This powerpoint presentation is meant for providing the basic knowledge and a case based on Value Chain Analysis.

1. z
Value Chain Analysis
Dr. Vishwanath Karad MIT World Peace University
School of Commerce
Advanced Cost and Management Accounting
Made by – Akshay Pradeep & Aziz Juzar
Guide – Dr. Manisha Shedge

2. z
Introduction
 Value Chain was a concept introduced by Michael Porter, a Harvard Business
School Professor, in his book The Competitive Advantage: Creating and
Sustaining Superior Performance
 The term value chain refers to the various business activities and processes
involved in creating a product or performing a service
 The basic concept is that as a product moves from one department to another,
its value increases
 A value chain can consist of multiple stages of a product or service’s
lifecycle, including research and development, sales, etc.

3. z
Introduction
 Using the concept of Value Chain, the business can be divided into value adding and
non-value adding activities
 It can be used to analyze individual firms, entire industries or even entire countries
(Global Value Chain)
 Value chain analysis includes both qualitative and quantitative approaches. There are
no strict rules as to how it should be conducted
 The most reliable suggestion is that it should be conducted in a qualitative manner
initially and then to use the quantitative scientific approaches for the same
 Observation, semi-structured interviews, focus group meetings, and questionnaires are
mostly recommended

4. z
Levels of Value Chain Analysis
 To conduct a value chain analysis, businesses need to split the chain into two
levels –
 Primary activities
 Supporting activities
 Primary activities include inbound/outbound logistics, operations, sales and
marketing services, etc.
 Supporting activities include R&D, technology development, procurement, HR
management, infrastructure, etc.

5. z
Classification
 Buyer Driven Chain
 common in labor-intensive and consumer goods industries
 large ret
 merchandisers and trading companies play a central role in establishing production networks
 usually in developing countries
 garments, footwear, toys, housewares, and consumer electronics
 Producer Driven Chain
 capital-intensive and technology oriented industries
 large transnational corporations which play a key role in managing the production networks
 semiconductors, electrical machinery, and automobiles

6. z
Benefits
 Traditional analysis tended to be static and limited in terms of identifying factors for
success. Whereas, value chain analysis is more dynamic
 It focuses on complex linkages within a network, wherein both value creation and
value capture occur
 It is based on a system that includes suppliers, distributors, partners, and collaborators

7. z
Importance
 Value creating activities occur at two levels –
 within the industry in which a company exists (industry value chain)
 within a company itself (firm’s value chain)
 Value creation is important for the consumer since it delivers high performance
 Creating value for customers that exceeds the cost of doing so is the ultimate goal
of any strategy.
 Value, therefore, instead of cost should be the basis for determining competitive
position

8. z
Factors
 Market Mapping
 required to track and analyze the contribution of the different chain actors and the
relationships
 it helps identify the factors that influence how well the chain works
 Enabling Environment
 includes critical factors that create the operating conditions within which the value chain
operates
 infrastructure, policies, and regulations, as well as institutions and processes that shape
the market ecosystem
 they are beyond the control of the value chain members
 Service Providers
 include business or extension services that provide support to the value chain
 providers of market information, financial services, transport services, R&D facilities, and
accreditation services

9. z
Value Configuration Analysis
 According to Stabell and Fjeldstad (1998), value chain analysis should evolve into
value configuration analysis
 An approach to the analysis of firm-level competitive advantage based on the theory
of three value creation technologies and logic
 The analysis should also be based on the strata that primary activity and the
secondary supporting activities are completely distinct to each other and should be
based on value configuration
 Stabell and Fjeldstad also introduced two other value configurations –
 the value shop
 the value network
 All three configurations are based on value creation logic; the value chain is
grounded on the transformation of inputs into products; the value shop on solving
and resolving customer concerns; and the value network on linking customers

10. z
Value Configuration Analysis
Value Configuration Primary Activities
Interactive
Relationship Logic
Value Chain
• Inbound logistics
• Operations
• Outbound Logistics
• Marketing & Sales
• Service
Sequential
Value Shop
• Problem-finding
• Problem-solving
• Choice
• Execution
• Control & Evaluation
Cyclical
Value Network
• Network Promotion & Contract Management
• Service Provisioning
• Infrastructure Operation
Simultaneous/ Parallel

11. z
Porter’s Model

12. z
Porter’s Model
 Rather than looking at departments or accounting cost types, Porter's Value
Chain focuses on systems, and how inputs are changed into the outputs
purchased by consumers
 Using this viewpoint, Porter described a chain of activities common to all
businesses, and he divided them into primary and support activities
 Primary activities relate directly to the physical creation, sale, maintenance and
support of a product or service
 Support activities support the primary activities. In the above diagram, the
dotted lines show that each support, or secondary, activity can play a role in
each primary activity. For example, procurement supports operations with
certain activities, but it also supports marketing and sales with other activities

13. z
Porter’s Model
 Primary Activities include –
• Inbound Logistics – These are all the processes related to receiving, storing, and distributing
inputs internally. Supplier relationships are a key factor in creating value here.
• Operations – These are the transformation activities that change inputs into outputs that are sold
to customers. Here, the operational systems create value.
• Outbound Logistics – These activities deliver the product or service to the customer. These are
things like collection, storage, and distribution systems, and they may be internal or external to
the organization.
• Marketing & Sales – These are the processes used to persuade clients to purchase from the
company instead of the competitors. The benefits offered, and how well it is communicated to
them are sources of value here.
• Service – These are the activities related to maintaining the value of the product or service to the
customers once it's been purchased.

14. z
Porter’s Model
 Supporting Activities include –
• Procurement (or Purchasing) – This is what the organization does to get the resources it needs to
operate. This includes finding vendors and negotiating best prices.
• Human Resource Management – This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers. People are a significant source of value, so businesses can create a
clear advantage with good HR practices.
• Technological Development – These activities relate to managing and processing information, as well
as protecting a company's knowledge base. Minimizing information technology costs, staying current
with technological advances, and maintaining technical excellence are sources of value creation.
• Infrastructure – These are a company's support systems, and the functions that allow it to maintain
daily operations. Accounting, legal, administrative, and general management are examples of
necessary infrastructure that businesses can use to their advantage.

15. z
Porter’s Model
Steps in Porter’s Model are –
 Step 1 – Identify Sub-activities For Each Primary Activity
 For each primary activity, determine which specific sub-activities create value. There are three
different types of sub-activities –
• Direct activities create value by themselves. For example, in a book publisher's marketing
and sales activity, direct sub-activities include making sales calls to bookstores, advertising,
and selling online.
• Indirect activities allow direct activities to run smoothly. For the book publisher's sales and
marketing activity, indirect sub-activities include managing the sales force and keeping
customer records.
• Quality assurance activities ensure that direct and indirect activities meet the necessary
standards. For the book publisher's sales and marketing activity, this might include
proofreading and editing advertisements.

16. z
Porter’s Model
 Step 2 – Identify Sub-activities For Each Support Activity
 For each of the HR Management, Technology Development and Procurement support
activities, determine the sub-activities that create value within each primary activity. For
example, consider how human resource management adds value to inbound logistics,
operations, outbound logistics, etc. (as in Step 1, look for direct, indirect, and quality
assurance sub-activities)
 Then identify the various value-creating sub activities in the company's infrastructure. These
will generally be cross-functional in nature, rather than specific to each primary activity. Here
too look for direct, indirect, and quality assurance activities

17. z
Porter’s Model
 Step 3 – Identify Links
 Find the connections between all of the value activities identified. This will take
time, but the links are key to increasing competitive advantage from the value
chain framework.
 For example, there's a link between developing the sales force (an HR investment)
and sales volumes. There's another link between order turnaround times, and
service phone calls from frustrated customers waiting for deliveries, etc.
 Step 4 – Look For Opportunities To Increase Value
 Review each of the sub-activities and links that have been identified, and think
about how we can change or enhance it to maximize the value offered to
customers.

18. z
EXAMPLES OF VALUE CHAIN
ANALYSIS
ZARA: THE FASHION CHAIN’S GLOBAL
EXPANSION
 The dynamics of the fashion industry require the players to adopt a
particular business philosophy. Zara, the fastest growing fashion
retail chain in the world, has rapidly grown over the years by
adopting unique competitive strategies to emerge as a successful
player in the fashion industry.

19. z
OBJECTIVE OF ZARA’S SUPPLY
CHAIN ANALYTICS
 To understand the dynamics of the global fashion retailing
industry
 To discuss the evolution of Zara into the fastest growing fashion
retail chain in the world
 To understand the unique competitive strategies adopted by
Zara
 To analyse and discuss the global expansion plan of the fashion
retailer

20. z THIS SHOWS THE VALUE CHAIN
PROCEDURE OF ZARA

21. z
Zara’s Primary Activities In Supply Chain Analysis
 Inbound Logistics:
Zara’s inbound logistics need to move and distribute raw material for manufacturing, allocate those
products, keep an inventory of raw material, supplies, and finished products in the stores as well.
 Operations:
Zara’s headquarters are located in Spain, from where the brand is managed and the first thing an analysis
could outline is that main design departments are located here, so they can easily integrate with the
procurement branch to make fast adjustments and decisions.
 Outbound Logistics:
Zara’s store managers need to be aware of this and try to order clothing amounts very precisely. To achieve
that precision, they rely hard on data and projections. Therefore, forecast of client demands and record of
sold products are vital tools of assessment for store managers.
 Marketing and Sales:
Zara does not make a relevant expending in marketing and promotion, because they use other clever commercial
strategies. As Zara does not outsource their manufacturing, they are ready to quickly react to market changes and
fashion turns.
 Service:
Even when Zara puts the accent on product management and does not need strong service support, they follow
several guidelines to maintain customer satisfaction and interest, so their first rule is to avoid long
queues or waiting periods in stores.

22. z
SUPPORT ACTIVITIES IN ZARA’S VALUE CHAIN
ANALYSIS
 Infrastructure:
Due to Zara’s very particular business model of high-speed production and change, and
decentralized decision making, the company has configured its infrastructure to respond and
support this aspect. Therefore, at the core of the business infrastructure is the IT
technology, which supports several activities, including assessment tools for store managers,
but also production and distribution management. Below these headquarters are a group of commercials,
which analyze market trends, sales, and strategies designed as guidelines for country and store managers and
Human Resources directors. Country and store managers are in the bottom line of the hierarchy and brand
infrastructure, not meaning that they do a lesser important job, as they are responsible for keeping store’s
image and branding, having inventories constantly replenished, and maintaining a sense of exclusiveness, all
of this responding to their low expense in marketing and promotion.
 Human Resource Management:
In Zara’s business model, Human Resources Management is very important. All the Inditex brands have their own
Human Resources directors, which address all related issues outside operations. They rely a lot on employee
training which tends to last at least one week in all stores. Product development teams need to be in contact
with fashion trends, so they are usually asked to attend shows and exhibitions. Satisfaction and motivation
of employees via store managers is a very important aspect of their HR Management strategy.
 Technology Development:
Information transfer is one key aspect of Zara’s technology development strategy. They keep their whole
supply chain connected through a flow of data and information from store managers to headquarters and
backward.

23. z
SUPPORT ACTIVITIES CONTD…
Procurement:
 Inditex group acquires raw materials through regional
departments and offices in the United Kingdom, China,
Holland, and other branch offices in Europe, Asia, and
Australia. They also buy inputs and some amount of finished
products from outside suppliers which usually move in low-
cost input markets.

24. z
KEY TAKEAWAYS
 Zara has a very interesting business model, mainly based on
selling exclusive designs at low prices, following fashion trends
while assuring client satisfaction, and constant interest in their
products.
 Zara Value Chain indicates that they achieve this through the
acquisition of raw materials at low cost, and transforming those
inputs in their own fabrics, and producing their own designs, so
they don’t rely on outside clothing suppliers.
 They reduce costs on marketing and promotion by guaranteeing their
products are well designed and exclusive, so client satisfaction
is secured and word of mouth is spread by their own clients. They
control their supply chain and have their main departments deeply
involved using IT and they have manufacturing centers configured
to produce very fast and quickly react to market changes.

25. z
Application
 Value chain analysis was applied to find the role of market and regulatory
structures in the creation of an enabling environment for the supply and
promotion of emergency contraception.
 In-depth interviews were conducted with contraception clients, providers,
industry respondents, and stakeholders from national and provincial government
 The market of emergency contraception was mapped and the results of the
study indicated possible reasons for the low use of emergency contraception.
 A significant find was that fiscal and structural barriers delayed the provision of
emergency contraception to both public and private health facilities.
 Here, value chain analysis was found to be a helpful tool in studying the industry,
particularly the supply-side constraints. As in most researches utilizing value
chain analysis, progressive policies and effective interventions especially by
government were indicated as necessary in addressing issues faced by the
industry.

26. z
Thank You