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STRATGIC ANALYSIS

ASSIGNMENT

ON

VALUE CHAIN ANALYSIS

SUBMITTED BY: SUBMITTED TO:

Vipul Chauhan-3719 Dr. Jai Singh Parmar
Nishant Sani - 3721
Akashdeep- 3723
Harshana Chandel-3725
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Value Chain Analysis

What is 'Value Chain'

A value chain is a high-level model developed by Michael
Porter used to describe the process by which businesses receive
raw materials, add value to the raw materials through various
processes to create a finished product, and then sell the finished
product to customers. Companies conduct value-chain analysis
by looking at every production step required to create a product
and identifying ways to increase the efficiency of the chain. The
overall goal is to deliver maximum value for the least possible
total cost and create a competitive advantage.

Value Chain Analysis in Strategic Management:

The concept of value chain analysis has been polarized by

Michael Porter (his most popular five forces model). He has
termed it as a useful tool for analyzing a business unit and
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assessing competencies of the unit. The value chain analysis

makes available a disaggregated view of a firm. When you have
a disaggregated view of your firm, you can diagnose the firm’s
strengths and weaknesses for each element of the value chain of
the firm. Michael Porter’s Value chain analysis is a methodical
way of inspecting the sequence of activities a firm performs to
provide a product to its customers. Every single factory can be
watched as a collection of value events that are executed to
produce, design, market, and deliver its activities. The value
chain of a firm consists of the firm’s primary and support
activities. A firm’s value chain identities the primary activities
that create value for customers and the related support activities
that enhance the performance of primary activities. In a
manufacturing firm, the chain of value-creating activities starts
with the procurement of raw materials and continues on through
manufacturing, assembly, wholesale distribution, and retailing to
the ultimate end-users of the Activities product or service

Primary Activities Value Chain Analysis: The primary

activities in the value chain analysis are involved in the physical
creation of a product, its distribution and marketing, and the
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after-sales service related to the product. The primary activities

are inbound logistics, operations/production, outbound logistics,
marketing, and services. Such as:-

 Inbound logistics are those activities of the firm that are

associated with receiving, storing, and handling inputs to
the production process. These include material handling,
storing of products in the warehouse, scheduling of
vehicles for transport of materials/products, and returns to
suppliers.
 Operations comprise packaging, machining, testing,
equipment maintenance, assembly and other activities
associated with transforming inputs into the ultimate
products. This is the physical process of making, testing
and packaging the product.
 Outbound logistics are those activities that are performed
for collecting, storing and physically distributing products
to customers. Material handling, the operation of delivery
vehicles, order processing, and scheduling are included in
outbound logistics.
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 Marketing is an element of primary activities in value

chain analysis. It is concerned with providing the buyer
with information, inducement, and opportunities to buy the
product. It includes promotional activities such as
advertising, sales promotion, public relations, personal
selling, and sales force, selection of distribution channel,
pricing of products and other activities related to providing
a means by which customers can buy the products.
 Service concerns itself with activities associated with
enhancing and maintaining the value of the products to
customers, such as repair of machines, installation of
machinery, training to customer’s supply of parts, prompt
response to customer’s query etc. All these primary
activities are present in varying degrees in each firm and,
therefore, deserve attention in the internal analysis of the
firm.
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Value Chain Analysis in Strategic Management

Supportive Activities in Value Chain Analysis:

The support activities in the value chain analysis are necessary

for supporting the primary activities to take place. The support
activities in the value chain analysis have for indicators. Such
as:
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Procurement is how the raw materials for the product are

obtained.

Technology development can be used in the research and

development stage, in how new products are developed and
designed, and in process automation.
Human resource management includes the activities
involved in hiring and retaining the proper employees to help
design, build and market the product.

Firm infrastructure refers to an organization's structure

and its management, planning, accounting, finance and quality-
control mechanism

Collectively, all these support activities and primary activities

create the value chain. The chain comprises an earnings margin
for the reason that a markup over the cost of perming value-
creating activities is customarily part of the price borne by
buyers. According to Strategic Management Insight, there are
two approaches to the value chain analysis: cost and
differentiation advantage.
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Conducting the analysis: According to Strategic Management

Insight, there are two approaches to the value chain analysis:
cost and differentiation advantage.

Cost advantage: After identifying the primary and support

activities, businesses should identify the cost drivers for each
activity. For a more labor-intensive activity, cost drivers could
include how fast work is completed, work hours, wage rates, etc.
Businesses should then identify links between activities,
knowing that if costs are reduced in one area, they can be
reduced in another. Businesses can then identify opportunities to
reduce costs.

Differentiation advantage: Identifying the activities that create

the most value to customers is the priority. These can
include using relative marketing strategies, knowing about
products and systems, answering phones faster, and meeting
customer expectations. The next step is evaluating these
strategies to improve the value. Focusing on customer service,
increasing options to customize products or services, offering
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incentives, and adding product features are some of the ways to

improve activity value. Lastly, businesses should identify
differentiation that can be maintained and adds the most value.

Free templates are available online to help businesses determine

and analyze their value chains.

Goals and outcomes

According to Investopedia, the primary goal of using the value

chain analysis is creating or strengthening
your business's competitive advantage.

"If a company can create an advantage ... through a value chain

analysis, it captures a competitive advantage and increases its
overall profit," the article explains. "To capture a competitive
advantage, a company maps out its specific activities within the
five generic value chain activities and looks for ways to create
efficiencies."

Ideally, value chain analysis will help you identify areas that can
be optimized for maximum efficiency and profitability. It is
important, along with the mechanics of it all, to keep customers
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feeling confident and secure enough to remain loyal to

your business. By analyzing and evaluating product quality and
effectiveness of services, along with cost, your business can find
and implement strategies to improve.

Usefulness of Value Chain Analysis:

Large manufacturing companies often conduct value chain

analysis to understand their internal cost structure and also
evaluate their strengths and weaknesses. Value chain assumes
that a firm’s basic economic purpose is to create value. The
strategy-constructing lesson of value chain analysis is that
enlarged company competitiveness pivots on managerial efforts
to essence company resources and talent on those skills and
activities where the company can improve dominating expertise
to assist its mark consumers. Value chain analysis is a powerful
managerial tool for identifying which activities in the chain have
competitive advantage potential. The maximum significant
claim value chain analysis is to depict how a specific company’s
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cost situation compares with the cost positions of its rivals.

What is needed are competitor-versus-competitor estimates for
supplying a product to a market segment. Data derived from the
value chain analysis can be used to compare a firm’s costs
activity-by-activity against those of the competitors. Managers
can also learn about the sources of cost advantages and cost
disadvantages.

When a manager understands the value chain of the firm, he/she

can identify strategic options on the basis of the strengths and
weaknesses of each value-chain element. In value chain
analysis, most important learning is the linkages between value
activities which contribute to competitive advantage. This has
implications for strategy-making and implementation. This
aspect of the value chain cannot be copied by competitors
because these are unique to the firm.

Under the value chain analysis, cost-competitiveness depresses

of a company not only in the costs of on the inside executed
happenings but also on cost in the value chains of its suppliers
and forward channel allies. A company’s relative cost position
and overall competitiveness are linked with the entire industry
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value chain analysis system. A typical single industry value

chain incorporates the ‘supplier-Related Value Chains’,
‘company Value Chains’ and ‘Forward Channel value Chains’.

Significance of Value Chain Analysis:

There are three main sets of reasons why value chain analysis is
important in this era of rapid globalisation. They are:

 With the growing division of labour and the global

dispersion of the production of components, sys temic
competitiveness has become increasingly important

 Efficiency in production is only a necessary condition for

successfully penetrating global
markets
.
 Entry into global markets which allows for sustained income
growth that is, making the best of globalisation requires an
understanding of dynamic factors within the whole
value chain
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