Value Chain Analysis

O2C company produces refrigerators and takes online orders via its website. Once an order has been made the following steps are performed to ensure the successful delivery of the product . These are:

1) Order processing and materials ordering

2) Supplier shipment

3) Production

4) Testing

5) Inventory

6) Shipment and Delivery

In order to optimize operational performance and implement lean manufacturing it is important to map the value stream process and then list down the non value adding activities where an opportunity lies. For this purpose the various non value adding activities were listed and options were evaluated to reduce the processing time and operational cost . After analyzing all the alternatives it was found that scope lies in reducing the supplier shipment costs of 18,000 $ every month . In order to reduce the supplier shipment costs the number of shipment had to be reduced from 30 to 5 . For this purpose a warehouse was constructed near the production factory so that raw materials can be shipped and stored to maintain buffer stock. This led to a reduction in the shipping costs and also increased the processing time . Thus the recommendations resulted in an annual savings of $1,20,000 and 3 days of process time on each refrigerator .

Situation Analysis

O2C Company produces refrigerators. For the sales, it has an online ordering system through which the customer can order the products of his/her choice after going through the product catalogue. Once the online order is placed, the order is processed and sent to the procurement team for procuring the raw materials. The raw materials may either be available in the inventory, or shipped from the suppliers. After procurement, production takes place and the product is ready. The product is then tested for any defects. The product then has a day's waiting time before being shipped to the customer. The entire process flow has been shown in Exhibit 1.

The end-to-end process of ordering and delivering thus has a number of activities in it. However, if we look at the value added by each of these activities, there are bound to be certain activities that do not add value to the entire process. That is, these activities are not the ones that the customer will be willing to pay for. To better understand, we can classify activities as

1. Value-added: This step in the process adds form, function, and value to the end product and for the customer.

2. Non-Value-Added: This step does not add form, function, or assist in the finished goods manufacturing of the product.

3. Non-Value-Added-But-Necessary: This