Every business out there should be intent on creating value. Your objective is to take in all the necessary raw materials and turn them into a product or service that has a greater value than the cost of the materials. Then those products are provided to customers. The more value your company can produce, the more profitable your company can be.
To see if you can add more value to your company, you should analyze your value chain. For example, you can separate your business into several categories to make certain that each element of your business is working to increase your overall value.
Understanding What the Value Chain Is
A value chain is a kind of business model. It documents all the processes within an organization that add value to the final product or service.
The value chain, by example and through investigation, can help you become a stand-out force in a virtual environment where all industries have become more competitive than ever before. By thoroughly understanding how each aspect of your business works to make your product or service, you can help make the production process more efficient. This will increase your profits and decrease the cost.
By conducting a thorough value chain analysis, you can ascertain what areas of the organization are currently working ineffectively. Then you can choose how to target these sectors for optimization. When you know that each area of your company is working efficiently, you can maximize profits. When you begin making your business more effective, you can start to grow your organization. A well-run company mints happy, satisfied consumers who will become loyal repeat customers.
If you’ve seen a value chain example on the Internet, it can be a bit confusing. There are a lot of sections in the value chain analysis chart, and it can be difficult to understand if you’re not familiar with them. Read on to learn more about the functions of each part in the value chain.
Benefits of the Value Chain
Analyzing your business with a value chain, for example in your human resources department, can help you increase overall efficiency. Any section of your business could use a careful inspection to ensure that you’re not wasting money or resources on inefficient practices. Don’t be afraid to look up a good value chain example diagram, or to hire an expert to help you analyze your business if you want to ensure that you’re making the most out of your resources.
Through a loose value chain example analysis, you can eliminate waste and increase profitability. Plus you’ll better understand how all your company processes work together to create products and services. When you get your company operating as efficiently as possible, it will help you stand out amongst your competitors. Also, with a clearer picture of how your business work, you can make better strategic decisions going forward. This can help you deliver better products at better prices, increasing customer satisfaction.
The Parts of the Value Chain
The purpose of the value chain is to analyze your work systems. It’s about seeing how you currently use raw materials, technology, energy, and labor to make your products and services. You can then analyze your business and accurately see which aspects should be improved to make your production more efficient. Most businesses have more than one product or service, so you may need to do a value chain analysis on each sector of your organization.
A value chain analysis will include several sections. The two major components are primary and secondary activates.
Primary Activities. Primary activities are all about the process of creating and delivering a product or service.
This includes all the logistics of receiving inventory for production, managing inventory, and managing storage in all the facilities you need to successfully make your intended product or service. It also includes all the other physical processes needed to produce or deliver your final product.
All distribution is covered in the primary section. This includes packaging and shipping. Along with that, there’s the marketing, customer service, promotional material, all advertising, and your strategy for product pricing. Employee training, any necessary product installation after purchase, warranty follow-through, and repair also fall under primary activities.
Secondary Activities. Secondary activities are all the business activities that support your primary activities. These help your business become more efficient.
This area includes finding where to most effectively source raw materials and components. This is the category where you put any special equipment you have to acquire, and any services you need to keep running. This is also where all technological development is accounted for, including new product research, product design, and market research. Human resources fall in this category as well. This includes all employee hiring, compensation, training, and recruitment.
By taking stock of these departments, you can figure out the cost of creating your product—your “value.” You can then accurately understand your margin revenue by taking the value of your product and subtracting the cost of making that value. Looking at a value chain example chart online can help you familiarize yourself with these aspects before you actually conduct your own value chain analysis.
How Do you Conduct a Value Chain Analysis
Now we understand the two major parts of the value chain analysis, how do you actually conduct a value chain analysis? Breaking up the process into three steps can help you easily run a value chain analysis on any sector in your business.
Identify All Value Chain Activities. When you’re ready to run a chain value analysis on your company, you’ll need to gather all the necessary data. You’ll have to figure out all of the primary and secondary activities that go into getting your product or service to the public. When you have multiple products and services that you deliver, you should run an analysis on each one individually to get the most out of your value chain analysis.
Calculating Cost and Value. You likely have a lot of primary and secondary activities that go into producing your product. This is the step where you calculate how much real value each part of the process adds to the final product. This is also where you determine how much each one of these elements costs.
When analyzing value here, there are several questions you should ask yourself as you make these important value calculations. Does this activity work to increase my customer’s final satisfaction? Does this raw material make my product more valuable (durable, luxurious, long-lasting, delicious, ext.)? Is this market strategy really reaching new customers? Is my training making efficient employees? You should consider questions like this when looking at every aspect of your business.
After analyzing the value of each aspect of your business, you’ll have a better understanding of where your funds are going, and where you may need to cut costs.
Recognize Places for Innovation. Now you understand the cost and value of all the various aspects of production. Perhaps you will have already started re-organizing to increase your profit margin. In this phase, you can also start figuring out how you can differentiate yourself from the competition and where you can make stand-out innovations.
What are your goals with your analysis for this value chain? For example, do you want to just cut costs? Then your time might be best spent looking at each stage of productions with that in mind.
Are you trying to become more efficient? Think about where you can simplify your production process. Are there parts of your production that would offer more value to your company if they were outsourced or produced differently? Are there any ways you see to sustainably reduce your production costs?
A value chain analysis doesn’t just have to be about cutting back. This is a good time to figure out how much it would cost to add a new service to your business, and this process will help you determine how much value a new asset would add to your production.
In this phase, you can also start to identify what makes your company different from others. Do you only get your supplies from organic fabric suppliers, or source your raw materials from a specific location in the world? This is an aspect of your business you can use to stand out from your competitors.
Adding to Your Companies Value
While doing something like a value chain analysis can increase the value of your business, it’s just one method of cost analysis you can use to make your business run better. However, you can add a lot more value to your company by evaluating your business with a value chain analysis. A good overview of your value chain, for example, can help you understand where you need to increase your efficiency to maximize profits. A good value chain example or expert can set you on the right track and help you analyze your business more effectively.