Value Chain Analysis
What is value chain analysis?
Value chain analysis definition
Your business's value chain is its complete order of operations. It begins with taking in raw materials, moves to the various processing methods put on those materials, and ends when your product is delivered to the customer. This value chain represents the timeline of processes that create your product.
A value chain analysis is a process in which your business evaluates its value chain. That means searching for areas where you can cut costs, combine processes, make things more efficient, etc.
The goal of a value chain analysis is to increase your overall profit margin. By periodically performing a value chain analysis, your business can ensure that it always maximizes its profits.
Why is value chain analysis important for product management?
Identify your competitive advantage
Value chain analysis can help you identify your competitive advantage. Often, the thing that sets you apart from your competitors is hidden within your value chain. It's some process or value extraction that others aren’t doing.
By evaluating your value chain, you can better spot and take advantage of your strengths while minimizing your weaknesses.
Maximize your value delivery
Another reason to invest in value chain analysis is that it helps your business maximize its value delivery. The success of your value chain is directly linked to the quality and success of your product.
The more time you invest in your value chain, ensuring that each process is treated with care, that resources being used are of the highest quality, and that production methods preserve value, the more valuable your final product will be.
Evaluate your processes
Value chain analysis provides you with a chance to evaluate your processes. This means discovering potential errors, shortcomings, or redundancies that would otherwise go unnoticed.
For example, you may find that a particular process results in many mistakes. Without periodic value chain analyses, these kinds of issues can creep in, costing your business significant losses over time.
Primary activities in the value chain
Inbound/Outbound logistics
Inbound logistics are the internal processing of goods and materials your business takes in to produce its product. Outbound logistics is the external delivery of your business's products to customers. These represent the two endpoints of your business's value chain.
Operations
Operations are the processes within your business that turn the goods and materials it receives during inbound logistics into the products that you ship during outbound logistics. These are transformational processes that help create the value that your business offers to its customers.
Marketing and sales
From advertising to growing a loyal customer base, marketing, and sales are the processes that build excitement for your products. They're a key piece of the value chain puzzle, ensuring that your work on your product pays off.
Value chain analysis examples in product management
Furniture store
A furniture store is bound to have a long list of suppliers. Additionally, a furniture store with many locations must move large inventory as efficiently as possible.
When conducting value chain analysis, this type of business might look to locations as a key way to maximize profit margins. Placing stores near suppliers and strategically placing shopping centers along transportation routes can help cut costs substantially.
Supermarket
For a supermarket, logistics might be more streamlined. However, competition can be greater, so more emphasis should be placed on marketing and sales. Customer service and operations are also more important in this kind of business.
A supermarket conducting a value chain analysis might look to KPIs for its marketing, finding that they are underpricing products. Meanwhile, they might find that a customer support process is too obstructive, leading to customers going elsewhere.
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