Everything You Need To Know About Value Chain Analysis Smartsheet

Cover A Value Chain with several Value Streams. Download Scientific Diagram (850x549)

Table of Contents

• What is a Value Chain?
• Why is the Value Chain Important?
• What are the Primary Activities of a Value Chain?
• What are the Support Activities of a Value Chain?
• How Do You Conduct a Value Chain Analysis?

What is a Value Chain?

A value chain is a strategic tool used by businesses to identify and analyze the various activities that are involved in creating a product or service. The goal of a value chain analysis is to identify ways to create more value for customers while using fewer resources.

The concept of a value chain was first introduced by Michael Porter in his book "Competitive Advantage: Creating and Sustaining Superior Performance." According to Porter, a value chain consists of two types of activities:

• Primary activities: These are the activities that are involved in the physical creation of a product or service, its sale and distribution to customers, and its after-sales service and support.
• Support activities: These are the activities that support the primary activities and include procurement, technology development, human resource management, and firm infrastructure.

Why is the Value Chain Important?

By analyzing the value chain, businesses can identify areas where they can improve efficiency, reduce waste, and increase profitability. For example, a business may identify that it can reduce its procurement costs by negotiating better deals with suppliers, or it may find that it can improve the quality of its products by investing in new technology.

Another benefit of a value chain analysis is that it can help businesses to understand their competitive position in the marketplace. By analyzing the value chain of their competitors, businesses can identify areas where they can differentiate themselves and create a competitive advantage.

What are the Primary Activities of a Value Chain?

The primary activities of a value chain include:

• Inbound logistics: This involves the receipt and storage of raw materials, and their distribution to the production line.
• Operations: This involves the physical creation of the product or service.
• Outbound logistics: This involves the storage and distribution of the finished product to customers.
• Marketing and sales: This involves promoting the product or service and persuading customers to make a purchase.
• Service: This involves providing after-sales service and support to customers.

What are the Support Activities of a Value Chain?

The support activities of a value chain include:

• Procurement: This involves the sourcing of raw materials and other inputs.
• Technology development: This involves the development of new technologies to improve the efficiency and effectiveness of the primary activities.
• Human resource management: This involves the recruitment, training, and development of employees.
• Firm infrastructure: This involves the activities that support the entire organization, such as finance, accounting, and legal.

How Do You Conduct a Value Chain Analysis?

The following steps can be followed to conduct a value chain analysis:

1. Identify the primary activities and support activities of the value chain.
2. Identify the costs associated with each activity.
3. Identify the value added by each activity.
4. Identify areas where costs can be reduced or eliminated.
5. Identify areas where value can be added.
6. Develop strategies to reduce costs and add value.
7. Implement the strategies and monitor their effectiveness.

Conclusion

A value chain is a powerful tool that can help businesses to identify areas where they can improve efficiency, reduce waste, and increase profitability. By analyzing the various activities that are involved in creating a product or service, businesses can identify ways to create more value for customers while using fewer resources. A value chain analysis can also help businesses to understand their competitive position in the marketplace and develop strategies to differentiate themselves and create a competitive advantage.