Assessment 1 – value chain analysis

Assessment 1 – Written Report

Introduction

Value chain analysis is a very important tool for all organisations. This is because the value chain analysis identifies and evaluates the primary and support activities that add value to the completed product of an organisation. The value-chain analysis is so effective because it does not analyse the completed product, but analyses the whole supply and manufacturing chain, which makes the analysis significantly more effective and reliable. Identifying both the inputs, processes and outputs, allows the analysis to be much more accurate and reliable.

Definition of value chain analysis

According to strategic management insight, the definition of a value chain analysis “is a process where a firm identifies its primary and support activities that add value to its final product and then analyse these activities to reduce costs or increase differentiation.”

Primary Activities

This is the Porter Model of a Value Chain.

The top row: Inbound Logistics, Operations, Outbound Logistics, marketing & sales and service are all primary activities because these activities add value directly to the final product.

Secondary activities

The bottom activities of the Porter Model of a value chain: Firm infrastructure, human resource management, procurement and technology are activities that do not have a direct impact on the end-products value, however does contribute indirectly. Therefore, these 4 activities are considered support activities or secondary activities. It is important to understand that although secondary activities do not have a direct impact on the final product, this does not mean that the secondary activities are not as important. The secondary activities have become a very important part of the value chain, as organisations have become more transparent in their operations.

Cost advantages and value chain

Cost advantage is about trying to minimise the amount of cost for the value chain as much as possible. Therefore, it is about identifying all costs areas, and identifying ways which can achieve the best cost advantage. Cost advantage is not only about achieving the lowest cost, but it is about achieving the best cost efficiency compared to other competitors.

Differentiation and the value chain

Differentiation is another very significant factor amount the value chain, as this is not impacted by the cost or price of the product. A very good example of a differentiation is making a “natural and organic” product. In today’s society, people are always careful about what products they purchase and consume because many products are now filled with preservatives and unhealthy chemicals. These products may be cheaper, but people also place high value on the “organic and natural” differentiation between products. Therefore, a value chain that can identify a positive differentiation can use this as a good competitive advantage.

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chain, as this is not impacted by the cost or price of the product. A very good example of a differentiation is making a “natural and organic” product. In today’s society, people are always careful about what products they purchase and consume because many products are now filled with preservatives and unhealthy chemicals. These products may be cheaper, but people also place high value on the “organic and natural” differentiation between products. Therefore, a value chain that can identify a positive differentiation can use this as a good competitive advantage.

Technology and the value chain

Technology is considered a secondary activity because technology will not impact the cost and value chain directly, however technology can significantly impact the product’s attractiveness and desirability. Technology can be used as a great competitive advantage, as many people are willing to pay a lot of money for premium quality and an cutting-edge experience.

Linkages between value chain activities

All activities are generally dependant or reliant on each other. Meaning that each activity is connected in one way or another. This is because all of these activities are combined by the organisation to produce a product that the consumers desire. If the customers can achieve the product without going through various activities, there would not be any need for the business. Organisations have linked the value chain activities together, to maximise the convenience and customer satisfaction of the consumers.

Outsourcing value chain activities

Many organisation may choose to outsource, meaning that it distributes the workload to other businesses. Outsourcing can be very beneficial because it can reduce costs significantly, by reducing the amount of labour costs, however outsourcing can also damage the reputation of the company and its products. It is important that an organisation carefully considered which activities to outsource, as this can impact the value of the final product significantly.

Conclusion

Value chain analysis is a very important part of an organisation’s success and it is important that the organisation identifies ways of maximising the performance of the value chain. The value chain analysis helps to identify opportunities of improvement, either by reducing costs, improving processes or outsourcing activities to other businesses. Overall, the value chain analysis helps to create a product that is both efficient in value and cost.

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