Your Guide to Value Chain Analysis

Value chain analysis is a useful business strategy that can take your brand’s marketing to the next level. Using this concept, you can add value for each transaction that you create, increasing customer loyalty and satisfaction.

In this article we will share the concept and components of a value chain and the importance of conducting your own analysis to boost the performance of your brand. 

Understanding the Value Chain

A value chain is a concept that describes the range of activities that businesses engage in to bring a product from conception to delivery. This includes everything from initial design, production, marketing, and sales, to distribution and after-sales service. The goal of the value chain is to create value that exceeds the cost of providing the product, and generates a profit. 

By analyzing your company’s activities through its value chain, you can gain insight into every step of your process, and maximize value at every point in the chain. This can help customers feel aligned with your company’s values, while allowing you to have a better understanding of your own competitive advantage. 

Components of a Value Chain

Primary Activities

These are the activities that are directly involved in the creation and sale of your product. They include: 

• Inbound logistics: These are activities that involve the reception, storage, and distribution of raw materials and inputs. Efficient inbound logistics can minimize costs and ensure that production processes are not delayed.
• Operations: This includes processes that convert raw materials into finished products. Efficient operations can reduce production costs and improve the quality and reliability of the product.
• Outbound logistics: These activities involve the warehousing and distribution of finished goods. Efficient outbound logistics mean that products are delivered to customers in a timely and cost-effective manner.
• Marketing and sales: This involves the processes and activities that inform buyers about products and services, induce buyers to purchase them, and facilitate purchases. Effective marketing and sales will significantly boost your company's revenue.
• After-sales services: These activities involve maintaining or increasing the product's value after it has been sold. Good after-sales service can lead to higher customer satisfaction and loyalty.

Secondary Activities

• Procurement: This refers to the process of finding and acquiring the raw materials, equipment, supplies, and services needed to perform the primary activities. Efficient procurement can significantly reduce costs and guarantee the quality of inputs.
• Technological development: This includes research and development, technology initiatives, and other activities involved in improving products and processes. Innovation can be a key differentiator in the market.
• Human resources management: This involves recruiting, hiring, training, development, and compensation of personnel. Effective human resource management means that a company has a skilled, motivated, and productive workforce.
• Infrastructure: This includes activities such as general management, planning, finance, accounting, legal support, and government relations that are required to support the work of the entire value chain.

Understanding Value Chain Analysis

Value chain analysis refers to the evaluation of each of the activities in your company’s value chain with the goal of discovering opportunities for improvement. By analyzing each step of your chain, you are able to consider how each one adds or subtracts value from your ultimate product. This can help you with cost reduction, because you are able to make each activity in the chain more efficient and more cost effective. It can also help you differentiate your products by investing more in research and development, design, or marketing that makes your brand’s offerings stand out. 

Why Is Value Chain Analysis Important?

Supply Chain Management

With insights into each component of your supply chain, you are able to see how each point adds value to your final product. This can help you coordinate with your suppliers and manage logistics. 

Strategic Decision Making

Value chain analysis allows you to inform your decision making about partnerships, product development, and market expansion, and develop a more strategic approach based on your company’s previous interactions. 

Improving Customer Satisfaction

Streamlining your process based on value chain analysis can help you identify activities that directly contribute to customer value. This increased value for your customer can increase customer satisfaction and loyalty to your brand and the products it provides. 

Sustainability and Corporate Responsibility

Understanding the value chain helps identify areas where environmental impact can be reduced, supporting sustainability initiatives. It also highlights opportunities to improve social responsibility, such as fair labor practices, ethical sourcing, and community engagement. This can both enhance the company’s reputation and stakeholder relations.