What is the value chain?

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In today’s business world, the competitiveness and success of companies depends on their ability to create value for customers and stakeholders. One of the key concepts related to this issue is the value chain. The value chain includes a set of activities that are carried out in the process of producing and providing products or services, and its purpose is to increase the final value for customers. This idea was first proposed by Michael Porter, an eminent professor of strategic management, and has since become one of the most important tools of business analysis.

The value chain allows companies to identify their strengths and weaknesses and provide solutions to improve performance and increase efficiency. By carefully examining each stage of the value chain, organizations can take the necessary optimization measures and thus achieve a competitive advantage. This article explains the concept of value chain, its different components and its impact on the performance of organizations.

What is a value chain?

A value chain is used to describe all the activities necessary in a business to produce a product from start to finish (such as design, manufacture, distribution, etc.). Value chain analysis provides businesses with visual maps of these activities.

Using this analysis, you can take steps to strengthen your competitive advantage, improve productivity, and increase your profit margin. We will now take a closer look at value chain analysis and learn how to evaluate your business activities.

Porter's value chain

Porter’s Value Chain is an analytical model presented by Michael Porter, a famous professor at Harvard University, in 1985. This model identifies and analyzes organizational activities that play a role in creating added value and helps organizations gain a competitive advantage. Porter’s value chain is divided into two general categories: core activities and support activities.

Value chain activities and their types

In the topic of value chain, Porter divided the activities of organizations into two categories: main activities and supporting activities. Each of these activities may vary from organization to organization, but in general these activities are listed in more detail below.

1. Primary activities

These activities are directly related to the processes of production, marketing, sales and providing after-sales services of products or services and include the following:

Inbound Logistics: includes all activities that deal with receiving, storing and distributing raw materials and resources necessary for production.
Operations: includes the processes of converting raw materials into finished products, such as production, assembly, and packaging.
Outbound Logistics: includes all activities dedicated to storage, transportation and distribution of final products to customers.
Marketing and Sales: It includes actions that help to promote, price, sell and distribute products.
Services: including all activities related to after-sales customer support, such as after-sales services, repairs and technical support.

2. Support activities

These activities play a role in improving and supporting the main activities and include the following:

Procurement: includes processes related to the purchase of raw materials, equipment and services needed by the organization.
Technology Development: It includes activities such as research and development, innovation and upgrading of technologies used in the organization.
Human Resource Management: It includes the processes of recruiting, training, developing and managing the organization’s employees.
Firm Infrastructure: It includes managerial, financial, legal and other support services that help the overall performance of the organization.

The importance of the value chain

Value chain is one of the key concepts in strategic management and business analysis. Below are some of the main reasons why the value chain is important:

1. Identify strengths and weaknesses
The value chain allows organizations to identify strengths and weaknesses by carefully analyzing their internal and external processes. This analysis helps managers to focus on improving weaknesses and strengthening strengths.

2. Reducing costs and increasing productivity
Through value chain analysis, companies can optimize their costs. By identifying inefficient processes and implementing improvement solutions, organizations will be able to increase productivity and reduce production and service delivery costs.

3. Creating a competitive advantage
Improving internal processes and increasing efficiency leads to strengthening the competitive advantage of organizations in the market. This advantage can be achieved by reducing costs, improving the quality of products and services, and improving delivery time.

4. Improving the quality of products and services
The value chain allows organizations to improve the quality of their products and services. By carefully examining each step of the chain, companies can identify the points that can be improved and take the necessary measures to increase quality.

5. Increase customer satisfaction
Optimizing processes and improving quality leads to increased customer satisfaction. Satisfied customers are more likely to remain loyal, and this will lead to increased revenue and profitability for companies.

6. Facilitating strategic decision making
The value chain provides detailed information about the organization’s processes and operations that help managers make better strategic decisions. This information can include things like investment opportunities, employee training needs, and technology improvements.

7. Development of innovation and technology
The value chain helps companies to better understand their needs in the field of research and development and innovation. By identifying the points that can be improved with new technologies, organizations will be able to develop more effective innovations and lead the market competition.

8. Improving relationships with suppliers and partners
Value chain analysis helps improve collaboration with suppliers and business partners. This improvement in communication can bring supply chain optimization and gain more competitive advantages for companies.

What are the types of value chains?

A value chain may be limited to a specific company in a specific location, span a specific industry, or operate in several parts of the world. For this reason, it can be said that the value chain is divided into three types in terms of location:

Value chain at the organizational level
In this type of value chain, the focus is on the activities that a particular organization performs in order to increase the value of products, strengthen competitive advantage and increase profitability.
Value chain at the industry level
This type of value chain includes all the activities related to the different stages of production of a product, including raw material procurement, production and delivery processes. In this case, the possibility of merging or entering new markets is also examined.
global value chain
Global value chain refers to businesses that, due to economic considerations or other factors, conduct their activities globally and supply their services and products to global markets. These activities can include development, production or marketing. For example, Apple has moved its production to East and South Asia due to economic benefits such as cheap labor.

Value chain implementation steps

Supply chain management strives to reduce shortages and keep costs down. This work is not only limited to the preparation and purchase of inventory; Rather, supply chain managers should monitor and direct the entire supply chain process and logistics operations in a way that increases efficiency and reduces the organization’s costs in the supply chain.

Improving the productivity and efficiency of the supply chain ultimately affects the final product. In the supply chain management (SCM) system, the supply chain manager coordinates all steps of this process, which includes five main parts.

The main processes of supply chain management:

planning
To achieve the best results in SCM, the supply chain management process must begin with proper planning to coordinate supply and customer demand. This planning includes predicting the future needs of customers and adapting production to it. It also relates to the raw resources required at each stage, equipment capacity, limitations and manpower. Many large companies rely on ERP software to collect information and prepare applications.
Sourcing
The effectiveness of SCM processes strongly depends on strong relationships with suppliers. Sourcing involves working with vendors to provide the raw materials needed in the production process. Organizations need to ensure that raw materials are in line with production needs, costs are in line with the market, and suppliers have the ability to meet unexpected needs.
production
Production is the heart of the supply chain management process. At this stage, raw materials are converted into finished products. This process includes activities such as assembly, testing, inspection and packaging. Companies should watch out for factors such as waste and production problems that may cause deviations from the original plans.
delivery
After producing and selling products, organizations must deliver their products to customers. Distribution plays an important role in shaping the brand image; Because it is the first interaction that the customer has with the product. In an efficient SCM, companies use diverse logistics systems and delivery channels to ensure timely and safe delivery of products.
return
The last step in supply chain management includes product support and return of goods from customers. This process, also known as reverse logistics, allows companies to receive and reimburse returned goods. Analyzing the reasons for returning goods is also an important part of this step, which helps to identify and fix problems so that they do not repeat in the future.

Value chain analysis

Value chain analysis is an effective tool that allows organizations to identify and evaluate their activities and thereby improve their performance and increase their competitive advantage. This analysis identifies activities that create added value as well as weaknesses and opportunities for improvement.

Stages of value chain analysis

1. Identify activities

A) Primary activities
These activities are directly related to the production and distribution of products and services:
- Inbound Logistics: including receiving and storing raw materials.
- Operations: converting raw materials into finished products.
- Outbound Logistics: Distribution of final products to customers.
- Marketing and Sales: activities related to the promotion and sale of goods.
- Services: providing after-sales services and support.
b) Support activities
These activities help to strengthen and improve the primary activities:
- Procurement: purchase of raw materials and equipment.
- Technology Development: Research and development and innovation activities.
- Human Resource Management: Recruitment, training and management of employees.
- Firm Infrastructure: The overall management of the organization including financial, legal and administrative aspects.

2. Value added analysis

A) Identification of added value
- Value-creating activities: Identifying activities that have the greatest impact on creating value for customers.
- Low-value activities: Identify activities that create little value and need to be improved or eliminated.
B) cost analysis
- Costs of each activity: Identify and evaluate the costs associated with each activity to investigate cost reduction.
- Improvement Points: Identify improvement opportunities to reduce costs and increase efficiency.

3. Identify weaknesses and opportunities for improvement

A) Identification of weaknesses
- Internal weaknesses: Identify internal problems and inefficiencies that lead to reduced productivity.
- External weaknesses: identifying challenges arising from interactions with suppliers and customers.
b) identifying improvement opportunities
- Internal opportunities: Identify the possibility of improving internal processes to increase efficiency.
- External opportunities: Identify opportunities for improvement in interactions with suppliers and customers.

4. Developing improvement strategies

A) short-term strategies
- Immediate Optimization: Designing short-term strategies to rapidly improve processes and reduce costs.
- Small but effective changes: implementing small but effective changes that lead to increased productivity.
b) Long-term strategies
- Major transformations: planning for fundamental and extensive changes in the organization.
- Investing in technology: preparing to invest in new technologies and innovation.

5. Implementation and evaluation

A) Implementation of strategies
- Resource Allocation: Provision of necessary resources to implement improvement strategies.
- Project Management: Monitor and manage improvement projects to ensure proper and timely implementation.
b) evaluation and feedback
- Performance evaluation: reviewing the results of improvements and performance analysis based on specific criteria.
- Receiving feedback: collecting feedback from employees and customers in order to identify strengths and weaknesses.
- Corrections: making necessary changes based on feedback and evaluations.

Benefits of value chain analysis

1. Increase productivity
Value chain analysis helps to identify and improve inefficient processes and increases productivity.

2. Reduce costs
By carefully examining the costs of each activity and identifying cost reduction opportunities, organizations will be able to significantly reduce their costs.

3. Increase customer satisfaction
Value chain analysis helps to improve the quality of products and services, which will ultimately lead to increased customer satisfaction.

4. Creating a competitive advantage
By optimizing value chain activities, organizations can create sustainable competitive advantage and achieve greater success in competitive markets.

How is the value chain different from the supply chain?

The supply chain refers to a set of various entities that are responsible for the supply of raw materials and raw materials, their transformation into final goods, and the distribution and delivery of these goods. The value chain refers to the process of creating or increasing the value of a product in each of these steps; From the time of designing and manufacturing a product to the time of delivery and providing after-sales service. To see the differences between these two chains, you can refer to the following table:

	Supply chain	value chain
definition	It includes businesses, people and processes of procurement, production and distribution of goods.	It includes activities for customer analysis, strategy and production planning and increasing value in each of the stages and processes.
Performance area	Operational management	Business management
performance	Simplifying the production and distribution of products	Adding value to products
How it works	It starts with the request for a specific product and ends with the delivery of that product.	It starts according to customers’ requests and ends with the growth and improvement of products.
Goals	Achieving customer satisfaction	Achieving a competitive advantage
Key steps	Order processing preparation production Marketing Distribution delivery Support	research Innovation progress test packaging Sales and marketing After sales service

Frequently Asked Questions

What is a value model?

A **value model** represents factors that exchange economic values with each other. To express such a model, concepts, relationships, and roles are briefly presented in a framework. This model was formed based on recent literature in the field of e-commerce and economy and combined with systems theory. The value model specifies who exchanges what value, while the process model explains how this process is implemented in practice. Process modeling methods such as UML are not suitable for representing a value model because UML focuses more on the flow of activities, whereas a value model deals with what is delivered to whom.

What are the indicators of value creation?

The Center for Business Innovation (CBI) conducted studies on the role of intangibles in value creation in modern companies and developed a comprehensive model for value creation in leading companies that allows users to assess the impact of intangibles on a company’s market value. . In this research, nine of the most important non-financial indicators that are important in creating value were identified:

Innovation
quality
Customer communication
Management capabilities
Contracts
Technology
Brand value
Communication with employees
Social and environmental issues

These indicators can be used as tools to evaluate the efficiency of companies.

The role of software solutions in the value chain

This article deals with the value chain and its main purpose can be summed up in one word: “Growth”! The ultimate goal of any business is to achieve continuous development and accelerate the growth process. Growth and development ultimately lead to increased profits and business expansion. Of course, every organization has specific and more precise goals for itself and acts in accordance with them. But value chain management is one of the key factors in business development.

What is the value chain?

Table of Contents

What is a value chain?

Porter's value chain

Value chain activities and their types

1. Primary activities

2. Support activities

The importance of the value chain

What are the types of value chains?

Value chain implementation steps

The main processes of supply chain management:

Value chain analysis

Stages of value chain analysis

Benefits of value chain analysis

How is the value chain different from the supply chain?

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What is the value chain?

Table of Contents

What is a value chain?

Porter's value chain

Value chain activities and their types

1. Primary activities

2. Support activities

The importance of the value chain

What are the types of value chains?

Value chain implementation steps

The main processes of supply chain management:

Value chain analysis

Stages of value chain analysis

Benefits of value chain analysis

How is the value chain different from the supply chain?

Leave a Reply Cancel reply

Centred office:

Office 2:

Response time:

Petro Imen Sharif Knowledge-Based Engineering Company (Pishco)

Contact us

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