Gonna be breaking that in half because this part of the chapter goes on for forever.
There are 7 business functions in the value chain
- Research and Development
- Design of Products and processes
- Production
- Marketing
- Distribution
- Customer Service
- Administration
Because the example in the book is boring, I will be using Michael Reeve's Tazer Tag video
Research and development is sitting down and thinking to yourself "my god how in the world am I going to inflict pain on people who think I am their friend today?"
Design of Products and Processes would be figuring out how to make his first taser vest.
Production is the process of making the other 5 vests.
Marketing is using lies and deceit to convince the other 5 idiots to put on the bomber vests.
Distribution was as he was passing it out to Offline TV.
Customer service would getting executed by firing squad to keep Offline TV happy.
Administration isn't exactly part of the six primary business functions in a value chain. Instead, it acts all throughout the entire system to support the other six primary business functions. In real life, it would include accounting and finance, HR, and IT.
The book then goes on another tangent to another three letter tool used in business known as CRM. Customer Relationship Management is simply a means to integrate people and technology into customer service. Whether or not this is on the test who knows, just know if you're a customer and there's any information being coordinated, may have to do with CRM.
It should be noted that different companies create value in different ways. For example, Michael Reeves creates value through the entertainment his sick twisted mind provides to viewers, and Apple creates it by brainwashing their consumers. As a result, every business function may be more critical, or more valuable, than the others depending on the business at hand.
With that in mind however, it's important not to look at the business functions as individual entities that you approach separately one by one by one. Yes a lot of value in Michael Reeves is his particularly messed up ideas which you may argue means that R&D is his most valuable business function, however he still needs to design his torture devices (he makes everything himself), he actively engages with viewers and/or at least proves himself to be as entertaining as possible for marketing purposes, and he goes back and makes sure his victims actually enjoy the experience even after putting them through tasers (customer service). It's a value chain, and managing the whole chain altogether makes the system flow.
Managers and Managerial Accountants can take information they gather throughout the Value Chain to make smarter decisions, especially in regards to Cost Management. With proper accounting, it is relatively easy to find the areas in which the value generated in any particular part of the chain outstrips that business function's operating cost. It's also easier to identify areas that need to be made more efficient, or areas that can afford greater costs to generate even more value.
To end the chapter off there's one more chain you need to know about, the Supply Chain. By definition, the supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in one organization or in multiple organizations. To give an example, let's take the store bought bacon in your fridge. Obviously, we start with farms and pigs. We could go back further but shut up. These pigs go to your butcher/bacon factory, which are then moved to packaging. These prepared and packaged strips of bacon are then brought to a bacon supplier, a distribution company that sells large stocks of bacon to retailers (supermarkets). The supermarkets then leave the packaged bacon out for you, the consumer, to buy and fatten yourself up. To review, the chain goes from
Raw Ingredients
Manufacturing
Packaging/Non-Concentrate Materials/Services
Distribution
Retail
Consumer
It can be slightly different depending on the product but this is the general work flow. Just remember, pig factory package distribution supermarket consumer.
And with this we cut the chapter in half. How do companies add value? They add value by following a sequence of operations, business functions, to bring you products and services that previously didn't exist. The business functions are as follows: R&D, Design, Production, Marketing, Distribution, and Customer Service. This can be followed by remembering the taser tag video. On top of all of these functions is administration, which doesn't really add value to the product but keeps the whole chain running. Different companies add values in different ways. While this also means they value different parts of the chain more than others, it's always important to remember that it's a whole chain. Understanding the chain, particularly from an accounting standpoint for the purposes of this book, will help you figure out the financial and economic advantages of working through the chain.
It should be noted that different companies create value in different ways. For example, Michael Reeves creates value through the entertainment his sick twisted mind provides to viewers, and Apple creates it by brainwashing their consumers. As a result, every business function may be more critical, or more valuable, than the others depending on the business at hand.
With that in mind however, it's important not to look at the business functions as individual entities that you approach separately one by one by one. Yes a lot of value in Michael Reeves is his particularly messed up ideas which you may argue means that R&D is his most valuable business function, however he still needs to design his torture devices (he makes everything himself), he actively engages with viewers and/or at least proves himself to be as entertaining as possible for marketing purposes, and he goes back and makes sure his victims actually enjoy the experience even after putting them through tasers (customer service). It's a value chain, and managing the whole chain altogether makes the system flow.
Managers and Managerial Accountants can take information they gather throughout the Value Chain to make smarter decisions, especially in regards to Cost Management. With proper accounting, it is relatively easy to find the areas in which the value generated in any particular part of the chain outstrips that business function's operating cost. It's also easier to identify areas that need to be made more efficient, or areas that can afford greater costs to generate even more value.
To end the chapter off there's one more chain you need to know about, the Supply Chain. By definition, the supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in one organization or in multiple organizations. To give an example, let's take the store bought bacon in your fridge. Obviously, we start with farms and pigs. We could go back further but shut up. These pigs go to your butcher/bacon factory, which are then moved to packaging. These prepared and packaged strips of bacon are then brought to a bacon supplier, a distribution company that sells large stocks of bacon to retailers (supermarkets). The supermarkets then leave the packaged bacon out for you, the consumer, to buy and fatten yourself up. To review, the chain goes from
Raw Ingredients
Manufacturing
Packaging/Non-Concentrate Materials/Services
Distribution
Retail
Consumer
It can be slightly different depending on the product but this is the general work flow. Just remember, pig factory package distribution supermarket consumer.
And with this we cut the chapter in half. How do companies add value? They add value by following a sequence of operations, business functions, to bring you products and services that previously didn't exist. The business functions are as follows: R&D, Design, Production, Marketing, Distribution, and Customer Service. This can be followed by remembering the taser tag video. On top of all of these functions is administration, which doesn't really add value to the product but keeps the whole chain running. Different companies add values in different ways. While this also means they value different parts of the chain more than others, it's always important to remember that it's a whole chain. Understanding the chain, particularly from an accounting standpoint for the purposes of this book, will help you figure out the financial and economic advantages of working through the chain.
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