Page 14 - CIMA May 18 - MCS Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

It will be important to develop “linkages” in the value chain to determine how/if value is being
added. For example, between the primary and support activities. If Technology Development
ensures that the most up to date vehicles are available for passengers and sufficient parts are
available for maintenance and cleaning, Procurement can then ensure that we purchase the
correct quantities at the right price and quality, perhaps by the introduction of a just in time
system. MENTA does not appear to currently operate a “just in time” system and this may be
contributing to an unnecessary build‐up of inventories.

Outsourcing:

The Value Chain can be used by MENTA to analyse the different value adding activities that are
the basis of its strategic capability, and assist us in understanding our internal strengths and
weaknesses. It is also one way of identifying which activities are best undertaken internally and
which are best provided by others ("out sourced").

Using value chain analysis in outsourcing decisions:

Value chain analysis involves critically assessing each activity to establish how much value it adds
to the overall product. By looking at activities in this way it is possible to identify activities which
could effectively be ‘ring‐fenced’ and those that could be considered for outsourcing.

Where activities are identified (e.g. cleaning, administration which currently is the largest element
of operational costs – some 62% of city routes) which external providers could do as well, if not
better, then MENTA may outsource that part of the process, gaining access to expert knowledge
and potentially save money at least in the short term.

There are certain key activities which we consider we could better in‐house either because of the
specialist knowledge we have or because they are confidential in nature. These are generally the
activities which we feel give us competitive advantage over our competitors. These activities
would continue to be done in‐house and for MENTA would include e.g. maintenance.

In terms of the value chain it is always important to ensure that there are no weak links so if
outsourcing is going to be considered it must be ensured that the activity can be carried out to the
standard required (or better) so that it does not reduce but enhances the service.

For example, if it was decided to outsource aspects of IT technological development to specialist
providers (e.g. consultants) this would result in a cost saving (at least in the short term) as it
would mean that we would no longer have to invest substantial sums and save on cost to employ
those who work there and currently manage the function. We could outsource this activity as
required to a specialist third party company. The outsourcing partner would be experts in this
field and would have access to the latest technologies.

Additional ongoing savings are therefore likely as would no longer have to incur the costs of
ensuring our team are trained in the latest techniques, buy the latest technology or have the cost
of investment in and maintenance of our in‐house function.

The problem with this is that we would have to ensure that the outsourcing partner was able to
deliver exactly what we required, to the standard specified within the given timescale. If this does
not happen then it could affect the overall success of MENTA.

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