Value-Chain
Analysis
Value-Chain Analysis is identifying and exploiting
internal and external linkage with the objective of strengthening a firm’s
strategic position. The exploitation of linkages relies on analysing how costs
and other non-financial factors vary as different bundles of activities are
considered. Also, managing organizational and operational cost drivers to
create long term cost reduction outcomes is an important input in value-chain
analysis when cost leadership is emphasized.
Why value
chains?
Value chain analysis provides researchers with a tool
to ask important questions about the distribution of power and value across the
chain and is therefore eminently capable of addressing the agency of workers
and small producers. This analysis can identify the scope for improving
incorporation into the market- increasing returns and reducing risks.
The value chain is supported by four activities as
follows:
1. Procurement: This
is the function of acquiring the inputs used in the value chain and applies to
inputs used at any stage. In other words, procurement is not only connected
with the inbound raw materials or components, it is also concerned with
anything used in the course of providing marketing inputs, sercicing inputs, or
materials used for outbound logistics.
2. Human resource
management: This is the function of recruiting, training and rewarding staff
members in the organization.
3. Technology development:
This includes know-how, research and development, product design and process
improvement work.
4. Infrastructure:
This includes the working spaces (factories, offices, mines, etc.) the organizational
structure of the firm, the financial and operational control systems and the
feedback systems used by management.
Primary
activities
1. Inbound logistics:
It is the study of movement of factors of production. For example, a
manufacturer of outbound motors needs to ensure that stocks of component parts
are always on hand. A failure to have sufficient carburetors in stock means
that production would cease, even if pistons, propellers, cylinder blocks,
gears and everything else needed where ready at hand.
2. Operations:
These are the processes which convert inputs into finish products. For the
outboard motor manufacturer, this would mean machining raw castings,
manufacturing engine covers, painting, assembling motors, testing the finished
motors, packaging the products.
3. Outbound logistics:
It is concerned with the movement of finished products. It involves the
shipping of products in a timely manner to customers in order to meet their needs:
in the case of the outboard motor company, this means ensuring that boat
builders are supplied on time, since they are in turn unable to complete the
boat unless they have the motors. It also means ensuring that boat chandlers
and repair yards have suppliers of replacement motor as necessary.
4. Marketing and
sales: These activities ensure that customers are aware of the products and
favor them over competitors’ products. For the manufacturer this falls into two
phases: firstly, the company needs to persuade boat builders, repair yards and
the like that their motors are best, but also they need to persuade the final consumer,
the boat owner, of the same thing in a sense this is part of the same process:
boat builders are unlikely to specify a motor that boat owners have never heard
of or distrust.
5. Service:
After-sales activities for an outboard motor manufacturer would include
supplying spare parts as necessary (and preferably promptly), warranty work on
failed motors, training of service engineers at boat repair yards and helplines
for boat owners.
