If you are a business owner wondering as to what best initiative can I add to bring about that competitive edge to the business I own then value chain management could be a point to address?
To getting to better addressing value chain management it is first best to understand what it means? Value Chain Management is all about the entire range of activities that happens in an organisation starting from the design stage, to the production and then the marketing and the distribution. In simpler ways it what the business goes through from concept of the product till it reaches the end customer and how it is being managed more efficiently. For those companies that are into producing goods the value chain management shall commence at point where the raw materials that go into the product is and then go on till value additions happen before it is being finally sold to the consumers. So value chain management shall constitute all those things with organising all those activities for further analysis.
The ultimate goal of value chain management shall be in ensuring that those in charge of the value chain are able to better communicate with one another to ultimately rest assure that the product reaches the customer seamless without any delay to issues.
Porter’s Five Forces Model on Value Chain Management
This principle of Five Forces Model was proposed by a Harvard Business School’s professor Michael E. Porter who introduced it in value chain management. It is on this principle that a lot of companies and business thrive to compete more competitively in the market place. He also mentions that competitive advantage cannot be understood by simply looking at a firm as a whole but would have to objectively look at concentrating on breaking them into discrete activities that happens within it like design, production, marketing through various channels and sales to the customers and subsequent product support as a complete connecting picture. In fact if one were to sit and take notice of these activities one can clearly understand that at each point where a specific activity takes place there is an element of relative cost that is also accumulated and this in turn creates a basis for the difference in the overall costing and differential profit margins.
Based on the information published by Porter in lean marketing, all those activities internal inside the organisation adds certain amount of value to the product or service offered by the organisation and all these activities need to be run optimally if the organisation is to ultimately gain any real competitive edge on the longer run. Only if they are run this way to be efficient will the value that is obtained to the organisation shall exceed the cost of operating them. This in short means that a customer who has experienced a product/service delivered by the company in the past should be able to come back once again to this company and transact without any hassles and with a free spirit.
According to Porter business activities could be classified into major components namely the primary and the support activities and the primary activities include the following:
- Inbound logistics: Inbound logistics has to do with everything ranging from receiving the raw materials that is required to make the finished goods from the raw material supplier, storing them appropriately in such a way that it can be re-fetched without much trouble at the place of production at the right time and then distributing the raw materials to the place of production
- Operations: At the operational stage the raw materials that were procured and stored is now converted into a final product ready to reach the customer. This stage is more or less streamlined and process oriented.
- Outbound logistics: Here the final product that was created is now made ready to leave the production house to be taken to the consumer.
- Marketing and sales: This stage includes various activities like involving in advertising, promotional activities, having the right sales personnel from the organisation involved in pushing the sales of the created product/service, selecting appropriate and feasible distribution channels, competitive pricing of the product in addition to managing the customer choice and relationships. This way the final products can be ensured to being targeted to the correct consumer groups in order to accelerate sales and overall revenue of the organisation.
- Service: This section refers to all those set of activities that are required to maintain the performance of the product after it has been produced and delivered to the consumer or during the course of sale of product to the consumer. This stage includes activities that relate to installation of the product as per the specification mentioned in the product manual or catalogue, training the end-users on efficiently using the product , performing maintenance, repair, warranty on requirement or demand and after-sales services to be intact with the consumer during the entire product usage engagement.
Having understood what primary activities are let us further get to knowing what supporting activities are by looking into the following aspects listed below :
- Procurement: This is related to the methods involved in procuring the raw materials for the product from the corresponding supplier of the raw material.
- Technology development: The technology being used in the various stages that the product is being developed, continuously improved through the R&D, automation of the product all fall under this activity.
- Human resource management: These are those set of activities involved in hiring the right candidates of the right job and retaining them to aid in design, build and marketing of the product.
- Firm infrastructure: This has to do with all those that are relevant to developing and structuring the organisation’s management, activities related to planning, general accounting and finance and quality-control mechanisms.
So to ideally summarise the value chain management will aid your company to identify the right areas that can be effectively optimized for greater efficiency and profitability.