Value Chain Analysis
Originally published: 30/10/2023 09:52
Last version published: 19/02/2024 08:46
Publication number: ELQ-28840-2
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Value Chain Analysis

32 Powerpoint Templates to perform standardized research and create Value Chain Analysis reports.

Here are the primary components of a typical value chain analysis:

Inbound Logistics:
This involves the process of acquiring, receiving, and storing raw materials or inputs required for production.
This stage includes the activities related to the actual production or service delivery. It covers everything from manufacturing to packaging to quality control.
Outbound Logistics:
Outbound logistics pertains to the distribution and transportation of finished products to customers or end-users.
Marketing and Sales:
These activities focus on promoting products or services, advertising, sales channels, and customer engagement.
The service component involves post-sale customer support, including warranties, maintenance, and troubleshooting.
This refers to the process of sourcing materials, negotiating with suppliers, and managing supplier relationships.
Technology and Infrastructure:
The support activities underpinning the primary value chain activities, including technology, systems, and infrastructure, enable and optimize the core functions.
Human Resources:
Human resources management includes recruiting, training, and retaining employees with the skills and expertise needed to carry out value chain activities effectively.
Firm Infrastructure:
This encompasses various support functions, including finance, planning, legal, and organizational management.

Key Steps in Conducting a Value Chain Analysis:
Identify Activities: Map out all activities in the value chain and categorize them as primary or support activities.
Assess Value: Evaluate each activity's contribution to the overall value creation and customer satisfaction.
Cost Analysis: Assess the costs associated with each activity to identify opportunities for cost reduction.
Competitive Advantage: Determine which activities provide a source of competitive advantage and differentiation.
Benchmarking: Compare your value chain with those of competitors to identify areas for improvement.

Value Chain Analysis enables businesses to identify opportunities for improving efficiency, reducing costs, and increasing overall value to customers. By focusing on activities that create the most value and understanding how they interconnect, organizations can make informed decisions to gain a competitive edge in their industry.

Standard Operating Procedure

1. Introduction to Value Chain Analysis: Recognize that a Value Chain Analysis is a method to dissect the activities an organization performs to create and deliver products or services. Developed by Michael Porter, the objective is to understand the sources of value and differentiate the organization from competitors.

2. Define the Scope:
2.1. Product or Service: Determine whether the analysis is for a specific product, service, or the entire organizational offering.
2.2. Depth of Analysis: Decide on the granularity of the analysis, whether to focus on broad activities or delve into sub-activities.

3. Identify Primary Activities: These are the core activities directly involved in the creation and delivery of products or services.
3.1. Inbound Logistics: Activities related to receiving, storing, and distributing inputs.
3.2. Operations: Activities associated with transforming inputs into finished products.
3.3. Outbound Logistics: Activities related to collecting, storing, and distributing the product to buyers.
3.4. Marketing and Sales: Activities that communicate the product's value and persuade customers to purchase.
3.5. Service: Activities that maintain and enhance the product's value post-sale.

4. Identify Support Activities: These are activities that support the primary functions and are integral to improving efficiency and effectiveness.
4.1. Procurement: Activities related to purchasing inputs for the value chain.
4.2. Technology Development: Activities related to technology that supports the value chain, such as R&D and automation.
4.3. Human Resource Management: Activities related to hiring, training, and retaining employees.
4.4. Firm Infrastructure: General organizational systems, such as management, planning, finance, and quality control.

5. Analyze Activities:

5.1. Value Creation: Determine how each activity adds value to the product or service.
5.2. Cost Analysis: Assess the costs associated with each activity and compare it to the perceived value.
5.3. Differentiation: Identify where the organization can differentiate itself from competitors within each activity.

6. Identify Interlinkages: Examine how different activities influence and depend on one another. Optimizing these linkages can create a competitive advantage.

7. Compare with Competitors:
7.1. Competitive Value Chains: Understand the value chains of key competitors.
7.2. Strengths and Weaknesses: Identify areas where the organization has a competitive advantage and areas of vulnerability.

8. Formulate Strategies:
8.1. Optimization: Determine how to optimize individual activities to enhance value or reduce cost.
8.2. Redefinition: Consider redefining activities that may not be adding significant value.
8.3. Innovation: Identify areas where innovation can disrupt or significantly enhance the value chain.

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