{"id":20618,"date":"2023-02-13T16:16:31","date_gmt":"2023-02-13T16:16:31","guid":{"rendered":"https:\/\/businessyield.com\/?p=20618"},"modified":"2023-04-03T19:32:20","modified_gmt":"2023-04-03T19:32:20","slug":"value-chain-analysis","status":"publish","type":"post","link":"https:\/\/businessyield.com\/terms\/value-chain-analysis\/","title":{"rendered":"Value Chain Analysis: Steps to value Chain Analysis","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n

What is your company’s competitive advantage? A value proposition assists businesses in determining what differentiates them from competitors. But how can you tell if your business activities are providing the most value to your customers while also generating a high-profit margin?
A value chain is used to describe all of the business activities required to create a product from beginning to end (e.g., design, production, distribution, and so on). A value chain analysis provides businesses with a visual representation of these activities, allowing them to identify areas where they can cut costs.
Using the results of this analysis, you can take steps to gain a competitive advantage, improve efficiency, and boost profit margins. Let’s take a closer look at a value chain analysis example and see how you can use it to analyze your business activities.<\/p>\n\n\n\n

What is Value Chain Analysis?<\/span><\/h2>\n\n\n\n

A value chain analysis is a method for firms to examine the actions that go into making a product. Once the actions have been examined, a company can utilize the information to determine how to increase its competitive edge.<\/p>\n\n\n\n

While improving operational efficiency is one of the purposes of value chain analysis, the ultimate and most essential goal is to develop a competitive advantage.<\/p>\n\n\n\n

As you complete your value chain analysis, you will determine the competitive advantage you are attempting to obtain. Companies can select between two types of competitive advantage: cost advantage and differentiation advantage. Let’s go over these in more detail below.<\/p>\n\n\n\n

The Competitive Advantage<\/span><\/h3>\n\n\n\n

Your company’s competitive advantage is what distinguishes it from competitors. To get an advantage, you must first identify your target market. If you’re an entrepreneur looking to precisely define your company’s target audience and market, identify the right niche market for launching or selling your items.<\/p>\n\n\n\n

You’ll also need a strong understanding of your competitors and their offers, as well as the benefit your product gives to the target market.<\/p>\n\n\n\n

A company’s goal in developing a value chain analysis is to achieve a competitive advantage in one of two areas.<\/p>\n\n\n\n

Cost Advantage<\/span><\/h3>\n\n\n\n

A cost advantage approach seeks to make you the lowest-cost provider in your sector or market. Companies that thrive at a low-cost strategy have extremely efficient operations and use low-cost materials and resources to minimize the overall price of their product or service. McDonald’s and Walmart are two examples.<\/p>\n\n\n\n

Differentiation Advantage<\/span><\/h3>\n\n\n\n

To achieve a competitive edge, you use a differentiation strategy to offer a unique or highly specialized product or service. The organization must devote time and resources to innovation, research, and development. An effective differentiation strategy enables a company to charge a premium for its product or service. Starbucks and Apple are two examples.<\/p>\n\n\n\n

It is advisable to concentrate your efforts on a single competitive advantage. The purpose of your value chain analysis will be to either lower costs or distinguish to boost margins, depending on the competitive strategy<\/a> you adopt. Then you’ll have a clear understanding of your company’s aims and how you intend to give value. It also limits the breadth of improvements that may be required to improve efficiency.<\/p>\n\n\n\n

But how do you decide which competitive advantage to pursue? Using Porter’s value chain model, you may examine your business activities, identify a distinct value proposition, and determine your best option for gaining a competitive advantage.<\/p>\n\n\n\n

Value Chain Analysis by Porter<\/span><\/h2>\n\n\n\n

In his book “Competitive Advantage,” Harvard Business School professor Michael Porter presented a simple value chain model. He devised the procedures for conducting a value chain analysis and classified corporate activities into two categories: primary and secondary.<\/p>\n\n\n\n

Identifying the basic and secondary operations is an important stage in developing a value chain analysis. You’ll know where you spend the most money, where your company can improve, and where your competitors can outperform you.<\/p>\n\n\n\n

Let’s have a look at these activities in more detail below.<\/p>\n\n\n\n

\"value<\/a><\/figure><\/div>\n\n\n\n

Primary and Support Activities<\/span><\/h3>\n\n\n\n

Primary and support activities are the key processes and systems that a company employs to develop its product or service, according to Porter’s value chain model. Inbound logistics, operations, outbound logistics, and sales are the five key activities. Firm infrastructure, human resource management, technological development, and procurement are examples of support activities of value chain analysis.<\/p>\n\n\n\n

Primary Activities of the Value Chain Analysis<\/span><\/h4>\n\n\n\n

Five key activities encompass all of the actions that contribute to the establishment of a business’ offering.<\/p>\n\n\n\n

#1. Inbound Logistics: <\/span><\/h5>\n\n\n\n

This is the process of acquiring materials and resources from suppliers before the development of the end product or service. Consider the locations of your suppliers as well as the shipping costs from their facility to yours in your study<\/a>.<\/p>\n\n\n\n

#2. Operations<\/span><\/h5>\n\n\n\n

Operations are the processes by which materials and resources are created, resulting in a finished product or service. You may examine the costs of running your warehouse, machinery, and assembly lines here.<\/p>\n\n\n\n

#3. Outbound Logistics: <\/span><\/h5>\n\n\n\n

Once a product or service has been completed, it must be distributed. This delivery process is referred to as outbound logistics. Consider your consumer shipping expenses, warehousing fees, distributor relationships (do they charge a fee for each sale, for example?), and order processing procedures.<\/p>\n\n\n\n

#4. Marketing and Sales<\/span><\/h5>\n\n\n\n

Marketing and sales are the methods used to show and sell your product or service to your ideal target market. Consider advertising expenditures, promotional costs, reach, and cost-per-acquisition in your analysis.<\/p>\n\n\n\n

#5. Services: <\/span><\/h5>\n\n\n\n

This is the assistance that a company provides to its customers, which might include product support and training, warranties, and guarantees. You will examine maintenance expenses, product training costs, product adjustment frequency, and other factors.<\/p>\n\n\n\n

Support Activities of the Value Chain Analysis<\/span><\/h4>\n\n\n\n

Support activities assist primary activities in gaining a competitive edge. They are as follows:<\/p>\n\n\n\n

#1. Firm Infrastructure: <\/span><\/h5>\n\n\n\n

This refers to all of the management, financial, and legal processes that a company has in place to make business decisions and manage resources effectively.<\/p>\n\n\n\n

#2. Human Resource Management (HRM): <\/span><\/h5>\n\n\n\n

HRM comprises all of the activities and systems involved in managing employees and employing new personnel. This is especially critical for businesses that provide in-person service, as having good personnel can provide you a competitive advantage.<\/p>\n\n\n\n

#3. Technology Development: <\/span><\/h5>\n\n\n\n

Technology development aids a company’s ability to innovate. Furthermore, technology can be employed at many stages of the value chain to achieve a competitive edge by enhancing efficiency or cutting production costs.<\/p>\n\n\n\n

#4. Procurement:<\/span><\/h5>\n\n\n\n

Procurement is the process of obtaining resources and supplies for a product as well as locating suppliers. The goal is to discover high-quality materials that are within the company’s budget.<\/p>\n\n\n\n

It is now time to put everything together in a single effort. We’ll go over the most frequent value chain analysis steps below.<\/p>\n\n\n\n

Steps in Value Chain Analysis<\/span><\/h3>\n\n\n\n