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A compelling value proposition is one of the major components that sets a company apart in a competitive market. However, merely identifying unique selling points is not enough. Equally important is ensuring that every facet of a business is optimized to deliver maximum value to customers and enhance profit margins. This underscores the significance of value chain analysis, a strategic business process designed to examine business operations and identify how each activity contributes to value creation and overall profitability. In this article, we explore how conducting a value chain analysis can strengthen a company’s competitive stance and enhance operational strategies.
This section examines key concepts that are fundamental to understanding business processes. We will explore the similarities and differences between value chains, value chain analysis, supply chains, and business models.
A value chain refers to the sequence of activities involved in creating a product or service, from its initial conception to its delivery to the end consumer. This includes design, transportation, production, marketing, and distribution, where each stage adds value to the product. A global value chain extends this concept to an international level, involving a range of activities performed by multiple economic actors globally to bring a product to market.
Value chain analysis is a strategic method that companies use to examine their internal operations and identify how each one contributes to their competitive strength. By evaluating these processes, companies can spot inefficiencies or areas for improvement that, once addressed, can enhance their cost efficiency and productivity. The benefits of a solid value chain analysis span across different functions, including operations and inventory management, production and delivery, vendor relationships, service quality, and more, as we will further explore.
A value chain encompasses both the production and the broader operational processes, including pre-production, such as design, and post-production, like marketing. In contrast, a supply chain covers all the processes and resources needed to create and deliver goods or services to consumers. It includes managing physical products, information, and finances to ensure efficient and timely delivery.
The main activities in a value chain include the following:
The key functions of a supply chain are the following:
Supply chains are subsets of value chains, as they include the logistical and operational steps involved in fulfilling customer requests but also extend to customer satisfaction and financial management.
A business model outlines the overall strategy of how a company operates within its industry. It describes how the company integrates essential functions such as finance, marketing, operations, and strategy into a cohesive plan to ensure profitability and sustainability. The model covers everything from how the company positions itself in the market to how it attracts and retains customers and how it generates revenue.
On the other hand, a value chain focuses specifically on the internal activities and processes a company uses to create and deliver its products or services. It details the steps from the initial design to the final after-sales services, each designed to increase the utility and attractiveness of products and services. While the value chain is a part of the business model, it specifically targets operational efficiency.
Discover how analyzing each stage of your value chain can enhance productivity, reduce costs, and create more value for customers.
A value chain is divided into two types of activities: primary activities, which are directly involved in creating and delivering products or services, and secondary activities, which support and enhance the efficiency of primary activities. Let us explore them in detail:
| Primary Activities | Description |
|---|---|
| Inbound Logistics | Receiving, storing, and managing inventory of input materials. Here, maintaining strong relationships with suppliers is essential as it greatly enhances value creation. |
| Operations | Transforming raw materials into finished products that are sold to customers. |
| Outbound Logistics | Delivering products and services to customers through collection, storage, and distribution processes, either handled internally by the company or by third-party providers. |
| Marketing and Sales | Strategies used to effectively communicate and convince clients to choose products or services over competitors’ offerings. |
| Service | Preserving and enhancing the value of a product or service for customers after their purchase through customer support, maintenance, and repair services. |
| Secondary Activities | |
| Procurement | Acquiring the necessary resources for operation, including finding vendors and negotiating the best possible prices. |
| Human Resource Management | Recruiting, training, motivating, rewarding, and retaining employees through different strategies and initiatives. |
| Technological Development | Managing, processing, and protecting a company’s information and knowledge base. Value is created by minimizing information technology costs, keeping up with technological advancements, and maintaining technical excellence. |
| Infrastructure | Key systems and capacities necessary for day-to-day operations, including accounting, legal, administrative, and general management. |
An effective value chain analysis provides a clear view of what the company does best, where it can improve, and how it can maintain a competitive edge in the market. The three main steps to conducting a comprehensive value chain analysis are activity analysis, competitor benchmarking, and evaluation.
Activity analysis involves identifying and examining the primary and secondary activities involved in product and service delivery, along with key stakeholders across the value chain. At a company level, this means reviewing cross-department business processes, whereas at the individual or team level, it focuses on daily workflows and tasks. This includes how teams recruit skilled employees, motivate staff, keep up with the latest operational techniques, adopt emerging technologies, and foster continuous improvement. Mapping out value chain activities provides clarity on how each one contributes to business growth.
Competitive benchmarking involves comparing your company’s practices with your competitors to identify areas for improvement and growth. It is divided into three main types:
Comparing business processes with competitors to understand and optimize the management of workflows and operations.
Examining competitors’ business models and strategies to identify market gaps and areas of improvement, while strengthening business strategies.
Comparing business outcomes with those of competitors using specific efficiency, effectiveness, and productivity metrics.
To conduct a benchmarking exercise, start by selecting the type of benchmarking that you are most interested in, identify the competitors you wish to evaluate, then choose your benchmarking metrics and delve into the research and analysis. You can find further details and guidance on these steps in our competitive benchmarking article.
During this stage, the focus is on identifying and addressing gaps or areas for improvement within internal processes and external relationships with partners, suppliers, and stakeholders. The gathered insights are guided by specific criteria, goals, and priorities established by the company, ensuring that the analysis is aligned with strategic objectives and targeted outcomes. This enables organizations to develop tailored strategies and action plans that address identified gaps and drive continuous improvement throughout the value chain.
The benefits of conducting a value chain analysis are many, whether these are related to process optimization, profitability increase, stakeholder relationship management, or others. Below are some of these benefits.
Value chain analysis can significantly improve a company’s resource management. By identifying inefficiencies and areas for improvement, businesses can better allocate and use resources, minimize waste, and direct efforts where they will have the most impact. This could be translated into the following:
Businesses can reduce unnecessary costs by identifying areas where processes can be optimized. This would be through better inventory management, waste elimination, and the identification of cost-efficient suppliers and logistics providers. These improvements would not only enhance product or service quality and improve pricing but also attract new customers or clients, ultimately boosting overall profitability.
By evaluating and optimizing different stages of the value chain, from product development to after-sales support, companies can improve their relationships with different stakeholders. These could be external ones like suppliers or internal ones like shareholders. Indeed, companies can find more suitable suppliers or improve their engagement with existing ones to ensure timely and efficient delivery of goods or services. By optimizing processes, companies can also enhance their overall performance, which would positively impact shareholder value and satisfaction.
Value chain analysis stands as a cornerstone of Infomineo’s expertise, showcasing our proficiency in understanding complex business ecosystems. We are adept at identifying the strategic positioning of industry players within value chains through extensive online research that looks into their business descriptions, industry classifications, product and service offerings, and more.
Our analysis delves deeper, examining the value chain segments of specific companies or industries and mapping out all the players involved in each segment. This includes capturing key details ranging from their core business activities to their value propositions and financial performance, leveraging premium databases and exclusive industry reports. This comprehensive approach allows us to gain a holistic view of the market landscape and the interconnected relationships between different entities.
When dealing with large volumes of data, our data analytics team are skilled at visually representing these insights through interactive dashboards, ensuring clear and effective communication of our findings. Ready to gain a comprehensive understanding of your industry’s value chain?
Value chain analysis helps a company identify areas where it can reduce costs, optimize processes, eliminate waste, and increase profitability. It also provides insights into activities that add significant value for the end user, guiding strategic decisions and operational improvements.
A value chain describes the full range of activities required to bring a product or service from conception to the end customer. This involves the various phases of production, including pre-production and post-production processes. In contrast, a supply chain is the handling of physical products, information, and finances to ensure efficient and timely delivery to customers.
Consider a local bakery that wants to improve its operations using value chain analysis:
The first step is activity analysis, where you identify and examine the primary activities directly involved in product and service delivery, and the supporting activities that enhance business efficiency and effectiveness. At an organizational level, this means reviewing every business process, whereas at the team level, it focuses on daily workflows and tasks.
The value chain includes five key activities that drive the creation and delivery of a product. These are:
Value chain analysis is a strategic process that helps businesses examine and optimize the processes involved in the development and delivery of products and services. It focuses on primary activities like logistics, operations, and sales and secondary activities such as human resources and technology development to enhance efficiency and achieve competitive advantage. The process includes analyzing a company’s activities, conducting a competitive benchmarking exercise, and evaluating gaps or areas of improvement, with the aim of optimizing the value chain, reducing costs, improving product quality, and strengthening a company’s position in the market. Looking ahead, the future of value chain analysis appears promising, particularly with the integration of AI and advanced technologies. These innovations can significantly refine the process by automating data collection and analysis, providing deeper insights, and predicting key trends.
