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Value Chain Analysis

Strategic planning aims to add value through new customers, products, markets or technology. Value chain analysis represents a firm's activities to design, produce and deliver products/services. It examines primary activities like operations, logistics and sales, and support activities like procurement, technology and human resources. Analyzing information flows within and between activities can optimize performance and link activities to avoid costs and missed opportunities.

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Vivek Kumar Gupta
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9K views

Value Chain Analysis

Strategic planning aims to add value through new customers, products, markets or technology. Value chain analysis represents a firm's activities to design, produce and deliver products/services. It examines primary activities like operations, logistics and sales, and support activities like procurement, technology and human resources. Analyzing information flows within and between activities can optimize performance and link activities to avoid costs and missed opportunities.

Uploaded by

Vivek Kumar Gupta
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Criteria for Effective Planning

• Situation analysis and competitive


assessment
• Evaluation of strategic options
• Dynamic allocation of resources

The purpose of strategic planning is to add value to the firm by adding


new customers, new products or services, new markets, new locations, or
new breakthrough technology.
If the plan does not add value, it is worthless
Value Chain Analysis
• The concept of Value Chain Analysis is
described by Michael Porter who notes
that: “Every firm is a collection of activities
that are performed to design, produce,
market, deliver and support its products or
services. All these activities can be
represented using a value chain. Value
chains can only be understood in the
context of the business unit”.
Value Chain Analysis
• The value chain of the business unit is
only one part of a larger set of value-
adding activities in an industry- the
industry value chain or value system
• The value chain of any firm needs to be
understood as part of the larger ‘system’ of
related value chains
IS and Value Chain
• Information systems are used to enable
better information exchanges through the
industry value chain, significant benefits
can be obtained from the improved links.
These benefits should enable a firm to
spend more of its business energy in
outperforming its real competitors rather
than competing with its trading partners for
profit.
Internal Value Chain
• The purpose of Internal Value Chain analysis is
to divorce what the company does from how it
does it.
Two types of business activity:
• Primary activities; those that enable it to fulfill its
role in the industry value chain and hence satisfy
its customers. They must be linked together
effectively.
• Support activities; those which are necessary to
control and develop the business over time and
thereby add value indirectly.
Primary Activities
• Inbound logistics — Procuring, receiving and
warehousing raw materials.
• Operations — Machining, assembly and
manufacturing products.
• Outbound logistics — Getting the product to
the customer.
• Marketing and sales — Advertising, marketing
and selling.
• Service — Providing customer support and
product repairs.
Support Activities
• Procurement: The purchasing of materials used
to create value for the firm.
• Technology Development: Any technology
used to support the firms value chain activities.
• Human Resource: The Activities surrounding
the Recruiting, Hiring, Training and
compensation of an organizations employees.
• Firm Infrastructure: The activities and functions
that support a firm’s ability to create value such
legal, accounting, management, strategy, etc.
Cont..
• The term, Margin implies that
organizations realize a profit margin that
depends on their ability to manage the
linkages between all activities in the value
chain. In other words, the organization is
able to deliver a product / service for which
the customer is willing to pay more than
the sum of the costs of all activities in the
value chain.
Value Chain: An Example
SUPPORT ACTIVITIES

INFRASTRUCTURE - Legal, Accounting, Financial Management

HUMAN RESOURCE - Personnel, Pay, Recruitment, Training,


MANAGEMENT Manpower Planning, etc.
PRODUCT AND TECHNOLOGY - Product and Process Design, R&D,
DEVELOPMENT Production Engineering, IT, etc.
PROCUREMENT - Supplier Management, Funding, VALUE
Subcontracting, Specification ADDED
INBOUND OPERATION OUTBOUND SALES AND SERVICES - COST
LOGISTICS LOGISTICS MARKETING = MARGIN
eg. eg. eg. eg. eg.

Quality Control Manufacturing Finished Goods Customer Mgmt Warranty


Receiving Packing Order Handling Order Taking Maintenance
Raw Material Production Despatch Promotion Education/
Control Control Delivery Sales Analysis Training
etc. Quality Control Invoicing Market Research Upgrade
Maintainace etc. etc. etc.
etc.

PRIMARY ACTIVITIES
A manufacturing company's value chain. Many activities cross the boundaries, especially
information based activities such as sales forecasting, capability planning, resource scheduling,
pricing etc.
Alternative Value ‘configuration’
Models
• The traditional value chain model was
essentially based on manufacturing/retail
view of industry and works well for
‘physical goods’. But does not really
represent what the business does or its
relationships with customers and suppliers
in many other businesses.
• 2 alternatives: Value Shops and Value
Networks
The Use of Value Chain Analysis
• The main objective is to represent the main
activities in the business and their
relationships in terms of how they add value
so as to satisfy the customer and obtain
resources from suppliers.
• The information that flows throughout the
industry and how critical that information is to
the functioning of the industry and the success of
the firms in it, by determining where and when
that information is available, who has it and how
it could be obtained and turned to advantage or
used against the firm.
The Use of Value Chain Analysis
• The information that is or could be
exchanged with customers and suppliers
throughout the chain to improve the performance
of the business or lead to mutually-improved
performance by sharing the benefits.
• How effectively the information flows through
the primary processes and is used by them:
– Within each activity to optimize performance
– To link the activities together and avoid unnecessary
costs and missed opportunities; and
– To enable support activities to contribute to the value-
adding processes, not hinder them.

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