By Chron Contributor Updated August 30, 2021
Value chain analysis refers to the process of examining the steps involved in a company's value chain and the supporting company systems. Management expert Michael Porter outlined these elements in his 1985 book "Competitive Advantage." By analyzing your company's value chain, you can improve efficiencies and more effectively meet the needs of your customers. As Hubspot explains, this should result in improving your company's competitiveness in the marketplace.
Your Company's Logistics
As Harvard Business School explains, the first step in conducting a value chain analysis is to understand the primary and secondary activities that go into making your products or delivering your services to customers. These can be found by examining the logistics of your company.
Logistics includes the coordination of the flow of information and goods into and out of your business. Analyzing your inbound logistics includes consideration of ways to reduce supplier costs and build stronger relationships with core suppliers. Outbound logistics, involving movement of goods and information to your buyers, is a critical distribution and service factor. Delivery of goods in the most efficient but low-cost way is important to optimized distribution costs and timely service for buyers.
Your Company's Operations
The operations step in the value chain includes the various processes, equipment and employees used to manufacture, buy and sell inventory to customers. Manufacturers often focus on developing the best-quality goods at the lowest costs by optimizing labor and equipment costs and taking wasted steps out of production processes. Resellers analyze their operations to discover ways to more efficiently manage inventory and merchandise it effectively to buyers.
Front-End Activities
Porter emphasizes marketing, sales and support as important front-end value chain activities. Essentially, businesses need to constantly review and enhance marketing research, promotional activities and support for customers. Research helps you learn more about potential or existing customers. Promotions, including advertising and sales, attract customers. Top companies consistently review current promotional techniques and look for opportunities for improvements. Retaining customers is key to long-term success, so it is important to constantly review existing support services and processes to find ways to offer better, more-efficient customer care.
Other Supporting Factors
Porter identified four supporting factors in a value chain: Infrastructure, human resources, technology development and procurement. Infrastructure and technology development essentially relate to build-up and development of buildings, equipment, supplies and technology to support ongoing business activities. Analyzing your infrastructure and technology allows you to seek ways to boost your structure to support customers. Human resources is central to attracting, retaining and motivating top workers. Purchasing departments routinely review procurement steps to seek opportunities for lower costs from suppliers or more favorable terms.
