For your small business to have a competitive edge, certain fundamentals must be in place to succeed. Those fundamentals comprise the Value Chain Analysis, a concept developed and advanced by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance
Successful Value Chain Management should be part of your small business strategic planning initiative, a powerful way to help your operation contain costs and succeed in today ultra-competitive business environment.
Research and Development
The first step in value chain management is researching the products your customers want. Through careful market analysis, including the measurement of consumer trends, companies can anticipate what people want and have those products available. On the small business level, this could mean working directly with suppliers to produce a new product.
Product Design
Once a new product has been identified or an existing product upgraded to meet anticipated demand, that item is tested, refined and sent on for production. In companies where service is the product, the same planning process is used.
Production Process
Where your product is manufactured can have a significant impact on quality, cost and value. Writing for Business Process Trends, Andrew Feller, Dr. Dan Shunk and Dr. Tom Callarman note that “...global sourcing and supply has begun a long-term process of leveling the playing field for adding value world wide.” More than likely your small business will look overseas to suppliers who can build what your company needs at a competitive price.
Marketing and Sales
Feller, Shrunk and Callarman noted three components every successful product must offer: product value, service value and a “wow” value. That latter component goes beyond personal care and warranty service to provide an enhanced level of service not generally offered. One current example of a company putting “wow” into practice is the Ritz-Carlton Hotels, whose managers have been empowered to “...to permit every employee to spend up to $2,000 making any single guest satisfied,” according to the Oct. 30, 2009, issue of "Forbes" magazine.
Distribution Management
Where you warehouse and how you distribute your product is a critical link in the value chain. Transportation, material handling, packaging, communications and information systems need to be in place to get the product to your customers. Distribution, or logistics management, remains important in the digital age, as physical locations such as stores and warehouses are still needed. How you employ each distribution point is subject to review and change.
Customer Service
Getting the product to your customers means training your employees to know everything about it, advising customers how to use the product, diagnosing and troubleshooting, and providing friendly service. This final link in the supply chain is refined as needed and is used by senior management to gauge customer behavior.
FAQs
Though experts can tell us about different supply elements, seven components commonly make up the supply chain process. They are – Planning, Information, Sourcing, Inventory, Production, Transportation, And Return of goods. Every person aspiring to become a supply chain manager must know these in detail.
What are the 7 components of supply chain management? ›
Though experts can tell us about different supply elements, seven components commonly make up the supply chain process. They are – Planning, Information, Sourcing, Inventory, Production, Transportation, And Return of goods. Every person aspiring to become a supply chain manager must know these in detail.
What are the 6 steps in the value chain? ›
How to Perform a Value Chain Analysis in 6 steps
- Identify primary and support activities. ...
- Evaluate the cost of each activity. ...
- Identify which activities create value for your customers. ...
- Analyze the relationship between different activities. ...
- Identify your best opportunities for competitive advantage. ...
- Execute your strategy.
The value chain framework encompasses five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, and service -- and four secondary activities -- procurement and purchasing, human resource management (HRM), technological development and company infrastructure.
What are the requirements for value chain analysis? ›
Value chain analysis is a process that requires four interconnected steps: data collection and research, value chain mapping, analysis of opportunities and constraints, and vetting of findings with stakeholders and recommendations for future actions.
What are the 6 components of supply chain management explain? ›
CIO, the business magazine from Boston's International Data group, have identified six core components of good SCM: Planning, Sourcing, Making, Delivering, Returning, and Enabling.
What are the five 5 basic components of supply chain management? ›
The Top-level of this model has five different processes which are also known as components of Supply Chain Management – Plan, Source, Make, Deliver and Return.
What are the six 6 value chain activities? ›
Key Service Value Chain Activities. The six key activities of the Service Value Chain are Plan, Improve, Engage, Design and Transition, Obtain/Build, and Deliver and Support. Each of these contributes to value creation by transforming various inputs into specific outputs.
What is required for successful value chain management? ›
Distribution Management
Where you warehouse and how you distribute your product is a critical link in the value chain. Transportation, material handling, packaging, communications and information systems need to be in place to get the product to your customers.
What are the steps of the value chain? ›
Three main steps can be distinguished in value chain analysis (VCA). (1) Identify the main functions and types of firms in the value chain; (2) Analyze struc- tural connections, and (3) Analyze dynamics. First, the main functions and firm types are identified.
A value chain refers to the full lifecycle of a product or process, including material sourcing, production, consumption and disposal/recycling processes.”
What are the core value chains? ›
A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer's door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production.
What are the key aspects of value chain? ›
Primary activities
- Inbound logistics: Availability of raw materials, warehousing, and distribution (essentially, anything in your supply chain)
- Operations: Creating products from raw materials.
- Outbound logistics: Delivery of products to customers, including warehouse, transportation, and distribution.
Value chain management is the process of organizing all of a company's activities in order to analyze them. The goal is to establish communication between the leaders of each stage to ensure the product is placed in the customers' hands as seamlessly as possible.
What is the value chain model? ›
The value chain is a business model used to examine all company activities involved in taking a product or service from idea to sellable item. Ideally, companies can use the value chain model to strengthen their point of view and widen their profit margin—more efficiency and fewer costs.
What is a value chain diagram? ›
A value chain diagram, or value chain analysis, shows the steps your company follows in order to provide a product or service that customers value. Designed by Michael Porter, the value chain assumes that you have the goal of providing as much value for customers as you possibly can.
What are the four 4 important elements of supply chain management? ›
The Four Crucial Elements in Supply Chain Management
- Integration. Integration is foundational, commencing during strategic planning and remaining pivotal in communications, information sharing, and data analysis and storage. ...
- Operations. ...
- Purchasing. ...
- Distribution.
The components of a supply chain include producers, vendors, warehouses, transportation companies, distribution centers, and retailers. The functions of a supply chain include product development, marketing, operations, distribution, finance, and customer service. Today, many supply chains are global in scale.
What are the 4 main elements on the supply chain? ›
Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.
