VALUE CHAIN ANALYSIS

• VALUE CHAIN ANALYSIS
• STRATEGIC MANAGEMENT/STRATEGIC COST MANAGEMENT/UPSC FOR COMMERCE AND MANAGEMENT/ACCOUNTING FOR MANAGEMENT
• BY DR. SHASHI AGGARWAL
• MEANING OF VALUE CHAIN ANALYSIS
• THE VALUE CHAIN IN APPROACH WAS DEVELOPED BY MICHAEL PORTER IN HIS BOOK” COMPETITIVE ADVANTAGE. VALUE CHAIN ANALYSIS IS USEFUL IN ANALYZING BOTH INTRA-ORGANISATION AND INTER ORGANIZATION PROCESSES IN ORDER TO IDENTIFY THE SOURCES OF COMPETITIVE ADVANTAGES.
• VALUE CHAIN IS THE LINKED SET OF VALUE CREATING ACTIVITIES ALL THE WAY FROM BASIC RAW MATERIAL SOURCES FOR COMPONENT SUPPLIERS THROUGH TO THE ULTIMATE END USE PRODUCT OR SERVICES DELIVERED TO THE CUSTOMER. PORTER DESCRIBED THE VALUE CHAIN AS THE INTERNAL PROCESS TO DESIGN,PRODUCE,MARKET,DELIVER AND SUPPORT THE PRODUCT,
• FUNCTIONS OF THE VALUE CHAIN
• PRIMARY ACTIVITIES:- CREATION OF DELIVERY OF A PRODUCT OR SERVICE

1. IN BOUND LOGISTICS
2. OPERATIONS
3. OUTBOUND LOGISTICS
4. MARKETING AND SALES
5. SERVICES

6. RECEIVING AND STORING
7. CONVERSION OF INPUTS INTO OUTPUT
8. TRANSPORTATION AND WAREHOUSING OF FINISHED GOODS
9. SALE AND DISTRIBUTION
10. AFTER SALE SERVICES
11. SUPPORT ACTIVITIES

• SECONDARY ACTIVITIES

1. PROCUREMENT
2. HUMAN RESOURCE MGMT
3. TECHNOLOGY DEVELOPMENT

4. INFRASTRUCTURE
5. SOURCING AND NEGOTIATING WITH SUPPLIER
6. RECRUITMENT,SELECTION,TRAINING,APPRAISAL AND DEVELOPMENT
7. MGMT OF INFORMATION PROCESSING AND DEVELOPMENT AND PROTECTION OF KNOWLEDGE

8. FINANCE PLANNING,QUALITY CONTROL AND GENERAL SENIOR MGMT

• STEPS

1. ANALYSIS OF OWN VALUE CHAIN-WHICH COST ARE RELATED TO EVERY SINGLE ACTIVITY
2. ANALYSIS OF CUSTOMERS VALUE CHAIN-HOW DOES OUR PRODUCT FIT INTO THEIR VALUE CHAIN
3. IDENTIFICATION OF POTENTIAL COST ADVANTAGES IN COMPARISON WITH COMPETITORS
4. IDENTIFICATION OF POTENTIAL VALUE ADDED FOR THE CUSTOMER

• LINKING VALUE CHAIN ANALYSIS TO COMPETITIVE ADVANTAGES
• COMPETITIVE ADVANTAGE TAKES TWO POSSIBLE FORM:-

1. DIFFERENTIATION
2. LOW COST ADVANTAGE

·         VALUE CHAIN ANALYSIS HELPS ORGANIZATION ASSESS COMPETITIVE ADVANTAGES:-

1. INTERNAL COST ANALYSIS
2. INTERNAL DIFFERENTIATION ANALYSIS
3. VERTICAL LINKAGE ANALYSIS
4. EVALUATING OPPORTUNITIES

• STRATEGIC FRAMEWORK FOR VALUE CHAIN ANALYSIS
• INDUSTRY STRUCTURE:-

1. BARGAINING POWER OF BUYERS
2. BARGAINING POWER OF SUPPLIERS
3. THREAT OF SUBSTITUTE
4. INTENSITY OF COMPETITION
5. THREAT OF NEW ENTRANT

• CORE COMPETENCY
• SEGMENTATION ANALYSIS
• PROBLEMS

1. INCORRECT ALLOCATION OF COSTS WITH IN THE CHAIN
2. LONG AND TIME CONSUMING
3. NON AVAILABILITY OF INFORMATION
4. ASSUMPTIONS

• IMPORTANCE
• IDENTIFY THE INDUSTRY VALUE CHAIN AND THEN ASSIGN COSTS,REVENUE AND ASSETS TO VALUE ACTIVITIES
• DIAGNOSE THE COST DRIVERS
• DEVELOP SUSTAINABLE COST ADVANTAGE