Value chain Introduction Value Chain Analysis helped identify

Value chain

Introduction • Value Chain Analysis helped identify a firm's core competencies and distinguish those activities that drive competitive advantage.

Introduction • C. A. cannot be understood by looking at a firm as a whole. • It stems from many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its products.

Introduction • A systematic way of examining all the activities a firm performs and how they interact is necessary for analyzing the source of C. A. • Value chain is tool for doing so. • A firm’s value chain is embedded in a larger stream of activities which is value system

Value • Value is amount of buyers are willing and able to pay for what a firm provides to them. • Value is measured by total revenue. • Value chain displays total value. • Value chain consists of value activities and margin.

Value activities • Those are the building blocks by which a firm creates a product valuable to its buyers.

Margin • Margin is the difference between total value and the collective cost of performing value activities. • Margin = total value – cost

Value chain

Value activities • It can be divided into two types. 1. Primary activities 2. Support activities

Primary activities • • 1. 2. 3. 4. 5. It involves physical action of the product and its sale and transfer to the buyers as well as after sale service. It is further divided into s generic category. Inbound logistic Operations Outbound logistic Marketing and sales After sale services

Support activities • • 1. 2. 3. 4. It supports the primary activities It is further divided into 4 types. Procurement Technological development HRM Firm’s infrastructure

Primary activities 1. Inbound logistic = it includes activities associated with receiving, storing, disseminating input to the products. ex: material handling, vehicle scheduling, inventory control

Primary activities 2. Operations = it includes transforming input into output. ex: assembly, testing, printing etc. .

Primary activities 3. Outbound logistic = activities associated with collecting, storing, physically distributing the product to the buyers. ex: finished goods warehousing, order processing

Primary activities 4. Marketing and sales = activities associated with providing a means by which buyers can purchase the products.

Primary activities 5. After sale service = activities associated with providing services to enhance the value of the product like instollation, training, product adjustment etc…

Support activities 1. Procurement = it is function of purchasing input used in the firm’s value chain purchased input include raw material, machinery, lab equipment, building, office equipment. • Improved purchase practices can strongly affect the cost and quality of input.

Support activities 2. Technological development = it consists of range of activities that can be broadly grouped into efforts to improve the product and process.

Support activities 3. Human resource management = Recruiting, Hiring, Compensation

Support activities 4. Infrastructure =

Linkages within value chain • Linkages are relationship between the way one value activity is performed and the cost or performance of another. • Linkages can lead to the competitive advantage by 2 ways. 1. Optimization 2. coordination

Linkages within value chain Linkages between 1. Primary activities 2. Primary and support activities.

Causes behind linkages • Same function can be performed in a different way • Cost or performance of direct activities is improved by greater efforts in indirect activities

Pros • Value Chain Analysis provides a generic framework to analyze both the behavior of costs as well as the existing and potential sources of differentiation.

Pros • The value chain made clear that an organization is multifaceted and that its underlying activities need to be analyzed to understand its overall competitive position. An organization's strengths and weaknesses can only be identified in relation to the profiles of its direct competitors. Competitive advantage is derived from an integrated set of decisions on these key activities

Pros • It can also be used as a quick scan to describe the strengths and weaknesses of an organization in qualitative terms.

Cons • The quantitative analysis is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities. Porter provided qualitative guidance for a quantitative exercise. His analysis began with identifying the relevant activities that lead to competitive differences and are significant enough to influence the organization's overall cost base.

Cons • The Value Chain is used to analyze a firm's position in relation to its direct competitors with the assumption that rivalry drives profitability.

Cons • The Value Chain Analysis should be accompanied with a customer segmentation analysis to mix the internal and external view. A feature or product provides the firm with a differentiating competitive advantage only if customers are willing to pay for it. Customer value chains need to be analyzed to determine where value is created

Cons • The Value Chain Analysis was developed to analyze physical assets in product environments. Other authors amended the model to accommodate intangible assets and service organizations