VALUE-CHAIN Analysis

VALUE CHAIN ANALYSIS

It is defined as activities that take place in a business and relates them to an analysis of the competitive strength of the business. At every level of the product manufacturing, each activity adds to its value and it is the reason that makes the customers to pay for the product. There is a chain of activities that at each level help making a product and to reach at its final shape and finished products. A firm is said to be earning profit or is profitable when the value it receives exceeds the cost that it put in making that product. In analyzing the firm’s competitive position the key concept is creating the value for buyer’s that exceeds the costs of production. Value chain analysis is an approach presented by Micheal Porter to understand its importance as a building block of competitive advantage. It describes two different types of activities;

(1)   Primary Activities

Activities that are directly concerned with creating and delivering a product (e.g. assembling the parts of a product or putting different components of a product together)

(2)   Support Activities,

Activities that are not directly involved in production, but that may increase effectiveness or efficiency of a firm (e.g. human resource management, staffing, intellectual capital etc.). 

Primary activities

Inbound Logistics

This is primarily associated with receiving, storing and distributing inputs to the product. It depicts how material is stored, retrieved and used for the production activity. How material is saved and kept and how it is stored to be used when needed. It also takes into account the availability of enough quantity available when needed to use. It deals with returns to suppliers, scheduling of vehicle, inventory control and material handling. It further deals with;

·         Time to use the material

·         Processing the material when requested

·         Plant capacity

·         Plant scheduling

·         Location of distribution facilities

·         Layout of warehouse

·         Increasing efficiency by operations

Operations

·         Efficient ways of operating the plant to minimize efficiency

·         Maximizing and maintaining the product quality

·         Fulfilling the order in given time

·         Customer handling

·         Customer satisfaction

·         Effective way of handling and minimizing the customer complaints

Outbound logistics

·         Order fulfillment

·         On time delivery

·         Dealing with emergencies (delivering the product where needed or supply is short)

·         Managing the inventory

·         Shipment and orders

·         Audit

·         Transaction management

·         Accuracy

·         Quick and in time response

Marketing and sales

·         Pricing

·         Total cost analysis

·         Cost benefit comparison

·         Understanding the product’s value

·         Innovative approaches to promote and advertise the product

·         Identification of customer needs and targeted audience

·         Understanding customer needs

·         Capturing needs of the customers

Service

·         Quick response to customer needs and emergencies

·          Problem solutions

·         Call centers

·         24/7 service availability

·         Putting customer at the front line

·         Customer survey

·         Quality of service

·         Personnel training and proper staffing

Support Activities:

General Administration:

·         Firm’s infrastructure

·         Audit

·         Accounts

·         Staff

·         Finance

·         Communication systems

·         Planning and strategies

·         Flow of information

·         Chain of command

·         Relationships with stakeholders

·         Effective information technology application

·         Automated systems and value chain mechanism

·         Planning systems to achieve goals and objectives

Human Resource Management

·         Manpower development

·         Employees training

·         Labor skills

·         Recruitment

·         Reward and incentives

·         Good relations with trade unions

·         Motivating employees and workers by intrinsic and extrinsic rewards

·         Appreciating the efforts of the employees

Technology development

·         R&D

·         Innovations and discoveries

·         Positive collaboration between R&D and other departments

·         Scanning the lifecycle of a product

·         Improvement in products, process and quality

·         Adopting new technologies

·         Substituting labor with technology to reduce cost by one time investment

Procurement

·         Raw material procurement to reduce cost and optimize quality

·         Procuring machinery

·         Selecting and analyzing the alternative sources of inputs to maintain bargaining power of a buyer and to minimize the dependence on one supplier

·         Maintaining good relations with suppliers

·         Supplies mechanism

Linking Value Chain Analysis to Competitive Advantage

 

A business that undertake its business activities efficiently by product differentiation, cost minimization, efficient customer handling and by putting more emphasis on value-chain activities perform better than its competitors. By undertaking these business activities a business achieve its competitive advantage more quickly than its competitors. Value-chain analysis is a tool to analyze the performance and to trace where firm needs to focus more on.