Analyzing the Value Chain of a Business

What is the meaning of value chain?

A value chain is the full series of activities that are the activities of design, production, marketing, distribution, etc. and businesses conduct to bring a product or service from conception to delivery.

In the process of manufacturing in the value chain, companies take many different steps to make their products. In the value chain manufacturing process, these steps have three main activities. Those are - 1. Material activities, 2.Production activities and 3.Sales activities.

1. Material activities deal with raw material. Companies collect the raw material which is essential for the production process and is prepping them for the manufacturing processes.
2. Production activities include all the steps of actually producing or manufacturing the products.
3. Sales activities which are only deal with finished goods.

Some activities did not add any value to a product. As an example -1)Moving and 2)Storage.

Companies have to pay for a storage house and employees to move and store their finished inventory. These do not change or add value to the end products. So they are not included in the value chain.

Examples Of Value Chains

The process by which a company adds value to an article, including production, marketing, and the provision of after-sales service.

The value chain was introduced and described by Michael Porter in his book’ Competitive Advantage ‘.

Value-Chain business activities are divided into two activities. That is

1. Primary  Activities.
2. Secondary Activities.

Some examples are as follows:

1. Starbucks as an example of the value chain model:

• Primary Activities:

Inbound Logistics

Starbucks refers to company appointed coffee buyers selecting the finest quality coffee beans from producers in Latin America, Africa, and Asia.

In this company, at first, the green beans are procured directly from the farms by their buyers. Then the seeds are transported to the storage sites. After that, the beans are roasted and packaged. Then they are sent to distribution centers.

Operations

Starbucks works in more than 75 markets, either in the form of direct company-owned stores or licensees. Starbucks has more than 24,000 stores worldwide, including Starbucks Coffee, Teavana, Seattle’s Best Coffee, and Evolution Fresh retail locations. 

Marketing and Sales

Starbucks invests more in superior quality products and a high level of consumer services while comparing with aggressive marketing. However, need-based marketing activities are executed by the company during new goods presentations in the form of sampling in zones around the stores.

Technology Development

Starbucks is very well-known for the use of technology, not only for coffee-related procedures (to ensure consistency in taste and quality along with cost savings) but to join to its consumers as well. Many consumers use Starbucks stores as a makeshift office or meeting place because of free and unlimited WiFi.

Support Activities Infrastructure

This section includes departments like management, finance, legal, etc., which are required to keep the company’s stores operational. Starbucks' well-designed and pleasing stores are complemented with good customer service provided by the dedicated team of employees in green aprons.

What is the difference between supply chain and value chain?

Supply chain management consists of five main elements:

• Planning and designing a product to meet consumer demand
• Sourcing the materials or components needed to produce the goods
• Manufacturing the product
• Delivering the product to the buyer
• Accepting returns of defective products

In supply chains, the primary focus is on the costs of materials and efficient delivery. Effective supply chain management reduces costs to the consumer and increases profits for the manufacturer.  Successful supply chain managers bring great value to their employers. They contribute to the organization’s success by fulfilling roles such as:

• Choosing and managing suppliers of components or raw materials
• Strategic planning for production and delivery to support marketing efforts, special offers and seasonal demand
• Monitoring inventory and product flow to avoid supply shortages.

On the other hand, the value chain is comprised of the following characteristics.  They are-

• Innovation
• Research and Development
• Product Testing
• Marketing
• Social Trend Analysis
• Economic Conditions

Value chain administrators are naturally accountable for investigating issues and opportunities and providing insight to maximize the value created for a business. They may use supply modeling to search options and diminish lacks. Other duties might comprise making product plans, or cooperating with consumer facility and promotion sections on events that enhance worth to the customer.

What is a vertically integrated value chain?

The concept of vertically integrated value chain refers to that condition when a particular company controls one or more stage of the supply chain of a particular business. An example of vertical integration is a store, like Target, which has its own store brands. In this process, the company will control the manufacturing process of the company along with the other processes such as retailing, distribution. Therefore, as the company is directly controlling the business process, they can eventually reduce the expenses of the middleman and as a result, they can offer a lower price of that particular product.  Apart from that, this vertical value chain in the business process will also help in achieving competitive benefits to the company as well. Second, companies will get advantage from vertical integration when their dealers have a lot of market supremacy and can command terms. However, this condition is critical if one of the suppliers is in monopoly condition.

What is the value chain of a business?

In the business process, the concept of the value chain is very crucial as it is directly involved in the business generation process of a particular company. In a business company involved in the production of a particular company, the value chain there is a set of activities in which a certain organization is involved in multiple processes such as logistics, manufacturing, etc. There are two types of the value chain in the value chain of business. They are physical and virtual value chain system in the business process. A physical-world activity performed in order to enhance a product or a service. Such activities have improved over time by gaining experience of the employees present in the organization. On the other hand, the virtual value chain refers to the advent of computer-based business-aided systems in the modern world has led to a completely new horizon of market space in modern business-jargon – the cyber-market space. 

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