Value-Chain Analysis (VCA)

Value-Chain Analysis (VCA)

Value chain represents the internal

activities of a firm when transforming inputs
into outputs. Value-Chain Analysis (VCA) is
a process that involves identifying the
primary and support activities of a
particular organization or industry and
capitalizing on these activities to reduce
costs or increase differentiation.
Industry's value chain and a company's value
chain in manufacturing:
 Primary Activities

It involves raw materials It involves

It involves handling and warehousing. advertising,
machining, promotion, and
Inbound logistics.
assembling, and pricing channel
testing. Operations Marketing and sales relations.

Outbound logistics
Services
The user can demonstrate on
It involves
a projector or computer, or
print the presentation and installation,
make it film repair, and parts.
 Secondary Activities

It involves general
It involves research and
management, accounting,
development and product or
finance, and strategic
Firm Technology process improvement.
planning.
infrastructure development

It involves Human resource It involves

management Procurement
recruiting, purchasing of
training, and raw materials,
machines, and
development. supplies.
The approaches in performing a
Value Chain Analysis (VCA)
Cost Advantage
■ This approach is used when
organizations compete in achieving
lower product and service costs.
■ It involves understanding the
sources of cost advantage or
disadvantage and identifying the
factors which drive those costs.
Five (5) analysis steps to gain
cost advantage:
1. Identify the firm's primary and
support activities

● It requires an adequate
knowledge of the
company's operations
because value chain
activities are not
organized in the same
way as the company
itself.
2. Establish the relative importance of each activity
in the total cost of the product.

● It involves identifying
the total costs of
producing a product
or service. These
costs must be broken
down and assigned to
each activity.
3. Identify cost drivers for each
activity

● It involves understanding
the factors which drive
costs and focusing on
improving them. Costs for
labor-intensive activities
are driven by work hours,
work speed, and wage
rate, among others.
4. Identify links between activities

● It involves reducing
cost in a particular
activity, which may
lead to further cost
reductions in
subsequent
activities.
5. Identify opportunities for
reducing costs.

● It involves
improving
inefficient
activities and
cost drivers.
Differentiation advantage

■This approach is driven by a

firm's desire to create superior
product and services using
innovation. Global companies
like Apple, Google, and
Starbucks use this approach.
The steps in attaining a differentiation
advantage:
 1. Identify the customers' value-
creating activities

● It involves
identifying all value
chain activities and
focusing on
improving those
activities that
contribute the most
in creating customer
 2. Evaluate the differentiation strategies for
improving customer value.

● It involves using
strategies that
increase product
differentiation
and customer
value.
 3. Identify the best sustainable
differentiation

● It involves
combining
interrelated activities
and strategies to
create superior
differentiation and
customer value.
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