How to Conduct a Value Chain Analysis: A Complete Guide
One of the most fundamental objectives of a company is to generate value for its stakeholders, especially its customers. The value generated by a firm is often defined in terms of the key benefits offered minus the costs. An organization adopts various innovative ways to add value to its products and services, by ensuring highest possible benefits at the lowest possible costs. The concept of value creation is quite crucial for any organization, as it can be one of the determining factors behind its competitive advantage and therefore should always be kept in consideration while designing its business plan.
In order to generate value for its stakeholders, a firm follows a set of key activities, which forms its value chain. The value chain analysis is the process where an organization identifies the primary and support activities that allows the firm to create value through its products and services. In this article of PenMyPaper we have presented a thorough explanation of the Porter’s Value Chain model, which describes the primary and support activities that an organization need to follow in order to generate value. The value chain model can be a crucial part in your marketing essay as it is often required in papers where you need to present a new business strategy. This model can also be used to analyze the existing value chain of a given firm, and for finding out the key areas for improvement.
The Value Chain Analysis Model
As mentioned earlier, the value chain covers two different types of activities which are primary and support activities. Both of these types of activities combine to produce margin for the company. The support activities, as the name suggests ‘support’ the primary activities of the company, which directly associated in earning profits. Now, let us look at these activities individually so that you can apply them in your essay format.
Primary Activities
Inbound Logistics: The inbound logistics refers to the incoming inventory of raw materials, components and finished goods from the suppliers. In order to strengthen the inbound logistics, a company can build good relationship with its suppliers and maintains seamless communication with them. The inbound logistics can be further augment through vertical integration approach, which can offer more control over the supply chain of the company.
Operations: The operations refer to the operational activities of the organization, which transforms the inputs into the final products with added value, which are to be offered to the customers. The operational activities can be enhanced using various different approaches such as lean manufacturing, kaizen, etc. The sole objective of the operational activities is to offer more value to the customers through the offered products and services, while keeping the cost of operations as low as possible. A firm with more resource efficient operations will have higher competitive advantage in terms of cost leadership.
Outbound Logistics: The outbound logistics refer to the transportation or distribution of the finished products to the customers in the target markets. It involves warehousing, fulfillment of orders, timely delivery of products to the store shelves or to the customer door steps. In order to improve outbound logistics a company adopts appropriate inventory management and logistics networks so that waiting time for the customer can be reduced as much as possible. Thus, the outbound logistics can play a significant role in customer satisfaction.
Marketing and Sales: The marketing and sales refer to the marketing and promotional activities, which are aimed at attracting the customers towards the brand and convince them to make a purchase. Typically, companies adopt suitable marketing mix strategies in order to create a strong differentiation in the market. It is also used to create a strong brand image among the customers. As a part of the sales strategies, a company may choose to offer attractive discounts and deals to the customers to offer more value to them.
Service: The service refers to the intangible aspects of the value offering, which involves all the activities which augments the overall experience of the customers. It includes after sales services, customer support, repairment, etc. The quality of service also plays a determining role behind customer satisfaction. Exploring the Nikes purpose you can contemplate that all such big companies often focus on their service quality by augmenting their extended marketing mix, which includes factors like people, process and physical evidence.
Support Activities
Firm Infrastructure: The firm infrastructure involves all the functional units or departments that support the entire business operations of the company. It includes departments like finance, marketing, human resources, research and development, public affairs, etc. Better the infrastructure, the more potential the company has in generating value for its stakeholders. Well-established companies invest significantly into their infrastructure in order to improve the overall organizational performance.
Human Resource Management: This refers to the management of the employees and staff members. Hiring the right staff for the right job with the required skill sets can improve the operational performance of the company to a great extent. Moreover, it also refers to the overall human capital of the company, which includes the skills and abilities, as well as the employee strength. A company with a higher number of skilled and trained employees is likely to perform better in compared to other market players. The adopting the right leadership approach and training programs, the human resource management can be improved further.
Technology Development: Developing new technologies and product and process design can help a company in gaining strong differentiation in the market. Access to advanced technologies, enables a firm to offer unique value propositions, thereby attracting new customers. Companies often invest significantly into technology development through R&D or strategic acquisitions. Newer technologies can also allow a firm to make their operational activities more resource efficient, thereby reducing operational costs.
Procurement: Procurement refers to acquisition of inputs and raw materials. It should be noted that the quality of the finished good largely depends on the quality of the raw materials or internal components. Therefore, the procurement process plays a crucial role in the value generation of the company. Organizations ensure that they have access to the best possible quality of materials, through their global supply chain network. Procurement can be made from third party suppliers or from its own plants by adopting vertical integration for producing own raw materials.
As we can see, the support and the primary activities of the company determine the value generation of the company. From the organizational perspective, it can generate value from two key areas, which are cost advantage and differentiation advantage. Each of the activities in the value chain can help a firm gain advantage on these two areas. According to top essay paper writers, you first need to determine how the company seeks to achieve its competitive advantage: cost leadership or differentiation. Check an example of Apple competitive advantage.
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