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Use of Value Chain Analysis for Cost Advantage
STEP 01
Identify the organization’s primary and support activities
STEP 02
Determine the relative significance of each activity in the product cost
STEP 03
Find out cost drivers for each activity
STEP 04
Identify link between activities
STEP 05
Recognize opportunities of cost reduction
It is a very flexible strategy tool for looking at your business, your competitors & the respective places in the industry’s value system.
It helps you to understand the organization issues involved with the promise of making customer value commitments and focuses attention on the activities needed to deliver the value proposition.
It has to be adapted to a particular business attention & that can be a disadvantage since, to get the best from the value chain, it’s not “plug and play”.
Many people are familiar with the value chain but few are experts in its use. Business info. systems are often not structured in a way to make it easy to get information.
Advantages and Disadvantages
It can be used to diagnose and create competitive advantages on both cost and differentiation.
The scale & scope of this can be intimidating. It can take a lot of work to finish a full value chain analysis for your company and competitors so that you can identify and understand the difference.
ADVANTAGES
DISADVANTAGES
Value Chain Vs. Supply Chain
Customer�Satisfaction
Planning & �Analysis
Innovation�Process
Product�Development
Supplier Alignment�& Sourcing
VALUE CHAIN PROCESS
(Products)
(Customers)
Material �Suppliers
Logistics�Management
Production �Steps
Sales & �Marketing
Customer�Satisfaction
SUPPLY CHAIN PROCESS
(Customer)
(Supplier)
Physical/Traditional Value Chains
Virtual Value Chains
Business-Unit Value Chains
Global Value�Chains
They can be used within and across an organization by involving physical or tangible resources.
They can be used within and across an organization by involving virtual and electronic information.
Focus on specific business units rather than the entire organization & may integrate with other internal value chains.
Cross border or regions and may include multinational partnerships and trade agreements.
High Level Categorization
Primary and Support Activities
PRIMARY ACTIVITIES
Material handling and warehousing
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Services
Transforming inputs into the final products
Order processing and distribution
Communication pricing & channel management
Installation, repair and parts
SUPPORT ACTIVITIES
Purchasing of raw materials, suppliers and other consumable items as well as assets
Procurement
Tech. Development
HR Management
Firm Infrastructure
Know-how, procedures & technological inputs needed in every value chain activity
Selection, promotion & placement; appraisal; rewards; development; and labor/employee relation
General management, planning, finance, accounting, legal, government affairs & quality management
Inbound Logistics
Operations
Marketing & Sales
Services
Value Chain Analysis
Firm Infrastructure
HR Management
Technology Development
Procurement
Management, finance, legal, planning
Professional development, employee relation, performance appraisal, wages etc.
Integrated supply chain system, real-time sales information
Real-time inventory, communication with suppliers, purchase supplies & materials
MARGINS
SUPPORTING ACTIVITIES
PRIMARY ACTIVITIES
Outbound Logistics
Value Chain Analysis
Services
Marketing and Sales
Outbound�Logistics
Operations
Inbound�Logistics
Firm Infrastructure
HR Management
Technology Development
Procurement
MARGIN
MARGIN
Porter’s Value Chain Model
Firm Infrastructure
HR Management
Technology Development
Procurement
Inbound Logistics
Operations
Outbound
Logistics
Marketing & Sales
Services
PROFITS
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Porter’s Value Chain Model
Services
Inbound Logistics
Operations
Outbound
Logistics
Marketing & Sales
FUTURE
MARGIN
SUPPORTING ACTIVITIES
PRIMARY ACTIVITIES
Value Chain Analysis
Services
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
HR & Finance & Legal :
Hiring talented people, creating sustainable operating cashflow & risk mitigation.
Technology :
Advanced customer database and analytics tools for recommendation and personalization. Scalable AWS for Amazon.com’s technology infrastructure, B2C and B2B customers. Fully optimized as well as automated warehouse & distribution centers along with robotics technology.
Procurement :
Vast number of vertically integrated suppliers
PRIMARY ACTIVITIES
SUPPORTING ACTIVITIES
Customer Value
Industry - Value Chain Analysis
Substrates�and Inks
Printing�Equipment's
Functional�Components�(displays, batteries etc.)
Technology Integrators�& Manufactures (Traditional & PE)
End Product Using�Printed Electronics�(“Smart” products)
Technology�Developers
Ink/Substrate�Manufacturers
Ink/Substrate�Customers
Technology�Developers
Equipment�Manufactures
Equipment�Customers
Technology�Developers
Component�Producers
Component�Customers
Technology�Developers
Manufactures
Customers
Product &�Brand Developers
End Product�Manufacturer
End Product�Customers
COMPLETED INDUSTRY VALUE CHAIN FOR THE PRINTED ELECTRONICS INDUSTRY
SUB-INDUSTRY VALUE CHAIN
Value Chain Analysis - Primary Activities
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING
& SALES
SERVICES
All those activities concerned with receiving and storing externally sourced materials.
All those activities associated with getting finished goods and services to buyers.
All those activities associated with maintaining product performance after the product has been sold.
The manufacture of product & service the way in which resource inputs (materials) are converted to outputs (products)
Essentials an information activity - informing buyers and consumers about product & services
Value Chain Analysis Example
FIRM’S PRIMARY ACTIVITIES | Design and engineering | Purchasing materials and components | Assembly | Testing and quality control | Sales and marketing | Distribution and dealer support |
TOTAL COST AND IMPORTANCE | $164M less important | $410M very important | $524M very important | $10M is not important | $384M is just important | $230M is less important |
COST DRIVERS | Number & frequency�of new models�sales per model | Order size avg. value of purchase per supplier, location�of suppliers | Scale of plant�capacity utilization, location of plants | Level of quality�targets frequency�of defects | Size od ads budget strength of existing reputation sales volume | Number of dealers, sales per dealer, frequency of defects required recall |
LINK BETWEEN ACTIVITIES |
| |||||
OPPORTUNITIES OF REDUCING COSTS |
| |||||
01
02
03
04
05
Value Chain Analysis Steps
R&D Engineering
Manufacturing
Assembly
Inventory
Sales and �Marketing
Raw Materials
Distribution
And Service
Proximity to End-Customer
Upstream
Downstream
Infrastructure, IT, HR, Procurement, Finance, Logistics etc.
Main Steps in Performing Value Chain Analysis
Consider
Determine
Analyze
Identify
Identify primary and supporting activities.
Identify indirect activities, including
quality assurance.
Weight activities to appropriately
reflect the goals of the business.
Analyze the market using porter’s 5 forces.
Value Chain Analysis - Checklist
Find areas of cost reduction through partnership, contracts, scheduling or asset use.
Identify internal and external
linkages and dependencies.
Identify differentiation opportunities
And value-added propositions.
Provide customer evaluation
opportunities and feedback.