Value Chain Analysis

Value Chain Analysis

Was devised by Porter. It is a technique which helps organization to assess its resources & in doing so determine its strengths & weaknesses. Value chain analysis looks at activities that make a product or service with a view to ascertain how much value each activity adds

Value Activities
Broadly classified into two Primary Activities Support Activities

Primary Activities
Inbound Logistics Operations Outbound Logistics Marketing & Sales Service

Support Activities
Procurement Technology Development Human Resource Management Firm Infrastructure

Value Activities

Conducting a Value Chain Analysis

Identify alternatives

Allocate costs

Identify activities that differentiate the firm

Examine the value chain

VCA for Competitive Advantage

Cost Reduction. Product Differentiation.

Cost Reduction
Cost reduction can either be by reducing individual value chain activities or by reconfiguring the value chain Reconfiguring the value chain involves structural changes such as new production processes, new distribution channels etc.

Drivers for Cost Reduction

Economies of scale Learning Capacity utilization Linkages between activities Inter-relationships with suppliers & buyers Degree of vertical integration Timing of market entry Generic strategy Geographical location Institutional factors

Product Differentiation
A uniqueness can be achieved either by changing the value chain activities or by reconfiguring the value chain.

Drivers for Product Differentiation

Policies & decisions Linkages between activities Timing Location Inter-relationships Learning Integration Scale Institutional factors

Advantages
A big advantage is that the value chain is a very flexible strategy tool for looking at your business, your competitors and the respective places in the industrys value system. The value chain can be used to diagnose and create competitive advantages on both cost and differentiation. It can be adapted for any type of business manufacturing, retail or service, big or small.

Disadvantages
Heavily oriented to a manufacturing business can be off-putting for other types of business. Technical expertise needed. Time consuming.

Thank You