How To Understand Value Chain Analysis

Value chain analysis is a procedure or a strategy for business management. This concept was first introduced by Michael Porter in 1985. The explanation behind chain analysis is that the final product must have a higher value than the costs of the activities that are carried out throughout the value chain. The value chain is composed of the different activities that a product goes through. This is from the planning to the production and to the service to the customers.

Here is more information on value chain analysis:

  1. Generic Value Chain. The generic value chain is composed of five different activities that will contribute to the increase in the profit margin of the product. This is the model that is used today. The steps on the value chain consist of inbound logistics, operations, outbound logistics, marketing and sales and service. All of activities contribute in the outcome of the product. This adds to the business value of the company.
  2. Inbound Logistics. Inbound logistics is the act of purchasing the raw materials and manufacturing them. This includes different factors, such as transportation, handling of the raw materials, storage of the materials in warehouses, communications, testing and information systems. This is the first step in the industry chain.
  3. Operations. This is known as the process of creating and manufacturing the products from the raw materials. On this step, there is already a finished product available. In operations services, some of the concepts are the processing of materials by using tools and machines, the packaging of the final product, maintenance, testing of the product and building the design and operation.
  4. Outbound Logistics. Outbound logistics is the storage of the final products and the distribution to different retailers. This includes the transportation, handling, packaging, communications and information systems. In this stage, the product has already been tested for use. The final product is then delivered to different areas for consumers to be able to have access to them.
  5. Marketing and Sales. Marketing and sales consist of studying and analyzing the consumer behavior in order to cater to their needs. Different tools are used in this marketing chain. Some examples of tools that are used in marketing are different types of media, audio and video advertisements, communications and information systems.
  6. Service. Service technology refers to the testing and communications. This includes customer service when the products are already on the market. The management of the product is also based on the response of the consumers to the quality and the pricing of the item.
  7. Strategy. The strategy of value chain analysis is to make quality products in the most efficient way and in limited costs. If the company is successful in doing this, it will be able to have a competitive advantage over their competition.

These are the steps that make up the value chain analysis. The value chain analysis is more useful when the costs for the activities of producing the product is less. This is what gives the company more margin profit.


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