Businesses need to adapt and meet evolving market needs in the ever-competitive market. Cutting-edge technology and innovation enable companies to create satisfactory products and services. Businesses can now locate and analyze internal activities that influence costs for goods sold or services rendered to the customer with the value chain analysis. Value chain analysis is a complementary tool to supply chain analysis. Let’s learn how value chain analysis aids your company in maintaining a competitive advantage over your counterparts.
What is Value Chain Analysis?
Value Chain Analysis (VCA) allows businesses to identify and evaluate primary and support activities that create value to the customers and create a competitive advantage. The essence of the evaluation is to determine how the business can increase customer value without exceeding cost for creating that value hence higher profit margins. After the analysis, you usually input the findings in a value chain analysis template.
What is A Value Chain Analysis Template?
A VCA template is a ready-made, customizable form you fill in with the business activities that add value to your customers. Once you choose a template that fit your needs, you add your business’s letterhead and customize it to your liking. You can save the template for future use.
Value Chain Analysis Templates & Examples
How Can The Value Chain Analysis Examples Help You?
The chief goal of the value chain is to increase business efficiency that aids it in delivering unparalleled quality at the least cost. Value chain analysis examples aid you in identifying opportunities that your peers either incorporate into their business model or have not yet discovered.
Starbucks is known for its amazing coffee at competitive prices. As of this writing, a Starbucks caffe latte grande costs $2.95. According to their financial report, the business generated 81% of the total net revenue in the first half of the fiscal year 2020. Starbucks VCA assists them in identifying key aspects of value creation such as inbound logistics, procurement, operation, outbound logistics, marketing and, service and support activities. It is interesting to note that Starbucks invests more in customer service than aggressive marketing. However, they meet their marketing quota when a new product launches.
The signature value of Starbucks is they never miss when it comes to new coffee products. Such an example of value chain analysis enables you to identify wasteful and essential activities to create value for your customers. Using Starbucks VCA helps you understand the metrics and build the framework for your business’s VCA.
Other common examples of reliable VCAs are McDonald’s and Trader Joe’s. Find an example that resembles your business model and obtain insightful information.
Importance of Performing a Value Chain Analysis
Discern important activities from wasteful activities
While performing a value chain analysis, you break down the business’s processes into primary and support activities. In doing so, you evaluate the relevant activities to gain a competitive advantage and improve customer value.
Influencing outsourcing decision
Outsourcing is a common phenomenon among many companies. A value chain analysis determines whether your business model needs outsourcing or not. When performing a value chain analysis, consider the cost and match it against the benefits of outsourcing; if it lowers value creation cost but improves customer value, you may consider outsourcing.
Better customer experience
The end goal of a value chain analysis is customer value. In cooperation with other relevant performance improvement strategies, businesses provide better customer value without exceeding the creation cost.
Identify greater resources
Sometimes your business needs to increase upfront costs to reduce value creation costs in the long term. VCA enables you to identify the resources you need to improve on and their feasibility.
Primary and Support Activities
Primary and support activities in a value chain are the key business processes that deliver the most value in terms of competitive differentiation and low cost. Primary activities are inherent activities that directly add value to the product or service.
The primary activities include:
- Inbound logistics
- Outbound logistics
- Marketing and sales
Support activities are auxiliary activities that aid the business create competitive differentiation. They include:
- Human resource
- Technological development
Value Chain Analysis: The Steps
Value Chain analysis has two approaches; the cost advantage approach and the differentiation advantage approach. We will look at both steps.
|Cost Advantage||Differentiation Advantage|
|Step 1: Identify and break down business processes into primary and support activities||Step 1: Identify customers’ value-creating services.|
|Step 2: Establish the relevancy of the entities in the total cost of the service or product||Step 2: Evaluate differentiation strategies that improve customer value|
|Step 3: Identify cost drivers for each activity||Step 3: Select the best sustainable differentiation strategy|
|Step 4: Link the activities and sub-activities that have interdependence|
|Step 5: Identify potential improvement opportunities for reducing cost.|
Why should you perform a value chain analysis?
To remain competitive, you need to perform value chain analysis to identify bottlenecks, link them to primary and support activities, and improve on them to create top-line customer value at a lesser cost.
How many steps are there in the value chain analysis?
The original model of VCA had five steps. However, you can have three or five steps for differentiation and cost advantage approaches, respectively.
How does value chain analysis help in a business?
Businesses that seek to evolve and maintain a competitive edge understand that value chain analysis identifies inefficiencies in customer value creation. Ameliorating the inefficiencies improves a business’s competitive advantage and value hence higher profit margins.
Maintaining a competitive advantage in today’s markets requires efficacious use of modern business tools. VCA is a superior tool every business model should incorporate to identify the activities that influence customer value which is the bedrock of a successful business. Perform a value chain analysis on your company, look beyond the wasteful activities, gear efforts to creating customer value, and you are on your way to prosperity.