1 Understanding value….. ….The Magic PalletValueMathics Understanding value….. ….The Magic Pallet

2 Every time a shipment sails to its final destination, seller and buyer have done business because the transaction represents a value for each of them.

3 The same applies whenever a service is delivered to the buyer

4 Then again, for seller and buyer alike, there is a difference between both “values”“The Magic Pallet” visualizes that difference -”value add”- in global value chains VALUE ADDED VALUE VALUE ADDED COST OF OWNERSHIP VALUE COST OF OWNERSHIP SELLER BUYER CONSUMER

5 Let us look at an example of value creation throughout a typical value chain of tomatoes:On their way from “farm to fork”, the value of these tomatoes increases because each player in the supply chain adds value. What value do they add ? SELLER BUYER CONSUMER

6 1. Research, seed breedingSELLER BUYER CONSUMER

7 1. Research, seed breeding 2. Sales, distribution of seedsSELLER BUYER CONSUMER

8 1. Research, seed breeding 2. Sales, distribution of seeds 3. Planting, growing, harvest SELLER BUYER CONSUMER

9 1. Research, seed breeding 2. Sales, distribution of seeds 3. Planting, growing, harvest 4. Post-harvest activities SELLER BUYER CONSUMER

10 1. Research, seed breeding 2. Sales, distribution of seeds 3. Planting, growing, harvest 4. Post-harvest activities 5. Export/import/distribution SELLER BUYER CONSUMER

11 1. Research, seed breeding 2. Sales, distribution of seeds 3. Planting, growing, harvest 4. Post-harvest activities 5. Export/import/distribution 6. Retail marketing, branding SELLER BUYER CONSUMER

12 From crude oil to garbage bagAnother example of value creation, but now in an industrial sector 1. Crude oil exploration RUSSIA SELLER BUYER END USER

13 2. Refining into solvents1. Crude oil exploration 2. Refining into solvents FINLAND RUSSIA SELLER BUYER END USER

14 2. Refining into solvents 3. Sourcing, trading1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading FINLAND RUSSIA HOLLAND SELLER BUYER END USER

15 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport FINLAND RUSSIA HOLLAND SELLER BUYER END USER

16 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion FINLAND RUSSIA HOLLAND VENEZUELA SELLER BUYER END USER

17 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion 6. Shipping, processing FINLAND RUSSIA HOLLAND SOUTH KOREA VENEZUELA SELLER BUYER END USER

18 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion 6. Shipping, processing 7. Sales and distribution FINLAND RUSSIA HOLLAND SOUTH KOREA VENEZUELA SINGAPORE SELLER BUYER END USER

19 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion 6. Shipping, processing 7. Sales and distribution 8. Blow molding FINLAND RUSSIA HOLLAND SOUTH KOREA BANGLADESH VENEZUELA SINGAPORE SELLER BUYER END USER

20 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion 6. Processing 7. Sales and distribution 8. Blow molding 9. Export FINLAND RUSSIA HOLLAND SOUTH KOREA BANGLADESH VENEZUELA SINGAPORE SELLER BUYER END USER

21 “Around the world in 80 days”1. Crude oil exploration 2. Refining into solvents 3. Sourcing, trading 4. Storage, transport 5. Toll conversion 6. Processing 7. Sales and distribution 8. Blow molding 9. Export 10. Retail marketing FINLAND RUSSIA HOLLAND SOUTH KOREA GERMANY BANGLADESH VENEZUELA SINGAPORE SELLER BUYER END USER

22 Distribution of value additionDesign studio (Italy) 0,03 % Fabrics, treads, etc. (Korea) 2,95 % Shipping (Korea) 0,05 % CMTP1 (Bangladesh) 2,62 % Shipping, storage (USA) 0,08 % Brand marketing (USA) 74,13 % Retail marketing (USA) 20,14 % Retail price ,00 % An example of value creation in the global supply chain of a men’s shirt 1 Cut, make, trim, packing ValueMagics, a new road from cost to value, 2013 Sharma V. And H. Verhulst, McGraw Hill, New Delhi

23 Value add; costs and profitsAn example of value creation and the distrubution of profits in the global supply chain of Apple’s iPhone 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

24 100 Customer values: what makes us pay 100 ? DESIGN QUALITY SPEEDIMAGE SERVICE 100 COST CONSUMER

25 100 How can seller and buyer fullfil these values ? SUPPORT MARKETINGQUALITY DESIGN SPEED IMAGE SERVICE LOGISTICS LOGISTICS COST COST PRODUCTION TECHNOLOGY SELLER BUYER CONSUMER

26 Value creation- historical perspective

27 How to upgrade from production ?PATENT BRAND TECHNOLOGY MARKETING VALUE PRODUCTION