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Value-Chain of Business

Value-Chain of Business Value Chain The value chain is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller. Competitive Advantage: Creating and Sustaining Superior Performance. .

Value-Chain of Business .

Value-Chain of Business Firm Level A value chain is a chain of activities for a firm operating in a specific industry. The chain of activities gives the products more added value than the sum of the independent activities' values . Products pass through all activities of the chain in order. and at each activity the product gains some value. The business unit is the appropriate level for construction of a value chain. not the divisional level or corporate level.

as a profession. but the activity adds much of the value to the end product. ISO 9001 . the described value chain and the documentation of processes. e. since a rough diamond is significantly less valuable than a cut diamond.g. can be used to illustrate the difference of cost and the value chain.Value-Chain of Business Firm Level Cont… Example: A diamond cutter. The cutting activity may have a low cost. assessment and auditing of adherence to the process routines are at the core of the quality certification of the business. Typically.

The "primary activities" include: inbound logistics. operations (production). outbound logistics. service. marketing & sales. .Activities The value chain categorizes the generic value-adding activities of an organization.

It is based on the notion of value-added at the link (read: stage of production) level. starting with raw materials and ending with the delivered product (also known as the supply chain). . economy. provide estimates of the relative importance of each individual link in industry-level value-chains for the U. Wasilly Leontief's Input-Output tables. The French Physiocrat's Tableau économique is one of the earliest examples of a value chain. The sum total of link-level value-added yields total value.Industry Level An industry value chain is a physical representation of the various processes that are involved in producing goods (and services).S. published in the 1950s.

Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. a cross-functional process which was developed over the next decade. The simpler concept of value streams. had some success in the early 1990s. The delivery of a mix of products and services to the end customer will mobilize different economic factors. The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. . each managing its own value chain.

where the subject company is compared with. Work Planning. a known downstream industry to have a good feel of its value by building useful correlations with its downstream companies. development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones . For example.Significance Cont… Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection. Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance.[5] Although commonly associated with export-oriented trade. The Maintenance Value Chain approach is particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools. Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain. Value chain approach could also offer a meaningful alternative to evaluate private or public companies when there is a lack of publically known data from direct competition.

and Sales including CRM. and the US DOD has adopted the newly-launched Design-Chain Operations Reference (DCOR) framework for product design as a standard to use for managing their development processes. Research. Manufacturing. manages the Supply-Chain Operations Reference (SCOR). Prototyping. Launch and Revision. as well as a large and constantly researched database of prescriptive universal best practices for process execution. Procurement. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence. Integration. the de facto universal reference model for Supply Chain including Planning. Service Support.SCOR The Supply-Chain Council. Logistics. governmental. and consulting groups participating in the last 10 years. In addition to process elements. these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model. Returns. academic. . Order Management. and Retail. and Contract Management which are congruent to the Porter framework. a global trade consortium in operation with over 700 member companies. Product and Service Design including Design Planning. Sales.

or Processes Production Marketing & Sales Distribution Customer Service . Services.Six business functions of the Value Chain Research and Development Design of Products.

that points the direction for you to improve. However. high quality market leader. Expect your competitors to have a value chain quite different than yours. you can often find the areas or links of the chain where they might be more efficient than you.The Importance of Value Chain Analysis The importance of value chain analysis is that it can help you assess costs in your chain that might be reduced or impacted by a change in one of the chain's processes. you need to understand that the value chain will be influenced by the type of small business strategy you and your competitors follow: if you are the high value. Understand how those differences influence your analysis and make sure that your business strategy is in-tune with your market and with your strategic objectives. because their business grew from a different set of circumstances and a different set of operating parameters than your business. your chain will be quite different than the low cost. high volume competitor. . By comparing your value chain to your competitors.

and more) New product or service research and development  The last element of your value chain needs to include the profit margin your business (or the product you are analyzing) earns. training. firing. coordinating. scheduling  Marketing  Sales  Then include all the support or indirect activities. materials. such as  Purchases of supplies.  Each value chain analysis will be specific to the business and the industry it is in.inventory control and operations)  Outgoing shipping and logistics  Customer service .How to do a Value Chain Analysis  Include all the primary or direct activities. incoming shipping  Manufacturing and operations (or if a consumer based business . such as        Accounting and finance Systems support Legal Environmental Safety Human resources (hiring. .includes estimating.

.Use of Value Chain Analysis The reason to do this in-depth type of analysis is to provide you with enough information to be able to see how cost competitive you are and where your cost weaknesses are: this chain analysis leads to a detailed strategic cost analysis.