STEM help / Calculation framework

10.3.35 Value chain analysis

The installation of a Commodity (End product) drives demand for a Provider (Support provided) via a Resource transformation (Support required). In turn, the Provider uses primary materials (Supporting capacity), at their primary Cost (Rental). The Provider then fixes a set of Tariffs, independent of, or at a percentage over, the primary charge, and the revenues generated are drawn as costs on the commodity.

If the Basis of the transformation is set as an incremental quantity (either Incremental Units or Capacity), the costs passed back (the Provider revenues) are all capitalised. Otherwise they are added to the respective Connection, Rental and Usage Costs of the Commodity. Thus, each link in a value chain introduces a pair of revenues and costs into a model, which modify the overall cashflow movements.


The End user service drives demand for the End product resource in the normal way, which is taken as the Input to the Support required transformation, on the Basis of Installed Units.

A simple Value Chain model

The Support provided service takes the Output of the transformation to define its Customer Base input, which in this case represents the Installed Units of the End product, and in turn drives the Supporting capacity resource.

In order to make the revenue collected by the Support provided service appear as a cost for the End product resource, you must also set the input Value Chain = Commodity in the Other Details dialog for Support provided.

As the transformation Basis is Installed Units, the revenue for the Support provided service is billed as additional Rental Cost of the End product resource.

Note: You must use an explicit Resource transformation (select Resource from the Type menu) to enable the Value Chain mechanism, and the transformation must be linked to the Customer Base field (as opposed to the Penetration or Traffic per Connection).

Let’s assume an increasing number of End users. They are supported by the End product resource (e.g., a switch with a capacity of 1000 End users). In Y6, the increasing number of End users requires installation of a second switch. For simplicity, switch costs are not considered in this example. The switch requires support to function properly. This support can be for the whole capacity of the switch (e.g., Floorspace required or maintenance contracts), or can be just for the used capacity of the switch (e.g., activation or maintenance effort). The basis for the Resource transformation Support required can be selected from either Installed Capacity or Used Capacity of the End product resource. A Rental Tariff of EUR1.5 per capacity unit is assumed for the support provided. The supporting capacity is enough to cope with both switches and has its own costs, but they are not allocated to the End user (the costs could be partly or fully recovered from the rental tariff charged).

Installed capacity: the rental revenue of the support provided is proportional to the installed switch capacity. Thus, the End user will be faced with significant changes in the cost per user. It would be easier for the supporting unit to recover its own costs.

Used Capacity: the rental revenue of the support provided is increasing in proportion to the End user increase. The End user would see a nearly stable cost per user. The supporting unit could potentially make a loss.


       Buy SSL

© Implied Logic Limited