Regardless of a company’s niche, the challenges of remaining competitive are greater than ever before. Contemporary technologies have allowed business models to evolve at an unprecedented pace. Consequently, companies are pushed to provide greater or, at least, equal value at a more affordable price.
To achieve this, a company needs to have a solid grasp of its value chain and understand how to properly analyze it. But this process is complex and requires a continuous effort from each of the involved parties.
without much further ado, let’s evaluate some of the basics of building the right value chain.
Value Chain Disambiguated
As you might already know, the value chain isn’t a new notion. Defined in the 18th century, it has been further expanded by the famous Michael Porter value chain model.
At its core, a value chain encompasses all the actions within an enterprise that lead to delivering a valuable service or product. Following ever-changing market demands and trends, the chain itself has evolved over time.
Due to this, some experts challenge the viability of Proter’s model in this day and age. Nevertheless, it’s still a good starting point – building a value chain network that’s in-line with long-term strategies.
Porter’s Value Chain Activities
To help a company analyze its value chain, Porter identified five primary activities supported by four secondary activities. Here are the basic aspects of both primary and secondary activities.
- Inbound Logistics – covers inventory control, warehousing, raw materials procurement, and inventory reception. It’s also the aspect that deals with supplier relationships
- Outbound Logistics – is responsible for the delivery to the end customer and includes storage systems. Both distribution and storage can be outbound or inbound.
- Services – are all actions that keep the customers happy and cater to the products. They include returns, refunds, customer satisfaction and support, repairs, etc.
- Operations – in a broad sense, operations are the actions that lead to the creation of a product or service. These may be different from one company to another and include advanced technology.
- Marketing and Sales – this value chain segment includes branding and sales strategies, pricing, promotion, and advertising tactics.
- HR Management – means hiring and keeping top talent to help the company remain in-line with long-term strategies. It applies to all the departments of a company.
- Procurement – represents the acquisition of all the necessary resources and is linked to inbound logistics. The idea is to negotiate the best prices or conditions with vendors and providers.
- Technological Development – is the key secondary aspect for today’s companies and may be considered as a primary value chain element. Either way, the goal is to use technology to automate and streamline production to the max.
- Infrastructure – doesn’t only refer to production/output capacity. It also encompasses administrative, accounting, maintenance, and legal functions. As such, it should serve a company as a whole.
When analyzing the value chain elements, it’s advisable for a company to employ software solutions. These allow for a better assessment of the future prospects and may hint at possible problems to be prevented.
What Are the Main Takeaways?
Aside from steering the company in the right direction, strategy-wise, a solid value chain network has more than a few other benefits. First, it betters the flow of materials, products, and services within the system. And ultimately, the products/services reach the customers much faster.
Then, there’s the unobstructed flow of information, both inbound and outbound. In other words, a good value chain allows critical information to quickly reach those who are accountable. In turn, the idea is to remove the so-called information bottlenecks.
Finally, the right value chain network betters the cash flow. To be exact, it helps a company overcome financial flow challenges and pinpoint the weak points.
Build an Unbreakable Change
Being an integral part of any business, the value chain network should be a top priority of any business. And don’t forget, building such a network is an ongoing process. Therefore, a company should adopt technologies and methods that can evolve as the business grows.