6. What is Value Chain?
• The way in which value chain activities are
performed determines costs and affects
profits.
• This tool can help you understand the sources
of value for your organization.
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7. How Value is Created Within Organizations?
• How do you change business inputs into
business outputs in such a way that they have
a greater value than the original cost of
creating those outputs?
• Example, manufacturing companies create
value by acquiring raw materials and using
them to produce something useful.
• Example, a company create value by using the
raw materials to build a hotel.
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8. Value Created
• The value that's created and captured by a
company is the profit margin:
• Value Created and Captured – Cost of Creating
that Value = Margin
Example: Selling Price of a birthday card is RM
4.90 – Cost of creating a card is RM 0.50 =
Profit Margin is RM 4.40.
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9. Value Created
• The more value an organization creates, the
more profitable it is likely to be.
• When you provide more value to your
customers, you build competitive advantage.
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10. Value Chain
• The value chain displays total value, and
consists of value activities and margin.
• Value activities are the physically and
technologically distinct/unique activities a
firm performs to create valuable products to
buyers.
• Example, a company uses IBS to build wall
panel (increase value – T,C,Q) and BIM is a
technology advancement in building
information (increase value – T,C,Q). 10

11. Value Chain
• Margin is the differences between total value
and the collective cost of performing the value
activities.
• Value Created and Captured – Cost of Creating
that Value = Margin
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12. Porter’s Value Chain
• Porter's Value Chain focuses on how inputs
are changed into the outputs purchased by
consumers.
• Porter described a chain of activities common
to all businesses, and he divided them into
primary and support activities.
• Called value activities.
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13. Porter’s Value Chain
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14. Porter’s Value Chain
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Five Primary Activities
Primary activities relate directly to the physical
creation, sale, maintenance and support of a
product or service.
•Inbound logistics: These are all the processes
related to receiving, storing, and distributing
inputs internally. Your supplier relationships are
a key factor in creating value here.

15. Porter’s Value Chain
• Operation: These are the transformation
activities that change inputs into outputs that
are sold to customers. Here, your operational
systems create value.
• Outbound logistics: These activities deliver
your product or service to your customer.
These are things like collection, storage, and
distribution systems, and they may be internal
or external to your organization.
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16. Porter’s Value Chain
• Marketing and sales activities: These are the
processes you use to persuade clients to
purchase from you instead of your
competitors.
• The benefits you offer, and how well you
communicate them, are sources of value here.
• Building customer’s relationships.
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17. Porter’s Value Chain
• Service activities: These are the activities
related to maintaining the value of your
product or service to your customers, once it's
been purchased.
• Such as installation, spare parts delivery,
maintenance and repair, technical assistance,
buyer’s enquires and complaints.
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18. Porter’s Value Chain
Support activities
These activities support the primary functions
above.
•Procurement – This is what the organization
does to get the resources it needs to operate.
This includes finding vendors and negotiating
best prices.
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19. Porter’s Value Chain
• Human resource management (HRM) – This is
how well a company recruits, hires, trains,
motivates, rewards, and retains its workers.
• People are a significant source of value, so
businesses can create a clear advantage with
good HR practices.
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20. Porter’s Value Chain
• Technological development – These activities
relate to managing and processing
information, as well as protecting a company's
knowledge base.
• Minimizing information technology costs,
staying current with technological advances,
and maintaining technical excellence are
sources of value creation.
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21. Porter’s Value Chain
• Infrastructure – These are a company's
support systems, and the functions that allow
it to maintain daily operations.
• Accounting, legal, administrative, and general
management are examples of necessary
infrastructure that businesses can use to their
advantage.
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22. Porter’s Value Chain
• Companies use these primary and support
activities as "building blocks" to create a
valuable product or service.
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23. Porter’s Value Chain
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24. Value Added
What is value?
•In competitive terms, value is the amount
buyers are willing to pay for what a firm
provides them. (worth)
•Value is measured by total revenue, a
reflection of the price a firm’s product
commands and the units it can sell.
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25. Value Added
• A firm is profitable if the value it commands
exceeds the costs involved in creating the
product. (E.g. Taylor’s University)
• Creating value for buyers that exceeds the
cost is the goal of any strategy.
• Value must be used in analyzing competitive
position, instead of cost.
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26. Conclusion
• Firms in the same industry may have similar
chains, but the value chains of competitors
often differ.
• Differences among competitor value chains
are the key source of competitive advantage.
• To diagnose competitive advantage, it is
necessary to define a firm’s value chain for
competing in a particular industry.
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