Introduction & Background
In the last few decades, supply chain management (SCM) has evolved into a major discipline on its strength by playing a productive role in improving the competitiveness of industrial organizations by offering benefits like lowering inventories, shorter cycle times, etc. At the same time, it continues to be an integral part of operations management (OM), thus enhancing the potential for best supply chain practices. There are several good practices, and in this article, we would take ‘value chain analysis’ (VCA) and explain what it is, why you should perform it for realizing greater value from goods and services.
Value Chain Analysis
It is an innovative tool, which analyzes, at a sectoral level, each link in the chain of activity concerning a product and or service. It starts from research and development, with the raw materials to production, and does not stop with just delivery to the buyers but goes beyond that by extending itself to recycling. By mapping the process from start to finish, you can determine where you can capture higher value for your business and seize the opportunity to garner more significant revenues.
The why of Value Chain Analysis
Businesses always face challenges to stay competitive, and your transaction is no exception to this. An understanding of what your customers are looking for ultimately to derive value is a must for you to succeed. A value chain analysis incorporates concrete and tangible terms the factors that they are seeking. Some of these elements are:
- Speed of delivery
Such features, when combined with external market conditions, like market access, regulations, etc. determine how you can compete effectively. By carrying out a sound value chain analysis, you can grasp the breadth of market knowledge and construct a model that is most suitable to your line of business and derive the benefits, which constitute the core purpose for which you are into the market.
Here are a few more compelling reasons as to why you should perform value chain analysis:
- Manufacturing is only a part of a value addition link, and for this to make sense would have to link with several other inputs, like warehousing, transportation, etc.
- Mapping the flow of inputs and outputs, which you can do with value chain analysis, enables you to determine what factors in the production chain allows your firm to assess the success that is unique to your business.
- If you embark upon up-gradation of your business without taking into account what the developments and trends are in your sector, it may result in your investments becoming non-performing and uncompetitive. That is, you should know what the bigger picture is and stay current with it, and value chain analysis is an indispensable tool to do this.
Four Useful Options in VCA
Depending upon the area of business you are involved, you can consider applying any of these options listed below:
- Designing and implementing internal procedures, as increased inventory turns, lowering the scraps, etc. It can lead to a quicker turnaround for your business that could set apart you from your rivals.
- It may be possible for you to either introduce newer products or bring about improvements to the existing ones. Value chain analysis helps to make this possible. Either through the individual links within the value chain or the interconnected relationship between different chain links.
- The functional utility gets improved either by carrying out a proper mix of activities (e.g., outsourcing, logistics). Or by moving the focus of activities in different links in the value chain, for example, from manufacturing to design.
New value chain
- A value chain analysis may throw light on your necessity to move to an altogether new value chain. That is relevant to the current market trends and demands. A suitable example could be the electronics sector, where the product obsolesces is very high. Assuming you are into the business of manufacturing computer monitors. You can use the value chain analysis. To determine how you can switch over to external monitors that could plug into laptops.
Key takeaways of VCA
SCM and OM can make an impact by several factors, some of which could be changing trade patterns, consumer preferences. VCA relevance in addressing such issues within your business. And also outside of it by helping you to identify the changes in the external environment. When you can grasp both the internal and external dynamics that impact your business. You can better adapt to that environment. Also, make internal changes to stay competitive by retaining your market share or minimize your losses. And shift to areas to which you can quickly realign your business with existing investment or by marginally adding to that.
Keywords: CHAIN, BUSINESS, Chain Analysis, LINK, MARKET, DETERMINE, EXTERNAL, PRODUCT, VCA, FACTOR