Understanding Value Chain Analysis

Value Chain Analysis is a way of looking closely at how a business works to see how each part helps make its products or services better. It's like understanding the whole journey of your product—from the start with raw materials to when it reaches the customer—and finding ways to make each step better.

Michael E. Porter, a professor at Harvard Business School, came up with the idea of Value Chain Analysis. It changed how businesses plan their work. Porter divided a business's activities into two main types: Primary and Support activities.

Primary activities are directly involved in making and delivering a product or service. They include five main steps: getting materials, making the product, sending it out, selling it, and providing service. Support activities are the foundation that makes these primary activities work. They include things like buying materials, developing technology, managing people, and having the right infrastructure.

The Advantages of Value Chain Analysis

Using Value Chain Analysis in your business can provide several benefits, helping you strengthen your competitive position and improve profits.

One key advantage is finding cost savings. By examining each step of your business, you can see where you're spending more money and where you could save. For example, if a lot of your budget goes to getting materials, you might find ways to reduce these costs without lowering quality.

Value Chain Analysis also helps you find ways to stand out from competitors. By identifying stages where you can add unique value, you can make your products or services different and more appealing.

Many companies have seen big improvements from Value Chain Analysis. For example, IKEA uses it to keep its furniture prices low. By making their production and supply chain more efficient and creating a special shopping experience, IKEA stays competitive in a tough market.