Value-Chain Analysis

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.