What is Value Chain and how does it increase your company's revenue?

What is Value Chain and how does it increase your company's revenue?

Another framework that is widely used in business. And quite a lot of work in understanding the processes of the whole organization. so that we can reduce costs, optimize the whole process and increase revenue by creating value To different processes and products or services.. In this article we will get to know what is Value Chain.. Value Chain is a table that includes activities. And all processes in the company, from human resources, technology, procurement, procurement, raw materials, production, marketing, sales until the product reaches the consumer. The activities are clearly separated into 2 parts to avoid confusion.

1. Support Activity: Activities that support the company, such as technology development, human resources, purchasing.

2. Primary Activity: The company's main activities such as importing raw materials, producing, preparing for distribution, marketing, sales and after-sales services, etc.

The final goal is “Margin” or increasing revenue for the company itself.

What is the goal of creating a Value Chain?

Value Chain was developed by Michael Porter, a Harvard University business professor in the 1980s. The primary goal of Value Chain Analysis is to help entrepreneurs And the team in the organization can see the overall picture that What are the processes of our company? What happens at each step? How is each process now? where is the problem Where to reduce costs Or can we develop any part to add Value or value into the organization? or our products

which creates value And improving this efficiency will help create a competitive advantage for the company. We can also use Value Chain to analyze competitor processes. that all the processes of competitors, what they do, how they do it, and where competitors can do better than us. Where should we adjust in order to create value above competitors?

How is SWOT Analysis different from Value Chain Analysis?

SWOT is a tool designed to analyze the overall strengths and weaknesses of our business as well as competitor overview. and business opportunities. Unlike Value Chain analysis, it focuses on the process. and full internal activities, focusing on development, reducing costs, increasing profits and creating value in the organization or the main product

should begin to see the overall picture Now let's delve deeper into each activity in the Value Chain. We will divide it into Support Activities and Primary Activities. Starting the Value Chain Analysis is to start defining these 2 parts what is happening. some

📌 Activities in Value Chain Analysis

🔸Primary Activities

Primary Activities are the main activities. directly related to the production of the product or simply call is the main activity in the production of products Or services that make money for the company, while Support Activities are supporting activities that will help the main activities come out better. Primary Activities are divided into 5 parts, let's see what they are.

- Inbound Logistics is the inbound logistics, simply called Input, which is the purchasing process. provide transportation Get raw materials or materials from suppliers. Including the storage, control and inspection of stock in the factory before using it in the next step of production.

- Operations or production is the process of making Input to come out as a product or service, which the company should have a way to control the production. and efficient service to deliver value to customers.

Outbound Logistics: Outbound logistics, simply called production output, refers to the delivery of products from the production line to the warehouse for storage. or to distribution channels This process includes collecting and storing products. good customer service and distribution of goods with on-time delivery and minimal damage to goods

- Marketing and Sales is marketing and selling, presenting the company's products and services to target groups in the market to increase sales for the company. A good marketing and sales strategy will play a role at this stage.

- Services or after-sales service is the process of taking care and customer service after the product has been sold, such as teaching how to use the product to customers. Product Warranty Returns or exchanges and repair services, etc.

When we create a strategy to develop the calculations. or create value for the product We can choose which activities we want to improve, for example, the company wants to reduce the work in the Inbound Logistics process to reduce the rent of raw material warehouses. and reduce warehouse staff In this manner, a technique called Just In Time Production may be used to reduce the amount of stock before the start of production.

🔸Support Activities

Support Activities If it's in a language that we can easily understand It's like any job. which is like the back of the company's house It is not directly related to the production of the product. But it's what helps production. And working in Primary Activities is better. Support Activities are divided into 4 parts. Let's see what's there.

- Firm Infrastructure is the infrastructure of the organization. management of the organization The work of various departments within the organization such as Finance and Legal to analyze data and draw conclusions so that stakeholders can make appropriate business decisions.

- Human Resource Management is a human resource service. It is another very important step of the organization. It must focus on the selection of new employees. And the care of employees that the company has within the company as well. Especially companies where employees within the company have to provide services to customers mostly directly. Having good employees in a company is a very important competitive advantage for an organization.

- Technology Development: Technology is something that will help develop a business to the next level because it can help improve work efficiency. Reduce manual processes and also reduce the cost of production as well. For example, switching to Cloud Computing is another way to reduce costs instead of using a personal server or building your own data center, etc.

- Procurement is the process of procuring good raw materials and materials from reliable suppliers. The goal of the business is generally to get the best raw materials at the most affordable price.

🔸 Value Chain Example

An example of the Value Chain will look like this when doing it. Of course, the real thing will have more information than this. But I don't want to write so much that my eyes are dazzled. Because the main purpose We want to see the overall picture. If going into details, it would be better to separate them.

📌 Analysis of the company's value chain to assess the value and the cost of each activity

Value Chain Analysis helps executives and managers of the organization can see the whole business And when trying to make the company's value chain in each part, it gradually improves one by one. starting with the easy-to-edit section and get good results first Once you've experienced these subsections, you can begin to edit even larger ones.

Value Chain Analysis is not for one person in an organization. But there are all departments in the organization that have functions in each part of the company. to talk and discuss how each step of the Value Chain can be implemented in the best interests of the customer and the company.

In this regard, guidelines must be established. and the company's strategy to be clear first so that the whole organization knows the goal of creating value And what is the cost management for? Let's take a look at some examples of the most popular strategies used by many companies.

📌 Examples of business strategies to increase competitiveness

- Cost Leadership is a strategy for being a cost leader. by adding value in various activities will focus mainly on cost reduction

- Differentiation is a strategy for doing business differently, which develops and creates value. will focus on making products or services to come out differently, etc.

This is to give the company a competitive advantage. Then do a cost analysis to see which parts cost more than usual. and how to reduce costs such as labor costs, raw material costs, etc., or how to adjust raw materials, technology, and after-sales services in order to be different from competitors

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