Value Chain Analysis make company profitable

The value chain links up a series of value creating activities from supplier to customer. The intent of value chain analysis is to perform value chain activities more efficiently and at a lower cost than rivals. Value chain analysis extends from materials input, work-in-process and finished goods manufactured to other primary activities as after-sales services, as well as support activities as procurement, technology, human resources management and company infrastructure. Value chain analysis is a framework that can provide a number of benefits to the management of online learning organizations. This analysis can support managers to identify linkages between value activities within the organization, and to think in terms of process rather than function or department.

The same factors that determine the power of buyers also determine the power of suppliers. The bar- gaining power of suppliers and buyers relative to the firm depends on the relationships between their value chains. Bargaining power will be a function of relative strengths, in particular, value activities that depend on one another. Value chains for three competitors in the rapidly changing telecommunications industry—AT&T, NYNEXand IBM—are listed in Exhibit 7, along with the strategic differences for each firm .

A value chain is a business model that outlines the entire process of creating a product or service. The steps involved in taking a product from creation to delivery, as well as all in between—such as procuring raw materials, production functions, and marketing activities—make up a supply chain for companies that manufacture products. A value chain is a business model that describes all of the steps that lead to the creation of a product or service. A supply chain for manufacturing companies comprises all the steps involved in taking a product from conception to delivery, as well as all of the activities in between, such as sourcing raw materials, running production functions, and marketing the finished product. Identify the industry’s value chain and assign costs,revenues and assets to value-creating processes. Because vertical linkages can be complex and intangible, they are often overlooked by organizations.

Far more significant were downstream activities in output logistics, marketing, sales and service. Beyond being able to make a watch cheaply, the Swiss had to lower their costs of distribution and service. They came up with the hugely successful Swatch, which,besides being inexpensively priced,was virtually indestructible and could be distributed through numerous low-cost channels, from department stores to discount houses. Selecting the appropriate activity category may be anything but straightforward. The key is to classify value activities according to their true contribution to the firm’s competitive advantage. For example, if order processing is important to a firm’s customer interactions, then this activity should be classified under marketing.

Value chain analysis permits companies to examine their activities and find competitive alternatives. Value Chain Analysis Example Value chain analysis allows businesses to examine their activities and find the concept of value chain analysis is contributed by competitive opportunities. For example, McDonald’s mission is to provide customers with low-priced food items. Below is an example of a value chain analysis for McDonald’s and it’s cost leadership strategy.

The strategic differences reflect vary- ing structural and executional cost drivers. In market- ing, for instance, AT&T started with no organization but with significant name recognition. The regional marketing scale of NYNEX and the worldwide mar- keting scale of IBM are important cost advantages. However, the Swiss failed to realize that their critical problem was not in manufacturing. This set of activities added only a small proportion of the value of their final product.

the concept of value chain analysis is contributed by

In these sectors, product design and marketing are more important than manufacturing know-how, making it easier for leading companies to outsource production. Competitive advantage in regard to products and services takes two possible forms. The first is an offeringor differentiation advantage customers perceive a product or service as superior, they become more willing to pay a premium price relative to the price they will pay for competing offerings. The second is a relative low-cost advantage, which customers gain when a company’s total costs undercut those of its average competitor. As a result, there have been significant and rapid changes in chain governance, with producers becoming more buyer-like by outsourcing and the skills needed to service global buyers increasingly increasing.

Value Chain Analysis – make company profitable

Helps analyse and answer every single question of a business about how it can provide value to its customers. It is a valuable and strategic technique employed by a business to identify if there is any chance of innovation in a product. Starbucks is very well-known for use of technology, not only for coffee-related processes but to connect to its customers. Many customers use Starbucks stores as makeshift office or meeting place because of the free and unlimited WiFi. Back in 2008, the company launched a platform where customers could ask questions, give suggestions and openly express opinions and share experiences; the company has implemented some of the suggestions, including for its rewards program, from this forum.

The cost drivers illustrated in Exhibit 3 may be used to identify the factors that determine costs throughout the industry value chain. Historical or book values usually provide inade- quate measures of current investment. Plant engineers, equipment vendors and independent appraisal professionals may be consulted to help establish current asset values. Likewise, establishing prices for transferring goods and services among value chain processes requires an understanding of market or competitive- based rates. If at least one firm competes in each stage of value creation, then competitive market prices are available.

the concept of value chain analysis is contributed by

Differentiation Advantage A differentiation advantage occurs when customers perceive that a business unit’s product offering is of higher quality, incurs fewer risks and/or outperforms competing product offerings. For example, differentiation may include a firm’s ability to deliver goods and services in a timely manner, to produce better quality, to offer the customer a wider range of goods and services, and other factors that provide unique customer value. According to Shank and Govindarajan, the industry value chain starts with the value-creating processes of suppliers, who provide the basic raw materials and components. It continues with the value-creating processes of different classes of buyers or end-use consumers, and culminates in the disposal and recycling of materials. In practise, research questions are focused on topics of growth and sustainability, with study aimed at identifying possible leverage points and bottlenecks in the supply chain.

Differentiation Advantage

Value chain analysis can support companies to determine which type of competitive advantage to follow, and how to pursue it. Many academicians stated that value chain is an effectual technique for organizational appraisal as it helps in providing clarity about the areas of strengths and weaknesses. Since there are lots of linkages and interdependencies amongst activities, the flexibility to co-ordinate interrelationships is important to achieving aggressive benefit. Competitive methods concentrate on activities needed to increase the worth of a product or service. It additionally concentrates an organization to determine a vision utilizing a competitive advantage strategy which will drive future products and services. Supporting activities are further validated in the process, creating an understanding that these sometimes overlooked actions are integral to the worth chain and worth proposition for an organization.

the concept of value chain analysis is contributed by

It additionally permits companies to resolve what is most important when serious about the worth they wish to create. While there is not space here to do justice to this detail, the following summarises the steps Porter suggests for achieving competitive advantage through either lower costs or differentiation. In particular it will depend on the nature of the firm, its industry and its source of competitive advantage. Thus, order processing could be part of outbound logistics or, if it is an important element of the way a firm interacts with its buyers, it could be defined as marketing.


The notion of the value chain is based on the process view of organisations, the idea of seeing a manufacturing organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. Supply chain operations are performed using materials, which are transported from one location to another.

This type of value chain analysis helps find the key factors driving the cost of apparel manufacturing. The critical points considered in the cost value chain analysis are cost advantage or cost disadvantage of different factors. Before jumping to the detailed analysis of the fashion industry offered by the value chain analysis, it is vital to understand this model. It was in 1985 that Michael Porter introduced the most generic value chain model.

Inbound logistics are the receiving, storing and distributing of raw materials used in the production process. Other businesses focus on factors like product exclusivity or outstanding customer service to give customers more value. For them, the key is to figure out the services that clients would covet and be willing to pay for. For instance, an artisanal chocolate business could focus on using healthier ingredients in its products.

  • Vertical integration is a function of this governance pattern (i.e.”transactions” take place inside a single firm).
  • Today, global-scale networks of legally independent companies produce not only simple products, but also goods and services that require a lot of technology and resources.
  • The supply chain order starts with the product request and ends when the product meets the customer.
  • Linkages exist because of the relationship between how one activity is performed and its impact on the cost or performance of another.

However, some firms have experienced costly productivity and quality problems that more than offset their labor savings. The key to successful differentiation under the value-chain approach is to identify the value-creat- ing processes that distinguish a firm’s products or services from those of its competitors. The term “supply chain” refers to the integration of all the operations involved in the manufacturing, procurement, conversion, and logistics processes. Value chain, on the other hand, refers to a set of business operations in which utility is applied to the firm’s products and services in order to increase consumer value. Many businesses are looking for dedicated partnerships with Fashinza that handles all supply chain work for different fashion brands. It is a fashion business service provider that can improve the value chain for any apparel or fashion house.

Support activities

But even with progress and innovation, value chain analysis is still a sound model for identifying market alternatives and attaining competitive differentiation. Value chain analysis is a way to visually analyze an organization’s enterprise activities to see how the corporate can create a competitive advantage for itself. Value chain evaluation helps an organization understands the way it adds value to one thing and subsequently how it can promote its services or products for greater than the cost of including the value, thereby generating a revenue margin. A value chain is the full range of activities – including design, production, marketing and distribution – businesses conduct to bring a product or service from conception to delivery. However for companies that produce goods, the value chain starts with the raw materials used to make their products, and consists of everything added before the product is sold to consumers.

A firm must de-emphasize its functional structure to identify its value-creating processes. Most of large businesses still organize themselves as cost, revenue, profit and investment centres. These and other organizational sub-units, such as departments, functions, divisions or separate companies that are normally used for control purposes are not very useful for identifying value creating processes. Adopting a process perspective requires a horizontal view of the organization, beginning with product inputs and ending with outputs and customers. Organizations also adopt the tool of value chain approach to identify opportunities for creating and sustaining superior differentiation.

Which of the following is a primary activity in the value chain?

Rising supplier competence, meanwhile, could point to the shift in captive networks from relational networks to modular networks, and more formal code specifications could be preparing the way for more nimble modular networks. Value chains can be situated throughout the entire geographical area or even within a single company . An international supply chain includes multiple companies and regional spaces. As an example, an industrial machine uses materials and labour from many countries, is made somewhere else, and will eventually be sold in additional countries. The GVC Initiative is interested in value chains that span numerous firms and locations, and thus the expression “global value chain” is often used to describe these networks. The supply chain consists of the entire pipeline that begins from the initial manufacturing of raw materials and ends with the finished product at the customer’s location.

Company-appointed coffee buyers select the finest quality coffee beans from producers in Latin America, Africa and Asia. The green or unroasted beans are procured directly from the farms and are transported to the storage sites, after which the beans are roasted and packaged. They are then sent to distribution centers, a few of which are company owned and some of which are operated by other logistic companies. The company does not outsource its procurement, ensuring high quality standards right from the point of selection of coffee beans. Firm infrastructure refers to an organization’s structure and its management, planning, accounting, finance, and quality-control mechanisms. Technology development can be used in the research and development stage, in how new products are developed and designed, and in process automation.

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