VALUE CHAIN ANALYSIS
SUBMITTED BY
KRISHNAPRIYA S KUMAR
REG NO:CUASMGT025
4TH SEMESTER MBA
DCMS
PH NO:7034036036
INTRODUCTION
The idea of a value chain was first suggested by Michael Porter (1985) to depict how
customer accumulates along a chain of activities that lead to an end product or
service. Porter describes the value chain as the internal processes or an activity a
company performs “to design, produce , market, deliver and support its product”
DEFINITION
“Value chain analysis (VCA)is a process where a firm identifies its primary and support
activities that add value to its final product and then analyze these activities to reduce
costs or increase differentiation.”
Value chain represents the internal activities a firm engages in when transforming inputs
into outputs.
IMPORTANCE
1. Cuts delivery times
One advantage of value chain analysis is that the company can exploit it to reduce the
amount of time it takes to deliver its products to wholesalers or retailers.
2. Optimize inventory
Reduced delivery times pave the way to inventory optimization as the retailers can
collaborate with their suppliers to make smaller and more frequent orders.
3. Enhances client relations
Through management of the preliminary value chain factors like inbound logistics,
operations and outbound logistics, resellers increase their response times and reduce costs
for their clientele. Most importantly, marketing, sales and service phases in the value chain
help improve consumer relations.
4. Increases bottom line and profit
A key significance of value chain analysis is that it enhances the profit margins for the
company. This is because with efficient logistics and distribution, goods reach the final
user when they need them.
Michael Porter classified the
entire value chain into nine
activities which are interrelated
to one another. While primary
activities include the activities
that are performed to satisfy
external demand, secondary
activities are those which are
performed to satisfy internal
requirements.
CLASSIFICATION OF VALUE CHAIN ANALYSIS
1.Primary activities
The primary activities in the value chain analysis are involved in the physical creation of a
product, it’s distribution and marketing, and the after-sales service related to the product. It
includes:
Inbound Logistics: It includes a range of activities like receiving, storing, distributing,
etc. which make available goods and services for operational processes. Some of those
activities are material handling, transportation, stock control, etc.
Operations: The activity of transforming input raw material to final product ready for
sale, is termed as operation. Machining, assembling, packaging are the activities covered
under operations.
Outbound Logistics: As the name suggests, the activities that help in collecting,
storage and delivering the product to the customer is outbound logistics.
Marketing and Sales: All the activities like advertising, promotion, sales, marketing
research, public relations, etc. performed to make the customer aware of the product
or service and create demand for it, comes under marketing.
Service: Service means service provided to the customer so as to improve or maintain
the value of the product. It includes financing service, after-sales service and so on.
2.Support Activities
The support activities in the value chain analysis are necessary for supporting the
primary activities to take place. The support activities in the value chain analysis have
for indicators
Procurement: This activity serves the organization, by supplying all the necessary
inputs like material, machinery or other consumable items, that required by the
organization for performing primary activities.
Technology Development: At present, technology development requires heavy
investment, which takes years for research and development. However, its benefits
can be enjoyed for several years and by a multitude of users in the organization.
Human Resource Management: It is the most common plus important activity
which excel all primary activities of the organization. It encompasses overseeing the
selection, retention, promotion, transfer, appraisal and dismissal of staff.
Infrastructure: This is the management system, which provides, its services to the
whole organization and includes planning, finance, information management, quality
control, legal, government affairs, etc.
STEPS IN VALUE CHAIN ANALYSIS
COST DRIVERS OF VALUE CHAIN ANALYSIS
Cost advantage results from a reduction in costs associated with activities in a value
chain. After the value chain has been defined, it’s important to associate costs to the
activities and then make adjustments for efficiency. Porter’s 10 cost drivers are
factors that can impact the cost of an activity. An organization can aim to control
these cost drivers in order to improve efficiency, add value, and differentiate. The cost
drivers are:
Economies of scale
Learning and spillovers
Pattern of capacity utilization
Linkages
Interrelationships
Integration
Timing
Organization policies
Location
Institutional factors
ADVANTAGES
It is a very flexible strategy tool for looking at your business, your competitor and the
respective place in the industry value system
It can be used to diagnose and create competitive advantage on both cost and
differentiation
It help in understanding the organizations issues involved with the promise of making
customer value commitments and promises because it focuses attention on the activities
needed to deliver the value proposition
It can be adapted for many type of business-manufacturing, retail and service, big or small
DISADVANTAGES
Many people are familiar with value chain but few are expert in its use
Its very strength of flexibility mean that it has to be adapted to a particular business
situation and that can be disadvantage since , to get the best from the value chain, its
not “plug and play”
Business information system are often not structed in a way to make it easy to get
information for value chain analysis
THANK YOU
