Value chain analysis

4. Value chain analysis is used by businesses of all sizes,
ranging from sole proprietors to enterprise-level
companies.
Value chain analysis is a tool that business owners use
to break down each process of their business. This
analysis can be used to improve the business’s
individual processes, enhancing the company’s
efficiency and establishing a competitive advantage.
Every business uses various processes to accomplish
its work, and they all can use value chain analysis to
study and improve these processes.

5. What is VALUE CHAIN ANALYSIS.
Value chain analysis is an, in-depth examination of all of the
steps a business takes, from acquiring materials to
producing, distributing and selling its products or services.
Conducting this analysis gives business owners and
managers deep insights into the major cost and profit centers
of their company. With that knowledge, they can reduce
waste, identify strategic advantages and invest in the more
successful areas of their business.
The purpose of Value Chain Analysis is “to create value
that exceeds the cost of providing the product or service
and generates a profit margin.”

6. How do value chains work?
The value chain framework helps organizations identify and
group their own business functions into primary and
secondary activities.
Analyzing these value chain activities, sub activities and the
relationships between them helps organizations understand
them as a system of interrelated functions. Then,
organizations can individually analyze each to assess
whether the output of each activity or sub activity can be
improved -- relative to the cost, time and effort they require.
When an organization applies the value chain concept to its
own activities, it is called a value chain analysis.

7. Primary activities:
Inbound logistics involves the receiving, storing and
distributing of raw materials used in the production process.
Operations is the stage at which the raw materials are
turned into the final product.
Outbound logistics is the distribution of the final product to
consumers.
Marketing involve sales, advertising, promotions, sales-
force organization, distribution channels, pricing and
managing the final product to ensure it targets the
appropriate consumer groups.
Service comprises the actions needed to maintain the
product’s performance after it is produced, including
installation, training, maintenance, repair, warranty and
after-sale services.

8. Support activities:
Support activities help the primary functions:
Firm infrastructure refers to an organization’s structure as
well as its management, planning, accounting, finance and
quality-control mechanisms. This can include Automating
processes, Accounting software, Cloud, computing.
Procurement is how the raw materials for the product are
obtained.
Technology development can be used in the research and
development stage, in how new products are developed
and designed, and in process automation.
Human resource management includes the activities
involved in hiring and retaining the proper employees to
help design, build and market the product.
.

10. Harvard Business School’s Michael E. Porter was the first to introduce
the concept of a value chain, concept in his book Competitive
Advantage: Creating and Sustaining Superior Performance.
“Competitive advantage cannot be understood by looking at a firm as a
whole,” Porter wrote. “It stems from the many discrete activities a firm
performs in designing, producing, marketing, delivering and supporting
its product. Each of these activities can contribute to a firm’s relative
cost position and create a basis for differentiation.”
These are a company’s primary functions; in other words, all the things
needed to create and sell their product:
The value chain “takes into consideration contributions such as product
design, research and development, advertising, and other marketing,”
he said. “Even the work of lawyers, bankers, accountants and IT experts
who help make a product possible is taken into consideration.”

11. What is value chain analysis?
A value chain is the full range of activities – including design,
production, marketing and distribution – that businesses
conduct to bring a product or service from conception to
delivery.
For companies that produce goods, the value chain starts
with the raw materials to make the products and consists of
everything added before the product is sold to consumers.
Value chain analysis finds any deficiencies in these
processes and improves them, saving money, improving
quality and expediting time to market.
Value chain analysis can create change within a business,
improve the products and services it offers, and expand
connections with other companies and their customers or
clients.

12. What are the benefits of a value chain analysis?
There are multiple benefits to value chain analysis:
1) Gain a ground-level understanding of the various
processes in business and the purpose for each operation.
2) Identify current or potential bottlenecks in workflow and
other inefficiencies.
3) Find tasks that can be automated, outsourced or
redesigned.
4) Reduce waste and eliminate or de-prioritize unproductive
tasks.
5) Businesses can use the insights, they gain from value
chain analysis to identify priority processes, streamline
workflow and increase efficiencies. These, in turn, reduce
costs and overhead, increasing profit margins for the
business.

13. Ultimately, value chain modeling offers the following benefits:
Cost reduction
Competitive differentiation
Increased profitability and business success
Increased efficiency
Decreased waste
Higher-quality products at lower costs

14. How do you conduct a value chain analysis?
To conduct a value chain analysis, a business should
identify each part of its production process, noting steps
that can be eliminated and other possible improvements.
This helps companies determine where the best value lies
with customers and expand or improve said value, resulting
in cost savings or enhanced production. At the end of the
process, customers enjoy high-quality products at lower
costs, which will lead them to choose you over your
competition.
There are two approaches to value chain analysis: cost
advantage and differentiation advantage. These are lenses
through which you should analyze your business.

15. Cost advantage
After identifying their primary and support activities,
businesses should determine the cost drivers for each
activity. A cost driver is something that affects the cost
of an activity or process, such as the following:
Work hours
Machine use and setup
Wage rates
Materials used to make products
Shipping.
Your business should identify the links between
activities, understanding that if costs are reduced in
one area, they can be reduced in another. You can
then identify opportunities to reduce overall costs.

16. Differentiation advantage
Identifying the activities that create the most value to
customers is the priority here. What activities set your
business apart and provide the most value?
These activities can include the below:
Using relative marketing strategies
Knowing about products and systems
Answering phones faster
Meeting customer expectations
The next step is evaluating these strategies to improve
the value they provide. For example, you might focus on
customer service, increase options to customize products
or services, offer incentives or add product features.
Consider which of these unique activities can be
maintained over the long term and which provide the
most value.

17. What are the goals and outcomes of value chain
analysis?
Value chain analysis will help you identify areas in your
business that can be optimized for efficiency and
profitability. You want to not only ensure your mechanical
processes are the best they can be, but you also want to
keep customers feeling confident and secure so they
remain loyal to your business.
By analyzing and evaluating product quality and the
effectiveness of your services, along with reducing
company costs, your business can find strategies to
improve its value proposition and stand out in the
marketplace.