CAPAZ, JAYSON TOM B.

The importance of Value Chain

The business organizations involved in the entire supply or

value chain have their own respective roles considered extremely
important and critical for the top management and strategic
managers in particular. This is so because value chain has direct
bearing in production and distribution costs of the product and
eventually the market price of the product or services offered by
the firm. Knowing that price of the product in the marketplace is
among the most dominant aspect that determines the
competitiveness of the firm, it is important to know the key
players both in the supply and distribution side of the business.
It is important and critical to study and analyze both the
backward and forward channels of the entire value chain.

The backward channel of the value chain system is composed

of the companies or organization providing raw materials or other
forms of inputs for the company to undertake its value creation
process. Generally, this channel refers to the suppliers of the
business concern. Consideration for suppliers in the value chain
is critical because costs, quality, and performance of inputs
provided by suppliers influence a firm’s own costs and product
quality or performance. The more business organizations are
involved in the backward channel, the longer the supply or
backward channel of the value chain (or the supply chain). Hence,
the higher the cost on the part of the value creator.

Forward channel on the other hand, refers to the

distribution side of the business or parties involved beyond the
production and storage line. This group includes organizations
acting as distributors, dealers, agents, indentors, importers,
transport/delivery firms and other organization involved in the
value creation process. These group of business organizations are
considered allies working for the business and they bridge the
gap between the business and the ultimate consumers of their
products. Forward channel allies in the value chain system are
relevant cause the cost of charges made by companies belonging to
the category is relevant to the ultimate price of the product in
the market. The more business organizations are involved in the
forward channel means the longer the distribution chain or the
entire value chain, and again, the more costly it becomes for the
value creator.

Value Chain in the e-Commerce Era

The widespread use of the Internet nowadays or the ventures

in the field of e-Commerce/e-Business has given opportunity for
value chain to be radicalized more than just the use of a variety
of information and communication technologies. As it relates to
value chin, this view can be appreciated by examining the
illustrative diagram shown in Figure 46 and Figure 47 as espoused
by Aldrich (1999). The value chain in a traditional business
system is typified by the diagram shown in Figure 46 and the
value chain in e-Commerce/e-Business era allows a so-called
seamless chain scenario or one that electronically connects
various organizations either in the supply or distribution chain
side thereby ensuring timely information sharing and efficient
logistical operations both at the supply and distribution aspects
if the business. This means expediency and efficiency both in the
backward and forward channel of the business which can translate
to price and economic advantage which may result to
competitiveness for the firm.
 In the world of e-Commerce/e-Business, companies can use the
Internet technology to improve the efficiency and effectiveness
of particular value chain activities. There are commercially
available hardware and software specifically meant to address
management problems associated with supply and distribution chain
or the value chain system as a whole.

Specifically the internet technology benefits business

organizations in the following ways:

a) it is a powerful tool for better supply chain management;

b) it is critical to internal operations such as just-in-time
inventory, gear production schedules and production
quantities to buyer orders, more accurate monitoring of
buyer preferences and shifts in demand; and
c) it is extremely useful for collaborative data sharing with
distribution channel partners – online systems reduce
transactions costs.
Customer-oriented Value Chain

As presented in various supply and value chain diagrams

shown earlier, diagrammatic presentation of value chain need not
be a series and parallel or a left-to-right diagram. As shown in
Figure 48, the value chain concept takes the form of a circular
model.