Value Chain Analysis

 

VALUE CHA CHAIN IN ANALYSIS ANALYSIS Managing Consulting Companies Prof. Dr. Peter Mattheis

Presented by: Norma Fernanda Castillo Almeida BCM SS 2011

 

Agenda 1. The The Val alue ue Ch Chai ain n De Defi fini niti tion on.. 2. Th The e Acti Activi vitie ties s of Val Value ue Cha Chain in.. 3. The Va Value Sy System. 4. The Linkages. 5. Valu alue e Chai Chain n and and Com Compet petiti itive ve adv advant antage age.. 6. Anal Analyz yzin ing g a Val alue ue Ch Chai ain. n. 7. Conclusion. 8. Biography.

 

1.Value Chain Definition.

“When a company competes in any industry, industry, it performs a number of discrete but interconnected value-creating activities, such as operating a sales force, fabricating a component, or delivering products, and these activities have points of connection with the activities of suppliers, channels, and customers. The value chain is a framework for identifying all these activities and analyzing how they affect both a company's costs and the value delivered to buyers.” Porter 2001

 

2.Value Chain Activities.

Primary Activities

• May be essential in developing a competitive advantage.

Support Activities • Support the primary activities. customer.. • No interaction with the customer

• Related with the creation, development, manufacture, distribution, sales and servicing of the product.

• Often are viewed as “overhead”

 

2.Value Chain Activities

Porter's Value Chain

Margin = Total Value Value – T Total otal Cost Fig. 1: Porter's Generic Value Value Chain

 

2.1. Primary Activities. 1. Inbound logistics: Receiving, storing, materials handling, warehousing, inventory control, vehicles scheduling and returns to suppliers. s uppliers.

 

2.1. Primary Activities. 2. Operations: Machining, packaging, assembly, assembly, equipment maintenance, testing, printing, facility operations.

 

2.1. Primary Activities. 3. Outbound logistics: logistics: : Inventory control, warehousing, order processing, delivery ,etc.

 

2.1. Primary Activities. 4. Marketing and sales:  Advertising, promotion, product product mix pricing, specifying distribution channel members, maintaining channel relations, etc.

 

2.1. Primary Activities. 5. Services: Installation, repair, repair, training, parts supply and product adjustment etc.

 

2.2. Support Activities. 1. Firm Infrastructure: Infrastructure: Organizational structure, control systems, company culture, etc. 2. Human Resources: Resources: Employee recruiting, hiring, training, development, and compensation.

3. Technology development : Concerned with technological innovation, training and knowledge.

 

2.2. Support Activities. 4. Procurement: Procurement:  Acquirement of resources, such as raw materials, materials, supplies, and other consumable items and assets .

 

3. The Value System.

 SUPPLIERS

 

FIRM

VALUE CHAIN

 VALUE CHAIN

  DISTRIBUTION CHANNELS

  BUYERS VALUE CHAIN

VALUE CHAIN

 The development of a competitive advantage relies not only on the firm unique value chain, but also on the value system that is a part of firm •   A value system includes the the value chains of a firm's supplier the firm distribution channels, and the firm's buyers. •   The improvement of a firm’s competitive advantage depends on value system as well.

 

4. The Linkages. •   Value chain activities are interrelated to each other. •   Linkages between activities are essential when creating competitive advantage. •  Linkages may exist: •   Inside a firm, with the va value luefirm, chains of othe other str strategic ategic Linkages may exist within the with the rvalue chains of other other strategic • primary activities. business  Between units, between primary activities and also between primary and support •   Between primary and support activities. activities, both horizontally and vertically v ertically,, and outside the firm with suppliers and customers. Marketing & Sales function delivers sales forecasts for the next period to all other departments, so procurement will be able to order the material on time.

 

4.1. Vertical Linkage. •  Buying and selling relationships llink ink firms vertically. vertically. •  Vertical linkages allow firms to exchange: •  Knowledge •  Information •  Technical and business services. • These non-financial transactions are important elements of buyer-seller relationships and are central to sustained value chain competitiveness.

Linkages may exist exist within the firm, with the value chains chains of other strategic business units, between primary activitiescharacterized and also between primary and support • Effective vertical linkages are generally by: activities, both horizontally and vertically, and outside the firm with suppliers and •  Mutually beneficial relationships. customers. •  Knowledge transfer  •  Quality standards •  Embedded services •  Financial flows.

 

4.2. Horizontal Linkage. •  Reduces transaction costs. •  Creates economies of scale. •  Contributes to the increased efficiency and competitiveness of a firm. may exist Linkages exist within the firm, with the value chains chains of other strategic business units, between primary activities and also between primary and support •  Canboth contribute to shared and resources. activities, horizontally and skills vertically, and outside the firm with suppliers and customers. •  Enhances product quality through common production standards. •  Maintains a balance between cooperation and competen competence ce among firms .

 

5. Value Chain Analysis and Competitive Advantage.  Cost Advantage and the Value Chain Porter identified 10 cost drivers related to value chain activities: 1. Econ Econom omie ies s of sc scal ale e 2. Learning Linkages may eiliz xist within chains of other strategic 3. Capa Capaci city ty util utexist izat atio ion n the firm, with the value chains business units, between 4. Li Link nkag ages es amo among ng primary a act ctivi iviti ties esactivities and also between primary and support activities, both horizontally andgvertically, outside the firm with suppliers and 5. Interr Interrela elatio tionsh nships ips amon among busine business ssand units units customers. 6. Degree Degree of vertica verticall iinte ntegra gratio tion n 7. Tim imin ing g of of m mar arke kett e ent ntry ry 8. Firm's Firm's p poli olicy cy of cost cost o orr di diffe fferen rentia tiatio tion n 9. Geog Geogra raph phic ic loc locat atio ion n 10.Institutional factors (regulation, union activity, taxes, etc.)  

 

5. Value Chain Analysis and Competitive Advantage. Differentiation and the Value Chain Porter identified several drivers of uniqueness: 1. Poli Polici cies es and and deci decisi sion ons s 2. Li Link nkag ages es amo among ng a act ctivi iviti ties es Linkages exist chains of other strategic exist within the firm, with the value chains 3. Timinmay g business 4. Lounits, cationbetween primary activities and also between primary and support activities, both horizontally 5. Inte Interr rrel elat atio ions nshi hips ps and vertically, and outside the firm with suppliers and customers. 6. Learning 7. Integrati tio on 8. Scale (e.g. bette betterr service service as a resul resultt of llarge arge scale scale)) 9. Inst Institu ituti tion onal al facto factors rs  

 

6. Analyzing a Value Chain.  A typical value chain analysis can be performed in the following steps: 1. Anal Analys ysis is of of o own wn va valu lue. e. 2. Analysi Analysis s of of custo customer mers s value value chains chains.. Linkages may exist exist within the firm, with the value chains chains of other strategic 3. Identificat Identification ion of of pote potential ntial cost advant advantages ages in co compari mparison son wi with th business units, between primary activities and also between primary and support competitors. activities, both horizontally and vertically, and outside the firm with suppliers and customers. 4. Identificat Identification ion of potenti potential al va value lue added added for tthe he customer customer .

 

7. Conclusion.

Value chain or Value Value Chain Analysis Analysi s is a potent framewo framework rk or tool used by managers to find or identify the key activities within a firm in order to improve achieve a competitive advantage that or willreorganize make the them firm to superior and more efficient that the competence. The ability of a firm within an industry to supply its buyers with a product or service that meets all the buyer’s requirements depends on the ability of the value chain to deliver information, skills, resources and benefits to all participants in the chain.

 

Questions??

Linkages may exist exist within the firm, with the value chains chains of other strategic business units, between primary activities and also between primary and support activities, both horizontally and vertically, and outside the firm with suppliers and customers.

 

8. Biography. 1. Usin Using gV Value alue Ch Chain ain Analy Analysis sis to Ma Make ke a Cho Choice ice of In Intern ternation ational al Mark Marketing eting Strategy . Master thesis approved and supervises by Dipl. Kfm. Alfred Merz . 2. Fac Fachhoch hhochschu schule le Nü Nürting rtingen en U Univer niversity sity of Applied Applied Sc Science ience . Strategy and the Business La Landscape ndscape (2nd Edition) Author : Pankaj E Ghemawa 3. Comp Competiti etitive ve Adva Advantag ntage: e: Creating Creating a and nd Sust Sustaining aining S Super uperior ior Per Perform formance ance b by y Michael E. Porter, Free Press, 1998 (1985). 4. The Value Chain .

Retrieved December 2005, from QuickMBA web site: http://www.quickmba.com/strategy/value-chain

5.

The Value Chain.

Retrieved December 2005, from NetMBA web site: http://www.netmba.com/strategy/value-chain/