For your small business to have a competitive edge, certain fundamentals must be in place to succeed. Those fundamentals comprise the Value Chain Analysis, a concept developed and advanced by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance
Successful Value Chain Management should be part of your small business strategic planning initiative, a powerful way to help your operation contain costs and succeed in today ultra-competitive business environment.
Research and Development
The first step in value chain management is researching the products your customers want. Through careful market analysis, including the measurement of consumer trends, companies can anticipate what people want and have those products available. On the small business level, this could mean working directly with suppliers to produce a new product.
Product Design
Once a new product has been identified or an existing product upgraded to meet anticipated demand, that item is tested, refined and sent on for production. In companies where service is the product, the same planning process is used.
Production Process
Where your product is manufactured can have a significant impact on quality, cost and value. Writing for Business Process Trends, Andrew Feller, Dr. Dan Shunk and Dr. Tom Callarman note that “...global sourcing and supply has begun a long-term process of leveling the playing field for adding value world wide.” More than likely your small business will look overseas to suppliers who can build what your company needs at a competitive price.
Marketing and Sales
Feller, Shrunk and Callarman noted three components every successful product must offer: product value, service value and a “wow” value. That latter component goes beyond personal care and warranty service to provide an enhanced level of service not generally offered. One current example of a company putting “wow” into practice is the Ritz-Carlton Hotels, whose managers have been empowered to “...to permit every employee to spend up to $2,000 making any single guest satisfied,” according to the Oct. 30, 2009, issue of "Forbes" magazine.
Distribution Management
Where you warehouse and how you distribute your product is a critical link in the value chain. Transportation, material handling, packaging, communications and information systems need to be in place to get the product to your customers. Distribution, or logistics management, remains important in the digital age, as physical locations such as stores and warehouses are still needed. How you employ each distribution point is subject to review and change.
Customer Service
Getting the product to your customers means training your employees to know everything about it, advising customers how to use the product, diagnosing and troubleshooting, and providing friendly service. This final link in the supply chain is refined as needed and is used by senior management to gauge customer behavior.
FAQs
The service value chain in ITIL 4 is essentially an operating model that lists the six key activities necessary to create value with a product or service – plan, engage, design and transition, obtain/build, deliver and support, and improve.
What is the six value chain? ›
The service value chain in ITIL 4 is essentially an operating model that lists the six key activities necessary to create value with a product or service – plan, engage, design and transition, obtain/build, deliver and support, and improve.
What are the six activities of value chain? ›
The primary activities of the value chain include inbound logistics, operation outbound logistics, marketing and sales, and service. Secondary activities or the support activities include firm infrastructure, human resources management, and procurement.
What are the requirements for value chain analysis? ›
Value chain analysis is a process that requires four interconnected steps: data collection and research, value chain mapping, analysis of opportunities and constraints, and vetting of findings with stakeholders and recommendations for future actions.
What are the key success factors in a value chain analysis? ›
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.
What are the basics of the value chain? ›
A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer's door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production.
What are examples of a successful value chain? ›
What is an example of a successful value chain? A prime example of a business creating value for its customers and following the value chain framework is Starbucks. Through its operations, the company creates connections worldwide, guarantees high-quality flavors and works to build a sustainable future.
Which of the following is not one of the six value chain activities? ›
Plan • Engage • Delivery and Support •Practice (Correct) ExplanationPractice is not an activity in the service value chain. The six activities within the service value chain are plan, improve, engage, design and transition, obtain/build, and deliver and support.
What are the stages of building a value chain? ›
Three main steps can be distinguished in value chain analysis: (1) Identify the main functions and types of firms in the value chain; (2) Analyze structural connections; and (3) Analyze dynamics.
What is value chain management best defined as? ›
Value Chain Management Definition. Manufacturing value chain management (VCM) is the process of monitoring and managing all the components that comprise manufacturing, including procurement, production, quality control and distribution. This practice has gained prominence over the past couple of decades.
The value chain framework encompasses five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, and service -- and four secondary activities -- procurement and purchasing, human resource management (HRM), technological development and company infrastructure.
What is an example of a value chain? ›
An example of a value chain is the production process of coffee beans from the farm to the factories for processing, through different roasting grades, and finally to the coffee consumer as various coffee beverages. The whole process aims at providing value for the coffee consumer.
What is a value chain diagram? ›
What is a value chain diagram? A value chain diagram, or value chain analysis, shows the steps your company follows in order to provide a product or service that customers value. Designed by Michael Porter, the value chain assumes that you have the goal of providing as much value for customers as you possibly can.
What are the 5 key success factors for a successful business? ›
The five critical success factors are strategic focus, people, operations, marketing, and finances.
What is a key success factor? ›
Key success factors (also known as competitive emphasis or strategic posture) state the important elements required for a company to compete in its target markets. In effect, it articulates what the company must do, and do well, to achieve the goals outlined in its strategic plan.
What are the key strategic value chains? ›
Namely, to prepare coordinated action and investment to strengthen 6 key strategic value chains:
- Connected, clean and autonomous vehicles.
- Smart health.
- Low-carbon industry.
- Hydrogen technologies and systems.
- Industrial Internet of Things.
- Cyber-security.
Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization.
What is the meaning of value chain? ›
A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer.
What is the Porter's value chain model? ›
The idea of the value chain is based on the process view of organisations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs.
What is the value chain sequence? ›
The term value chain refers to the various business activities and processes involved in creating a product or performing a service. A value chain can consist of multiple stages of a product or service's lifecycle, including research and development, sales, and everything in between.
