1.1 Advantages of conducting Value Chain Analysis of Chanel
Value Chain Analysis of Chanel can offer various advantages:
1.1.1 Identify competitive advantage sources
By conducting the Value Chain Analysis of Chanel during the planning process, possible sources of competitiveadvantage can be identified. The firm/company is a collection of different activities that share relatedness tosome extent. Chanel cannot trade all activities in the external market. The Value Chain approach suggests thata company can consider these activities as economic rent sources. These activities can also act as barriers to newentrants or cause cost disadvantages to competitors.
1.1.2 Identify complex inter-relationships and interdependencies
Chanel can identify various internal and external linkages among activities through the value chain lens. Theinternal linkages are- interrelationships between activities within same organisational units and externallinkages are between business units of same or different firms. Studying these interrelationships can help acompany take benefit from coordination and joint optimisation.
1.1.3 Improved flow of materials, information and finances
The use of Value Chain Analysis can optimise the finances, products and information flow.
- The improved information flow can help the company identify and exploit new opportunities and reduce externalthreats. The continuous Value Chain evaluation can result in timely filling important gaps that may affect afirm's productivity.
- The effective implementation of the Value Chain Analysis of Chanel can improve the material and productflow due to improved demand and sales forecasting. The inventory management also improves as Chanel canminimise the delays by tracking activities throughout the supply chain.
- Modern customers place high importance to the quick response and convenient access to the important productrelated information. The unexpected interruption in the information flow can affect the customer-supplierrelationship. Chanel Value Chain Analysis and its implementation can highlight and remove the bottlenecks tothe information flow.
1.1.4 Formulate effective firm-specific strategies
Chanel Value Chain Analysis can be used in the competitive strategic decision-making process. However,choosing the right competitive strategy (cost leadership, differentiation or focus) requires knowledge of own andrivals’ cost structure.
1.2 Challenges associated with Value Chain Analysis of Chanel
- The company may lose its vision and overall strategy by dividing operations into different activities.
- Dividing the operations into primary and support activities may not be separable due to increased complexity.
- The division process can be time consuming and finding the required information can also be difficult.
- Effective value chain implementation does not only require familiarity but detailed expertise.
- Chanel may find it difficult to get required information if its Business Information System is notstructured accordingly.
2. Porter’s Value Chain Analysis of Chanel
Porter's value chain model is highly popular in the business world. However, Chanel must not take it as arigid, standalone framework by assigning the equal importance to all activities. The effective Value ChainAnalysis requires Chanel to realise that all activities or functions do not require same scrutiny level.Hence, the first step of adapting the Porter Value Chain framework is to identify the importance of activitiesaccording to their role in product/service delivery process.
Here is the list of primary value chain activities as proposed by Porter:
2.1 Primary Activities
The primary value chain activities of Chanel are directly involved in producing and selling the product totargeted customers. Analysis of primary value chain activities can improve the performance of Chanel asexplained below.
2.1.1 Inbound Logistics
It is important to develop strong relationships with suppliers as their support is necessary to receive, storeand distribute the product. Without analysing the in-bound logistics, Chanel can face various challenges inproduct development phases. Analysis of in-bound logistics requires a company to focus on every aspect oftransformation from raw material to finished product. Some examples of inbound logistics are retrieving rawmaterial, storing the inputs and internally distributing the raw material and components to start production.
The importance of analysing operational activities raises when raw material arrives, and Chanel is ready toprocess the raw material into the end product and launch it in the market. Some examples of operational activitiesare machining, packing, assembling and testing. Equipment repair and maintenance also falls into this category.
It includes both- manufacturing and service operations. Analysis of operational activities is important forimproving productivity, maximising the efficiency and ensuring the competitive success of Chanel. Theincreased productivity can help Chanel to achieve consistent economic growth, increase profitability and set apowerful basis for competitive advantage.
2.1.3 Outbound Logistics
Outbound logistics include the activities that deliver the product to the customer by passing through differentintermediaries. Some outbound logistics activities are material handling, warehousing, scheduling, orderprocessing, transporting and delivering to the destination. Chanel can analyse and optimise the outboundlogistics to explore competitive advantage sources and achieve its business growth objectives.
Because, when outbound activities are timely managed with optimal costs and product delivery processes put aminimum negative effect on the quality, it maximises the customer satisfaction and increases growth opportunitiesfor the firm. Chanel should pay specific importance to its outbound value chain activities when its offeredproducts are perishable and require quick delivery to the end customer.
2.1.4 Marketing and Sales
At this stage, Chanel will highlight the benefits and differentiation points of offered products to persuadethe customers that its offering is better than competitors. Only producing a high quality product at affordablecosts and distinctive features cannot create value until Chanel invests on the marketing and sales activities.The sales agents and marketers play an important role here.
Some examples of Chanel's marketing and sales activities are- sales force, advertising, promotionalactivities, pricing, channel selection, quoting and building relations with channel members. The company can usethe marketing funnel approach to structure its marketing and sales activities. The marketing strategies can eitherbe push or pull in nature, depending on the Chanel’s business objectives, brand image, competitive dynamicsand current standing in the market.
Effective and wisely integrated marketing activities can develop the brand equity of Chanel and help it standout from the competition. However, Chanel must avoid making false commitments about product features thatcannot be fulfilled by the production department. It indicates the need to ensure coordination between differentvalue chain activities.
The pre-sale and post-sale services offered by the Chanel will play an important role in developing customerloyalty. The modern customers consider post-sale services as important as marketing and promotional activities.The power of negative e-WOM due to poor support service cannot be undermined in the current technologicallyadvanced era. The company must analyse its support activities to avoid damaging brand reputation, and instead useit as a tool to spread positive word of mouth due to quick, timely and efficient support services.
2.2 Secondary Activities
The support activities play an important role in coordinating and facilitating the primary value chainactivities. Chanel can also benefit from analysis of its support activities as explained below.
2.2.1 Firm infrastructure
The firm infrastructure denotes a range of activities, such as- quality management, legal matters handling,accounting, financing, planning and strategic management. Effective infrastructure management can allow Chanelto optimise the value of the whole value chain. Chanel can control the infrastructure activities (or commonlycalled overhead costs) to strengthen the competitive positioning in the market.
2.2.2 Human resource management
Chanel can analyse human resource management by evaluating different HR aspects, including- recruiting,selecting, training, rewarding, performance management and other personnel management activities. The effective HRmanagement can allow Chanel to reduce competitive pressure based on motivation, commitment and skills of itsworkforce. The company can also achieve its cost minimisation objectives by analysing hiring and training costswith their relative return. The heavy dependence of Chanel on employees' talent will increase the importanceof this value chain support activity.
2.2.3 Technology development
In a modern, technological advanced era, almost all value chain activities depend on technological support. Thetechnological integration in production, distribution, marketing and human resource activities requires Chanelto realise the importance of technology development. It can be divided into product and process technologicaldevelopment activities. Some examples are- automation software, technology-supported customer service, productdesign research and data analytics. The research and development department of Chanel is classified in thiscategory.
The procurement in value chain denotes the processes involved in purchasing the inputs that may range fromequipment, machinery, raw material, supplies, raw material and other items necessary for producing the finishedproduct. Due to its linkage with multiple value chain activities, Chanel should carefully consider itsprocurement activities to optimise the inbound, operational and outbound value chain.
As mentioned above, the application of Porter Value Chain model depends on understanding the importance of allactivities. After understanding the relative importance of identified value chain activities, Chanel shouldhighlight areas where value can be added, cost efficiency can be achieved, differentiation basis can be set, orprocesses can be optimised.
Here is a pictorial presentation of Porter Value Chain model:
3. Competitive Advantages through Value Chain Analysis of Chanel
It is important for Chanel to base its competitive advantage on activities in which it has access to the rareor scare resources. It may include- intellectual capital, assets, skills or distribution network. The Value ChainAnalysis can help Chanel identify those activities and develop those areas to get a strong competitive edgeover rivals. There are many examples (like Toshiba and Sharp) that consider Value Chain Analysis as a tool to geta competitive advantage and invest heavily in research and development activities within their value chainnetwork. Porter’s generic strategies for achieving the competitive advantage and value chain model can be usedtogether to set strong competitive advantage basis.
Following diagram shows Porter's competitive advantage model:
The analysis of the value chain activities can be done to understand the competitive advantage sources.Chanel can either use the operations, marketing and other relevant value chain activities to avail the costadvantages or it can use the human resource, technology, infrastructure, service or other relevant activities toset the strong differentiation basis. Broadly, the competitive advantage sources can be grouped into two types-cost and differentiation. Chanel can obtain a competitive advantage from one or both sources, depending on thedepth and breadth of its Value Chain Analysis. Next parts of the article present in detail how Chanel canconfigure primary and/or secondary value chain activities to achieve the desired cost and differentiationobjectives.
4. Cost Advantage of Chanel
4.1 Cost advantage through Value Chain Analysis of Chanel
Chanel can avail the cost advantages by reducing the costs associated with the value chain activities.However, it requires the company to firstly map the activities and then associate costs to make necessaryadjustments. The connection between the value chain and cost leadership strategy reflects a parallel focus on thelow cost operational activities. If Chanel aims to obtain cost advantage, it needs to identify each elementwithin the value chain can be optimised to get the whole effect
- A Value Chain Analysis Example for Chanel is that it can use the analysis as a tool to negotiate the bestprices and maximise the in-bound and out-bound transportation processes.
- Another Value Chain Analysis Example is using the value chain information to make modest advertising budgetthat can reduce marketing costs and offer the product at an affordable cost.
If Chanel aims for the low-cost, the Value Chain Analysis can optimise the profitability. If productdifferentiation is the aim of Chanel, Value Chain Analysis will help the company in maximising the efficiencyand enhancing the product quality by improving processes.
4.2 Cost drivers of Chanel Value Chain Analysis
Chanel can control following drivers to add value, set differentiation basis and enhance efficiency.
- Organisational policies
- Economies of scale
- Capacity utilisation
- Learning and Spillover
However, it is important to note that costs can be reduced only to some extent. Chanel Value Chain Analysismust also consider the customers’ perceived value that may justify the higher price charged by the companycompared to competitors.
5. Company Differentiation Advantage
Chanel can obtain the differentiation advantage by analysing different value chain activities. For instance,a company can procure the unique and valuable inputs that are not easily available to competitors. Chanel caneither reconfigure the whole value chain or change individual entities to set the differentiation basis. The costdrivers (such as timing, interrelationships, linkages, scaling and integration) can also be altered to developuniqueness.
Some examples of differentiation through analysis of value chain are:
- Forward integration or backward integration to exercise better control over inputs
- Utilisation of new channels of distribution
- Implementation of innovative process technologies.
5.1 Differentiation through primary value chain activities
Chanel can individually analyse the primary activities from all aspects and create differentiation basis byidentifying the following sources:
- Inbound logistics: possible differentiation basis for Chanel are:
- Procure high quality inputs to offer high quality finished product
- Effective incoming input handling to reduce damage
- Operations: possible differentiation basis for Chanel are:
- Flexible manufacturing system
- Wide product range
- Improved product appearance
- Prevention of product pre-mature failure
- Quick response to unique specifications
- Improved customer satisfaction through lower defect rate
- Improved product performance due to conformance to technical specifications
- Outbound logistics: possible differentiation basis for Chanel are:
- Effective handling and better shipping to reduce product damage
- Timely product delivery
- Flexible delivery capabilities
- Effective order processing procedure
- Marketing and sales: possible differentiation basis for Chanel are:
- Improved relationships with suppliers and customers
- Enhanced communication with customers by offering high quality information.
- Brand awareness, reputation and image development due to extensive and effective advertising.
- Effective coordination among product, research and marketing departments.
- Wider sales force coverage.
- Services: possible differentiation basis for Chanel are:
- Superior service quality
- High quality technical assistance
- Reliable and quick repair/maintenance service
5.2 Differentiation through secondary value chain activities
Chanel can also analyse the secondary value chain activities to set differentiation basis:
- Firm Infrastructure: Chanel can set differentiation basis through:
- Extensive database development for effective marketing
- Advanced information system to get deeper customer insights.
- Human Resource Management- Chanel can set differentiation basis through:
- Attractive rewards to encourage creativity and maximise productivity
- Personnel training for effective interaction and superior customer service
- Technological development- Chanel can set differentiation basis through:
- Quick new product development
- Innovation integration in product designing
- Innovative product features with patented technology
- Procurement- Chanel can set differentiation basis through:
- Reliable transportation to ensure quick delivery
- Procure high quality raw material and replacement parts.
6. Value Chain Analysis Example
Value Chain Analysis of the Chanel can be better understood with the help of some examples.
- By using Value Chain Analysis, Chanel can select and source premium quality raw material and developcustomer loyalty on the basis of it. It can also use Value Chain Analysis to develop brand identity.
- Starbucks provides a good Value Chain Analysis Example. The organisation created a strong brand identityand set a strong competitive advantage basis through aggressive marketing and strengthening coordinationbetween marketing and product development department.
- Chanel can also achieve competitive differentiation by speeding up the delivery of offered products to thefinal customers.
- Pizza Hut provides another successful Value Chain Analysis Example where organisation outpaced competitorsby re-configuring value chain activities to ensure quick delivery.
- The Value Chain Analysis can also be used by Chanel to improve its human resource practices.
- FedEx is a good Value Chain Analysis Example to understand how Chanel can achieve competitiveadvantage through analysis of its human resource activities.
- FedEx emphasised over its value chain support activities, invested heavily on employee development, tookexcellent human resource initiatives and made visible infrastructure improvements, resulting into visibleincrease in brand loyalty and market share.
- Chanel can analyse value chain activities to reduce the costs, find better deals with suppliers and offerhigh quality products at affordable prices.
- A relevant Value Chain Analysis Example is provided by Walmart that continuously analyses its value chainactivities to remain innovative, minimise operational costs and offer low-cost yet reliable services.
- Chanel can analyse the support value chain activities to offer superior customer support. It can alsoanalyse the operational activities to expand the presence in geographically dispersed areas.
- It can be understood with the help of another Value Chain Analysis Example. Starbucks places highimportance to analysing value chain activities and has successfully opened direct stores in more than 50countries.
- Chanel can also use the Value Chain Analysis as a tool to do backward integration. It can be done bymerging or purchasing the suppliers to ensure timely raw material availability.
- Apple provides a relevant Value Chain Analysis Example in this regard. The company is known for itsefficient value chain and successfully controls the product and parts.
- The Value Chain Analysis can also be done by Chanel to maximise the operational efficiency, reduce wasteand integrate sustainability in business operations.
- Intel is a good Value Chain Analysis Example that has reduced the waste and negative impact on theenvironment by analysing its value chain operational activities. The company has received appreciation forits waste reduction efforts.
- Chanel can learn from value chain practices of Dow AgroSciences. Dow has used Value Chain Analysis toexplore the unique marketing opportunities and extracted value from generic commodity market. The company hasalso used Value Chain to manage the risks at different product lifecycle phases.
The above-stated examples show how Chanel can benefit from conducting a detailed Value Chain Analysis.However, it is also important to note that the Porter Value Chain model application depends on the uniquecontextual variables that must be considered when assigning the weightage to primary and secondary value chainactivities.
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A value chain is used to describe all the business activities it takes to create a product from start to finish (e.g., design, production, distribution, and so on). A value chain analysis gives businesses a visual model of these activities, allowing them to determine where they can reduce costs.What are the five 5 primary activities in the value chain perspective? ›
The value chain framework is made up of five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, service -- and four secondary activities -- procurement and purchasing, human resource management, technological development and company infrastructure.How do you complete a value chain analysis? ›
- Step 1: Identify all value chain activities. ...
- Step 2: Calculate each value chain activity's cost. ...
- Step 3: Look at what your customers perceive as value. ...
- Step 4: Look at your competitors' value chains.
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Value Chain Analysis is a three-step process: Activity Analysis: First, you identify the activities you undertake to deliver your product or service. Value Analysis: Second, for each activity, you think through what you would do to add the greatest value for your customer.What is value chain in simple words? ›
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Porter's Value Chain is a useful strategic management tool. It works by breaking an organization's activities down into strategically relevant pieces, so that you can see a fuller picture of the cost drivers and sources of differentiation, and then make changes appropriately.How does a value chain analysis help a firm gain competitive advantage? ›
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Value Analysis (VA), also known as Value Engineering (VE) and Value Management(VM), is a systematic and function-based approach to improving the value of products, projects, or processes. Value Analysis uses a combination of creative and analytical techniques to identify alternative ways to achieve objectives.
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