5 Types of value chains

1. Physical value chain

Physical value chains are directly related to the production of material goods , as well as their distribution and sale.

In these cases, this is influenced by physical and material aspects such as labor, raw materials and the machinery used to create the merchandise.

2. Virtual value chain

For their part, virtual value chains articulate steps and stages to be able to offer a digital service or good to people.

These have the particularity of using digital means to create products that, in addition, are also virtual. However, it is important to mention that, in general, they involve physical resources such as human talents, computer equipment and infrastructure.

3. Value chain for services

The value chain for services is a type of approach that allows evaluating the costs derived from a service creation process , which is why it does not consider certain logistical or industrial aspects that could generate expenses in the production and sale of physical goods.

For example, there are companies that encompass their chain into two major factors: the front office and the back office (direct and indirect interaction with the customer).

4. McKinsey Value Chain

For its part, the McKinsey value chain was devised as a means to evaluate the internal and external functions of a company, but as part of a system .

That means you are not only interested in seeing what is happening within the company, but also in the activity of the competition . In this sense, its objective is to evaluate the extent to which an organization’s offer differs from that provided by others .

5. Porter’s value chain

Porter’s value chain is an approach that considers different variables to measure the value of the offer. According to Michael E. Porter , “margin is the difference between the total value and the total costs incurred by the company to perform value-generating activities.”

This is the broadest and most comprehensive perspective , since it involves all the aspects that we reviewed before in the elements section.

Example of value chain in companies

Apple is one of the largest companies with the highest annual revenue in the world. In large part, this is because you have optimized your value chain to reduce costs, increase perceived value, and achieve the highest profit margin through sales .

Let’s analyze step by step what has triggered growing interest (and cost) in its most popular products.

1. Infrastructure

This organization stands out for having one of the strongest corporate identities on the market. All of this is part of a hierarchical organization scheme that ranges from Tim Cook, the company’s CEO, to the sales and service managers.

Furthermore, it is organized around the existence of areas by product : there are those who develop the popular iPhone, others work on the iPad and still others on wearables. This allows there to be a good level of specialization for each product and, therefore, there is added value in the quality of technological equipment .

2. Human Resources

For its part, this company offers one of the best places to work in the world . It doesn’t matter if it’s a job at the Cupertino headquarters or in an official store , the salaries are always competitive and the environment is unmatched. So much so that, for many years, it remained on Glassdoor’s list of the 100 best places to work .

Its constant search for talent means that its workforce is made up of the best professionals with greater training, which increases the expenses derived from their hiring, but ensures a good level of research, production, sales and customer service. 

3. Technology

In terms of technology, Apple is one of the businesses with the greatest presence in the sector. This is because it is the producer of a large part of the technologies they use to produce their goods, but also because it remains at the forefront with the use of innovative tools.

For example, with the launch of the M family of microprocessors, not only has the company managed to increase the sale of equipment, but its operations themselves have improved . The same has happened with the incorporation of artificial intelligence resources in its production chain, which allows the automation of processes and the reduction of costs. 

4. Shopping

If you’re an Apple user, you’ve probably noticed that all of their products specify that they were designed in California, but they don’t usually say where they were produced . This has to do with the fact that the company has production plants all over the world .

This could represent a risk when it comes to ensuring the quality of the products. However, this organization has strict supplier responsibility standards , which has allowed the plants to comply with production quality and raw materials to be of high quality , while respecting the company’s  green policies .

5. Inbound logistics

At the level of primary activities, the storage of raw materials and work resources does not represent a major expense for the company due to its collaboration with outsourced production services.

On the other hand, by having a good number of companies serving the production of its items, it ensures that manufacturing is constant and meets the demands of the public.

6. Operations

The dozens of companies that collaborate with Apple, such as Intel, Qualcomm and Sony , ensure that the products delivered are of high quality and meet all the brand’s standards . However, the operations do not end there. On the contrary, aspects such as packaging and functional tests require a lot of attention before going on sale.

This business is recognized throughout the world for investing large amounts of money in the design of the packaging and accessories of its products , which also requires a significant investment of resources that are not in the product itself. Therefore, this step adds great weight to the brand’s value chain.

7. Outbound logistics

Once the equipment is ready for sale, it is time to manage the outbound logistics of the goods, including the distribution and shipping of products .

One of the best strategies promoted by the company occurred when, in 1998, Steve Jobs made the decision to buy all the airspace possible in order to transport his first production of desktop computers . This investment still affects the price of the brand’s equipment because it was the starting point to create distribution channels around the world with the purpose of reaching each population (we are talking about more than 525 brand stores , plus authorized distributors).

8. Marketing and sales

This point is one of the ones that add the greatest value to their articles, both in an economic sense and in the perception of consumption. If this company stands out for something, it is for creating technological ecosystems that encourage the purchase of more products: iPad, iPhone, Mac, Apple Watch, etc. 

This is the product of solid and comprehensive marketing and sales strategies . If you have visited any store of the brand, you will have realized that experience is one of the most important things that this company sells, which implies expenses in training personnel, conditioning the space and even preparing workshops to use their equipment. .

9. Service

Finally, we can talk about the last component: the service . This element is fundamental, as it explains why customers continue to consume brand products, even after several decades and price increases. Investing in customer service is essential to maintain loyal buyers, as it becomes a possibility to stand out from the competition and increase the perceived value of the brand (as well as its products).

This example lets us see that the value chain is a sum of elements that enhance the meaning of a commodity , as well as the price for which it is offered to the public.

Optimize each stage of your production and make sure you provide the most competitive goods to make your business profitable.

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