Understanding Value Chain Analysis
The process of creating a product, from beginning to end, is referred to as a value chain (e.g., design, production, distribution, and so on). Businesses can identify areas where expenses can be cut by using the visual representation of these activities provided by this research. The many business operations and procedures involved in producing a good or providing a service are referred to as the value chain. Research and development, sales, and all other phases of a product or service’s lifespan can be included in a value chain. You can learn more about what goes into each of your company’s transactions by taking stock of the processes that make up the value chain for your business. Your business can be better positioned to share more value with customers while snatching up a larger portion by optimizing the value provided at each stage in the chain. Similar to this, understanding how your business generates value will help you better grasp its competitive edge.
Background of Value Chain analysis
A fundamental value chain concept was first presented in 1985 by Harvard Business School professor Michael Porter in his book The Competitive Advantage: Creating and Sustaining Superior Performance. He identified several crucial steps that are present in all value chain analyses and came to the conclusion that certain primary and auxiliary tasks, when carried out at the highest possible level, will add value for their customers that outweighs the cost of producing that value, resulting in higher profits.
Component of Value Chain Analysis
There are two components of value chain analysis. One is primary activities; another is support activities.
Primary Value Chain Activities
There are five main actions in your company’s value chain that you should evaluate to make sure that the value you provide equals the cost of producing the good or service:
Inbound logistics
All elements involved in receiving, storing, and managing inventory for the raw materials required to produce a good or provide a service. This also holds true for the interactions between your business and its suppliers and vendors.
Operations
All steps taken to turn raw materials into a finished good or service.
Outbound logistics
Anything having do with getting a good or service out to customers, distributors, or retailers. This covers product storage, shipping, and packing.
Sales and marketing tactics
Anything and everything that must be done in order to market and sell a good or service, including promotions, commercials, and price plans.
Services
Tasks that improve the customer experience, such as product setup, service delivery, upkeep, repairs, refunds, exchange options, and customer service.
Supporting Value Chain Analysis
The effectiveness of primary operations in the value chain can be increased with the aid of secondary activities. Each of the four supporting activities listed below often contributes to the principal activity:
Farm infrastructure
Planning, accounting, finance, legal, and administrative systems and processes are examples of support systems and functions.
Management of human resources (HR)
Includes all actions relating to employees, including hiring, training, and recruitment. Your company can carry out all five of its main tasks thanks to effective HR management.
Technological progress
Activities including research and development, such as automating procedures and creating effective manufacturing procedures.
Procurement.
The method of locating and purchasing the equipment, resources, and raw materials required to manufacture the goods and services offered by your business. Logistics for incoming cargo is directly tied to procurement.
Value chain analysis is a tool used by businesses to provide the most value for the lowest total cost. A business can obtain a competitive advantage and increase profitability by finding efficiencies in one or more of the five main value chain operations. The main drawback of this type of analysis is that when operations are divided into precise segments, a company’s overall vision and strategy may get lost or muddied.
To read more blogs, click here
Writer
Jannatul Kawser Riktha
Intern, Content Writing Department
Youth School For Social Entrepreneurs (YSSE)