Value Chain Analysis

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INTRODUCTION

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The term value chain was used by Michael porter in his book competitive advantage: creating and sustaining superior performance.

MEANING

The value chain analysis describes the activities the organization performs and links them to the organization competitive position. It is analysis of the competitive strength of the organization.

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IT CAN

INCREASE UR COMPETITIVENESS REDUCE YOUR COST IMPROVE UR MARKET SHARE ALSO IMPROVE THE OVERALL

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THERE ARE GENERALLY TWO TYPE OF ACTIVIES WHICH A ORGANIZATION HAS TO PERFORM

PRIMARY ACTIVIES SUPPORT ACTIVITIES

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INBOUND LOGISTICS

These are those activities which r directly concerned with the creation and delivery of product and services.

PRIMARY ACTIVITIES

OPERATIONS

CONCERNED WITH RECEIVING AND STORING MATERIAL ACTIVITIES WHICH CONVERT INPUT INTO OUTPUT ACTIVITIES GETTING FINISHED GOODS TO BUYERS PROVIDING INFORMATIONG REGARDING PRODUCT AFTER SALE SERVICES

OUTBOUND LOGISTIC

MARKETING AND SALES

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SUPPORT ACTIVITIES

These include infrastructure.

PROCUREMENT IT IS CONCERNED WITH HOW RESOURCES ARE ACQUIRED THOSE CONCERNED WITH RECRUITING,DEVELOPING WORK FORCE ACTIVITIES CONCERNED WITH MANAGING INFORMATION CONCERNED WITH FUNCTIONS SUCH AS

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT
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INFRASTRUCTURE

STEPS IN VALUE CHAIN ANALYSIS

Breakdown a organization into its key activities under each of the major headings in the model. Assess the potential for adding value via cost advantage or differntiation or identify current activities where a business appears to be at compettitive 3/12/12

Determine strategies built around focusing on activities where competitive advantage can be sustained.

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These linkages are crucial for corporate success. The linkages are flows of information, goods and services as well as system and processes for adjusting activities. Eg: only if the marketing and sales function delivers sales forecasts for the next period to all other departments in time, procurement section will be able to

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LINKING VC ANALYSIS TO COMPETITIVE ADVANTAGE

Competitive Intelligence is:

COMPETITE ADVANTAGE CAN BE ACHIEVED THROUGH COMPETITIVE INTELLIGENCE

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Information about opportunities and threats Information which makes companies and local industries more competitive Forecasting of changes about the economic environment Actionable recommendations from analysis of the environment

Competitive Intelligence what is it? It is the total knowledge a company or a local industry possesses about the environment in which it competes gathered in an ethical manner

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The Three Tiers

There are three tiers of Value Chain Analysis

Internal Cost Analysis A firm or a sector needs to understand its own value chain in order to compare to its competitors Internal Differentiation Analysis

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A firm or a sector then needs to identify the processes that distinguish its products or services

Vertical Linkage Analysis

Gaining and sustaining a competitive advantage requires that a firm understand the entire value delivery system, not just the portion of the value chain in which it participates. Suppliers and customers and suppliers suppliers and customers customers have profit margins that are important to identify in understanding a firms cost/differentiation positioning, because the end-use customers ultimately pay for all the profit margins along 3/12/12

VALUE CHAIN ANALYSIS FINDS OUT

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Identify factors that determine costs of different activities Understand why a firms costs or a sectors costs differs from its competitors Understand why large differences in profitability exist within the same industry Identify which activities are performed efficiently or inefficiently Show how costs in one activity influence another Identify competitors cost positions Understand the nature and source of

PROBLEMS OF VALUE CHAIN ANALYSIS

1.

INCORRECT ALOCATION OF COST WITHIN THE CHAIN Certain costs are difficult to allocate to certain individual products but they are the costs of activities which are very significant in relation to total quality and in turn competitive advantage.

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2. LONG AND TIME CONSUMING PROCESS if the total philosophy of value chain is not adopted there is risk of over looking strategic aspects in decision making. 3.NON AVAILABILTY OF INFORMATION REGARDING COMPETITION,PRODUCT LINES AND STRUCTURE The whole exercise of developing value 3/12/12 chain in practice may become difficult is

4. ASSUMPTIONS Management accountant has to make lot of assumptions because of non availability of information. If these are inaccurate they may lead to incorrect strategic decisions.

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CONCLUSION

It is not a cure for all business problems. It helps us in performing our activities in accordance with their significance from customer point of view

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THANK YOU
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