Value chain is an effective formula for businesses to get a close look at their performance. Analyzing the value chain is important for assessing whether a company is creating expected value or not. Here, FOYCOM will discuss value chain analysis in detail, so you learn how it works. 

Understanding Value Chain Analysis 

Multiple business activities and procedures are adapted to create a product and craft a value chain. It consists of various stages of preparing a product or service to be launched. From planning and development to marketing and sales, a value chain can cover all.

First introduced by Michael Porter, a renowned Professor at Harvard Business School, value chain analysis turned out to be a dynamic concept. You can get a detailed knowledge about your company’s well-being from it. How? Let’s do a thorough discussion. 

What is Value Chain?

A business organisation conducts several steps while creating a product or service. When each of these steps is recorded and evaluated thoroughly during every transaction, it is termed as a value chain. As a business, you get to identify the shortcomings of the process and find out the opportunities to improve them.

Objective

Opting for a value chain analysis allows you to identify every nook and crook where you can add or deduct value from the finished product or service. Ultimately, it presents you with an opportunity to gain a competitive advantage in the business. Let’s take a look at a few examples –

● Product Differentiation: It is a process in the value chain analysis that shows how you can make your product/service exclusive among the masses by investing more resources in design, research and development, or marketing.

● Cost Reduction: It is a great way of cutting down business expenses. It not only makes each activity more efficient but also helps to make the entire process budget-friendly. 

Framework Origin

A value chain framework comprises five primary activities and four support activities. Value chain analysis happens when you identify all the framework activities thoroughly and assess if they are efficient enough.

By a detailed research, you get an understanding of potential dependencies, connections, and various patterns. These activities not only define the framework of value chain analysis but also stand as the core components of the process. 

Primary Activities vs. Support Activities

Primary activities include the stages that directly help during the creation of a product or service. They are –

● Inbound Logistics: 

It covers several activities that are related to different stages of a product’s logistical process, such as:

✔ Receiving

✔ Warehousing

✔ Inventory management

✔ Location of distribution facilities

● Operations: 

Operations refer to activities that occur while finishing a product by combining its raw materials and other necessary components, such as:

✔ Standardized model

✔ Manufacturing

✔ Assembling products

✔ Equipment management

✔ Access to real-time inventory and sales

● Outbound Logistics: 

It consists of activities that help in the distribution process like:

✔ Sorting

✔ Packaging

✔ Storage

✔ Order Processing

✔ Shipping

● Marketing & Sales: 

It includes every action taken during the marketing of the product or service, such as:

✔ Advertising

✔ Promotion

✔ Pricing Strategies

✔ Communication

✔ Branding

● Post-Sale Service: 

It covers every action taken by the company after selling a product or service in the market. It includes:

✔ Installation

✔ Training

✔ Quality Guarantee

✔ Repair service

✔ Customer support

✔ Warrantee

✔ Return or Exchange Policies

Support Activities, also termed secondary activities, are basically the actions the help primary activities to become more proficient. The activities are –

● Infrastructure: 

Any activity related to a company’s overhead management system is connected to it, such as:

o Planning

o Financing

o Accounting

● Technological Development: 

The activities opted during the research and development process are covered in it, like:

o Market research

o Product/service design

o Process development

● Human Resource Management: 

Several activities are done during the HRM process that make the entire system better, such as:

o Recruitment

o Hiring

o Training

o Retention

o Development

o Compensation to employees

● Procurement: 

It covers several activities that ultimately improve the product or service quality and in turn the business, like:

o Sourcing raw materials

o Components

o Equipment

The Role of Value Chain Analysis in Optimizing Inventory Management

● Reducing Inventory Costs:

You can reduce and limit inventory costs through this process as it evaluates core inventory management stages by highlighting inefficiencies and assessing cost-benefit measures.

● Improving Supplier Relationships:

Value chain analysis leads to improved collaboration with suppliers, which fosters timely inventory practices. It helps to ease the volume of stock held at a time.

● Enhancing Operational Efficiency:

The analysis increases the operation efficiency of a business by optimizing the entire process while improving quality, integrating technology, and creating a better customer feedback loop.

● Demand-Forecasting:

This evaluation process offers a structured approach that forecasts demand for the product/service. It gives a clear customer insight as well as chances of improvement.

Steps to Conduct Value Chain Analysis for Inventory Management

Step 1: Identifying Activities

Initially, you have to understand the primary and support activities and identify which ones will help you to create the product/service. If you are planning to launch multiple products/services together, you have to identify activities for each one.

Step 2: Examining the Costs & Values of each activity

After you have identified the activities, you have to determine the value of each activity adds to the entire process. It should also calculate the estimated budget. While determining the activity values, you must consider how the product will benefit your business.

Step 3: Benchmark against Competitors

Now, you will be able to understand how you will set a benchmark against your competitors. You may find multiple opportunities that can give you a competitive advantage. But it is best to go with the one that offers the most ROI and requires less effort.

Step 4: Strategizing to Improve inventory system

You can now develop strategies to enhance the inventory system and take necessary measures. Reducing costs should be one of the most prioritized factor while working on the plan. FOYCOM believes in keeping your budget in check, no matter how effective your strategies may seem.

Step 5: Monitoring feedbacks & Optimizing strategy planning

This is the final step in the value chain analysis. Without continuous monitoring of customer feedback, you cannot understand the inefficiencies. Monitoring reviews provides you the opportunity to enhance your business strategies and improving inventory management. 

Benefits of Value Chain Analysis in Inventory Management

Value chain analysis offers several benefits to a business, including –

● Cost Efficiency: 

You get a clear report of your expenses through this process. This research allows to make better use of your budget and enhance cost efficiency significantly.

● Customer Satisfaction: 

This process gives you detailed customer insight using which you can boost your product quality and customer service.

● Sustainable Practices: 

Value chain analysis helps you understand the social and environmental impacts of your business. This can lead to taking more sustainable measures. 

Why Choose FOYCOM?

FOYCOM is a leading platform that provides a high-end value chain analysis services for the inventory system of your business. As a growing company, your business needs a boost that can be done through an in-depth research.

Value Chain analysis is one such opportunity that gives you a clear outlook of the processes adopted by your company. By partnering with FOYCOM, you will gain a guaranteed result and enhance your business in the best possible way.

Conclusion

All-in-all we can agree that we can understand, improve, and boost a business inventory system within no time through an efficient value chain analysis. It is a formula that enhances success for businesses. Only getting the analysis done from an expert channel will benefit you. So, approach FOYCOM today and get started!