The value chain is a critical concept in business management and strategy, emphasizing the importance of every step in the production process, from initial conception to the final sale and beyond. Understanding and optimizing the value chain can lead to significant benefits for a company. Here are some key points highlighting its importance:
Importance of the value chain
Index of contents
- What is a value chain
- What is value chain analysis
- Importance of the value chain
- The 9 elements of the value chain
- Types of value chains
- Example of value chain in companies
Therefore, it is essential to find a balance between the expenses derived from a production chain, the cost of the products for the customer and the profits that a company obtains . And to achieve this objective, there is the value chain.
Learn in detail in this article the relevance of this approach, its different types and the elements that make it up to ensure the success of the businesses that implement it.
What is a value chain
A value chain is a set of strategies designed to optimize each step in the production of a good or service and reduce production costs, increase profits and make a company competitive. Thanks to this approach, companies can ensure that their operations are profitable.
This concept understands the production process as a sequence of connected steps . In addition, it prioritizes value as a balance between profit margins and the costs involved in offering a product to the consumer . It could be said that each stage of its development adds value to the final product and this is something that should influence the price offered to the buyer.
What is value chain analysis
The analysis of a value chain involves the study of each stage of the process, in order to identify the extent to which they contribute value to the final product. This means tracking the expenses derived from a procedure, its impact on the final value of the product and the way in which these elements affect the consumer experience.
This method contemplates the examination of the resources used for production, the infrastructure behind it and the investment of human power. In addition, it involves the evaluation of the logistics, marketing, sales and service stages , as well as their quality and relevance as competitive advantages .
Importance of the value chain
The value chain is important because it allows organizations to know their activity in detail . Thus, they can make informed business, financial and commercial decisions that ensure the highest possible profitability.
On the other hand, it is essential to know how to create an optimized value chain that helps them reduce expenses and make their processes more efficient. With this, they will not generate additional value to their products, they will reduce unnecessary expenses and use resources in a more responsible way . In addition, they will be able to offer their products at more competitive prices or obtain larger profit margins.
Finally, as a result, you will offer a quality final product, increase the loyalty of your consumers and generate a better brand image , especially if carrying out this evaluation leads you to find ecological or socially responsible options. This could increase the cost of your merchandise, but it would also increase the perceived value of your offers. And that is what every company should look for.
The 9 elements of the value chain
To understand this concept, it is essential to identify the elements that determine the value of your products . These are divided between primary activities (those that directly influence the production and final cost of the offer) and support (the support so that the primary activities can be carried out). Review with me the details of each of them.
Primary activities
- Inbound logistics
Inbound logistics is the first step in any value chain, therefore it is what determines the initial costs and basic investments for the production of a good. In this case, they are all the actions that affect the way in which the goods used to produce a commodity are stored, managed and invented .
When analyzing your chain, you will have to consider taking into account the logistical operations that have to do with the creation of the specific good.
- Operations
Operations are all the activities and tasks that allow us to transform a raw material into a finished product ready for sale. This may involve industrial, intellectual or manual work. In any case, try to evaluate what investment of time , payment to your staff and expenses in product testing you made.
For example, manufacturing a handmade product will require more time and human effort, which can increase its value as well as the customer experience. For its part, an industrially manufactured item may require higher spending on infrastructure, but not very significant in terms of operations.
- Outbound logistics
In contrast, outbound logistics are the steps and actions necessary to place an offering on the market , which may involve the storage, distribution, and shipping of items from the point of production to the retail site.
These activities may depend on your company or a third party and you need to consider them in both the physical sales format and the digital one .
- Marketing and sales
Marketing activities are focused on creating brand awareness among consumers, above all, to offer them the product for sale . This involves both the acquisition of software licenses for customer relationship management, payment for advertising on social networks or even email marketing campaigns .
For their part, sales include all actions that influence the marketing process : floor sales, telephone calls, in-person demonstrations, etc.
- Service
Finally, service tasks are very relevant in the value chain. Surely it has happened to you that, when you buy merchandise with a high cost, the service of that company is also of high quality. This is because the value of the offer also considers the consumer experience .
If your team is trained to offer adequate responses and good solutions to the client , your value will make you more competitive in the market and increase the profitability of your company.
Support activities
- Infrastructure
Infrastructure is the first support of all business activity. This term refers to all the material factors that allow operations, whether offices, factories or production plants . But to the immaterial circumstances that shape your company, such as the organization by departments and management hierarchies.
Thanks to these elements, you can launch a business project and determine the value of your offers, since the more complex your infrastructure is, the greater the economic cost will be distributed across your products and the more perceived value they will have .
- Human Resources
For their part, human resources not only support your company’s activities, they are also essential for your company to launch an offer. It doesn’t matter if they are employees in the financial, tax or maintenance area : they are all an active part of the value chain.
Likewise, this element requires investment of time and resources . For example, to hire the best talent you have to offer good positions and salaries. This implies an expense, but it ensures that your offers will have a higher value than the competition due to the quality, functionality or complexity of the final product.
- Technology
The technological component is all the tools you use for each stage of the production chain: from machinery and manual tools to software and computers , because all these elements allow you to manufacture, analyze, process and launch offers to the market.
Depending on the devices you use, you will have a different value chain. If you stay ahead of the game, the value will increase. However, if you use simpler technologies, your offer may not have its costs affected. Your goal will be to choose useful, not obsolete, tools that optimize your processes.
- Shopping
Finally, there is an additional level that supports the entire chain. This contemplates the acquisitions of a company to launch its operations . Traditionally, these are the raw materials , but we can also consider software subscriptions to execute specific tasks, for example.
These purchases determine the final value of the product, because buying a garment made with polyester is not the same as buying one made of organic cotton or linen. This shows that those inputs that are the starting point of your production directly affect the value of the offer, as well as the public’s perception of your brand.
