VALUE CHAIN ANALYSIS

Assessing each activity in every stage of value chain to understand gaps and
shortfalls
Best ways to pinpoint improvement opportunities across your various departments.

Value chain improvement can come in form of

 Product innovation and differentiation,
 Process innovation,
 Employee and customer engagement
TYPES OF VALUE CHAIN

Firm Level

Industry level

Global Value Chain

 BENEFITS OF VALUE CHAIN
ANALYSIS
1. Establishes better vendor management

2. Reduces cost and delivery times

3. Optimizes inventory

4. Improves customer relationships

5. Standardizes and optimizes processes

6. Helps you gain a competitive edge

 COST ADVANTAGE ANALYSIS
Lower both the cost of production and the cost of products
Product that can be easily mass-produced and holds higher value as a low-cost item rather than
a high-quality item.
Steps to undertake Cost Based Value Chain Analysis
1. Identify primary and support activities.
2. Identify the cost of each activity in regards to the overall product cost.
3. Identify cost drivers for each activity.
4. Identify any links between activities (decreased costs in one may lead to increased profit in
another)
5. Identify opportunities for reduction (decreasing inventory variety, sourcing lower-cost
materials, switching vendors, or automating parts of your labor force)
DIFFERENTIATION ADVANTAGE

Seeks to set a company apart for its product quality and brand value.
high-cost, high-quality products with high customization.

Steps to undertake Differentiation Based Value Chain Analysis

1. Identify value-creating activities (ones that contribute most to customer value)
2. Look at strategies for improving those activities to increase customer value
3. Identify a sustainable differentiation
WHAT YOUR CUSTOMERS PERCEIVE AS
VALUE

Value that people place on products comes from factors such as societal influence
and group-think

Undertake Market Research to get a deeper understanding of your customers’

psychology, their pain points and their needs.
COMPETITIVE BENCHMARKING

Review your competitors’ value chains

1.Process Benchmarking

2.Strategic benchmarking

3.Performance benchmarking
VCA OF COFFEE - EXAMPLE

Value chain analysis on a Rs 2.50 cup of coffee reveals that only 1p goes to the actual
coffee grower.
The remaining Rs 2.49 is made up of additional supplies including:
Milk, Stirrers, Transport, Cups, Rent for the coffee shop premises, Staff wages and
benefits
It was found that Staff and Rent were most costly

What options the Coffee shop owner can explore?

VALUE CHAIN ANALYSIS EXAMPLE FOR A
COMMON SUPERMARKET

Primary activities include:

Inbound logistics: very low cost at 2 percent (half of the industry
average)
Operations: 9 a.m. to 9 p.m., seven days a week
Outbound logistics: strong presence of distribution centers
Marketing/sales: everyday low prices, cash and carry
Service: quick responses, no-questions-asked return policy
 VALUE CHAIN ANALYSIS EXAMPLE FOR A
COMMON SUPERMARKET
Secondary activities include:
Business infrastructure: 400+ truck tractors, 30,000-square-foot stores in
small towns
Human resources management: top management in-store, employees referred
to as associates, incentives, profit sharing, stock options, decentralization
Technology development: Uniform Product Code at POS, cross-docking,
satellite network
Procurement: strong bargaining power with vendors, no one vendor accounts
for more than 2.8 percent of total purchases

What could the supermarket do to increase its profit margin?