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Uses of Value Chain Analysis

Value chain analysis is a method for analyzing internal firm activities that create value. It identifies primary activities like inbound logistics, operations, outbound logistics, marketing and sales, and service, as well as support activities like procurement, human resources, technology development, and firm infrastructure. Conducting value chain analysis can help firms maximize value creation while minimizing costs by determining where value can be added or costs reduced. For example, a company that increases its marketing budget by 20% while decreasing production costs by 8% is making a significant strategic change that could boost revenues if effective.

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Adnan Nawab
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671 views

Uses of Value Chain Analysis

Value chain analysis is a method for analyzing internal firm activities that create value. It identifies primary activities like inbound logistics, operations, outbound logistics, marketing and sales, and service, as well as support activities like procurement, human resources, technology development, and firm infrastructure. Conducting value chain analysis can help firms maximize value creation while minimizing costs by determining where value can be added or costs reduced. For example, a company that increases its marketing budget by 20% while decreasing production costs by 8% is making a significant strategic change that could boost revenues if effective.

Uploaded by

Adnan Nawab
Copyright
© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
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USES OF VALUE

CHAIN
ANALYSIS.
Value chain

 Value chain is the complete set of activities involved in a


product.
 Is a method of breaking down the chain to understand the
behavior of costs and the sources of differentiation.

Product dev manuf Mark & sales Service / logistics

Support activities: finance , HR, IT,


Value chain analysis
 This analysis determines where the value can be added or where cost
can be reduced
 Can costs be < with same revenue?

 Can revenue be > with same costs?

 Can assets be < with same costs, revenue?

 Can we do all these simultaneously?


WHAT IS VALUE
CHAIN ANALYSIS?
Introduction:
The value chain approach was developed by Michael Porter
in the 1980s in his book “Competitive Advantage: Creating and
Sustaining Superior Performance”.
The concept of value added, in the form of the value chain,
can be utilized to develop an organization's sustainable
competitive advantage in the business arena of the 21st C. All
organizations consist of activities that link together to develop
the value of the business, and together these activities form the
organization's value chain. Such activities may include
purchasing activities, manufacturing the products, distribution
and marketing of the company’s products and activities.
The value chain framework has been used as
a powerful analysis tool for the strategic
planning of an organization for nearly two
decades. The aim of the value chain
framework is to maximize value creation
while minimizing costs.
DEFINITION OF VALUE
CHAIN ANALYSIS :

“an interdependent system or network of


activities, connected by linkages is known as
value chain analysis ”.
-Michael Porter.
ACTIVITIES OF VALUE CHAIN
ANALYSIS:
In order to conduct the value chain analysis, the
company is split into primary and support activities .
Primary activities are those that are related with
production, while support activities are those that
provide the background necessary for the effectiveness
and efficiency of the firm like human resources.
PRIMARY ACTIVITIES OF VALUE
CHAIN ANALYSIS.

 Inbound logistics.
 Operations.
Outbound logistics.
 Marketing and sales.
Service.
SUPPORT ACTIVITIES OF VALUE
CHAIN ANALYSIS:

Procurement.
Human Resource
Management.
 Technology Development.
Firm Infrastructure.
USES OF VALUE CHAIN
ANALYSIS:
1. Upgrading.
2. Inter-firm cooperation.
3. Transfer of information and learning between
firms.
4. Power exercised by firms in their relationships
with each other.
5. Economic growth.
6. Financial services.
7. Natural resources management.
8. Health.
9. Conflict mitigation and management.
CONCLUSION :
The value chain framework has been used as
a powerful analysis tool for organizational
strategic planning for nearly two decades
now. The value chain framework shows that
the value chain of a company may be useful
in identifying and understanding crucial
aspects to achieve competitive strengths and
core competencies in the marketplace.
Example for Value Chain Analysis:

 Company A spends 10% of its total budget of $100m on


purchasing raw materials, 50% on production processes,
5% on outbound logistics, 20% on marketing and sales
and 5% on post sales servicing. Overhead costs represent
10% of the total budget.
 Company B also has a budget of $100m and in year 1
spends the same proportions as company A on each
process. But in year 2 - with the same budget, it spends
an additional $4m on marketing and sales and reduces
the amount spent on production by the same amount.
This seems only a small change overall - and may be
dismissed.
$10m on raw materials $46m on production. This is a 8%
decrease which may be made through various efficiency
drives and cost reductions. Not a massive change. $5m
on distribution costs, $24m on marketing and sales, $5 on
customer service, $10m on support activities
 By spending an extra $4m on marketing, the firm has
increased its marketing budget by 20%. This is
significant and would indicate a major strategic change in
focus and approach and also suggest that company B
would become much more visible in the marketplace if
its new marketing strategies were effective. The 20%
increase could probably offset any shortfall in quality or
other problems (if any) caused by the reduction in the
production costs. If the strategy succeeds then there could
be additional revenues in following years to correct this.
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PATIENT
LISTENING!

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