With the advent of technology, the environment has become strongly competitive and almost all industry verticals are facing more challenges. Advances in technology have enabled easy designing, building and selling. Changing demands can be dealt with instantly and outsourcing has been used widely to cut costs. An organization achieves competitive advantage when it delivers increased value at a lesser cost. Value chain analysis using the value chain model introduced by Michael Porter is an efficient method for deciding the critical path to boost customer value while lowering costs.
Value chain analysis- what is it exactly?
Value chain analysis is nothing but evaluating the internal activities of a business in order to understand the costs, to find out the activities that add the greatest value, and using the analysis results to differentiate oneself positively from the competition. Primary business functions and the activities (Inbound and outbound logistics, operations, marketing and sales, service) are considered as the basic areas of analysis. The ultimate aim of this analysis is to improve efficiency and profitability.
Cost drivers according to this method
According to the Value Chain Model, there are ten factors that can affect the cost of an activity.
Controlling these cost drivers is the best way to increase efficiency and to add value.
1. Organization policies
2. Institutional factors
3. Spillovers and Learning
4. Economies of scale
5. Capacity utilization method
7. Relationships with other organizations
8. Business Timing
9. Integration of activities
10. Business location
Users of Value Chain Analysis
Value chains are used by various industries such as food and beverages, delivery services, etc. As a result of globalization, the industries are more socially attentive and cooperative which has brought about a difference in the way they perceive value chains.
Wrapping it up with the hope that you have gained an insight into the Value Analysis. Make use of online resources to know more!