Value Chain Management
Value chain analysis and value chain management are closely related, but still different. Discover the nuances and what makes them equally valuable. Think of it as R&D, but instead of researching and developing an end product, research and develop better business processes for your entire manufacturing process.
Difference Between Value Chain Analysis and Value Chain Management
Value chain analysis is research; is to understand where your operations are today, collect all relevant data, internalize strengths and weaknesses throughout the supply chain and organize all this information to properly analyze the value of each step in the production of your products.
value chain management is development; is to use and leverage the information you have gathered in your value chain analysis.
Value Chain Management is the process of creating and executing a plan that makes a good business process great; Invest in quality decisions and implement better, faster, faster decisions, increase margins and save money.
Thanks to value chain management, your company becomes more competitive and efficient in several respects.
Read more about Supply Chain Optimization with KloudPLM here.
What is a Value Chain?
The official Oxford Dictionary definition of “value chain” is: “the process or activities by which a company adds value to an item, including production, marketing, and after-sales service.”
The definition of labor is more like this: “a range of business activities involving the creation, marketing, and improvement of products or services”. Essentially, the aspects of your business operations before, during, and after the creation of a finished product.
The value chain is divided into two categories of value chain activities: primary activities and supporting activities.
This includes things like the logistics of the raw material supply chain, the physical space to manufacture the goods, the business hierarchy involved in running the business, sales, and marketing, etc.
We will see the two categories and all the parts within them soon to explain. But to do that, we must first look at value chain management and value chain analysis.
What is Value Chain Management?
Value Stream Management is the pragmatic way in which you use what you have learned about your manufacturing operations and implement measurable actions to optimize value in one, several, or all of your operations.
Companies invest in value chain management to understand how to reduce costs or increase product differentiation. The end result is the management of the value chain. When done right, it should be a roadmap to increasing margins by optimizing every stage of the value chain.
But margins are complicated, otherwise, all companies in history would continue. Growth is essentially a factor of the market economy and of doing business throughout the value chain.
But growth and sustainable growth are not the same. Sustainable growth reflects how well a company can adapt and tax the long-term risk. so it makes sense to prioritize value chain phases that impact margins the most when implementing value chain management.
Check out more about Supply Chain Planning Here.
Benefits of Value Chain Management.
Sensible value chain management starts with good value chain analysis. worth chain analysis is like strategically lining up your letters in a very game of Scrabble, before deciding the way to play them.
However, Value Chain Management will
Improve Your Business
Value chain management doesn’t simply optimize your company’s processes – it optimizes that of your vendors and your customers as well.
Once you effectively manage the flow of production and sales (through phases like ideation, research, operations, offer chain, incoming logistics, outward logistics, manufacturing, sales, marketing, and service) then you produce pockets useful that you, your vendors, and your customers failed to have before.
The advantages of value chain management aren’t restricted to these, however, the subsequent are the highlights of however you’ll operate at most efficiency:
Improved Bids and Proposals
Capturing, tracking, and managing marketing necessities and client requirements may be an advantage of worth chain management. additional correct estimates of promoting and customer requirements modify the foremost accurate value estimates within the phases of design, arrange, procurement, production, and post-sale service. and also the better part is there’s complete traceability in these estimates.
Higher Product Planning, Research, and Development
Coordination is key. Developing a cross-functional game plan together with your team is a cornerstone of excellent value chain management. This coordinated effort to plan, create, deliver, and service product supported overall performance, value reduction, and merchandise quality permits you to properly arrange and implement multiple comes whereas at the constant time higher manage resource allocation, scheduling, costs, and deliverables as expeditiously as possible. Long story short: a cross-functional, coordinated, team effort as a district of your value chain management strategy can maximize your business processes.
Measurable, repeatable business processes to additional effectively manage master knowledge on your product, guarantee client expectations and different commitments are met. These standardized processes are an important facet of useful chain management. Automation might play a key role here. as a result of their standard, repeatable, and ideally reliable – these processes contribute to minimizing operational inefficiencies and waste that solely paves the thanks to increasing margins.
Improved Vendor Management
incoming provision and outward logistics are major functions of the worth chain. Synchronizing all of your internal groups and processes to your close supply chain ensures something external is managed and meets all necessary necessities (performance, quality, schedule, cost) while at the same time avoiding waste, excesses of inventory, and any style or organic process flaws.
Post-Sales Service and Support
when enacting value chain management, your company can higher understand the way to manage and track in-service configuration changes of your product that are coordinated with client support, field service, and engineering resources.
Hey, this can be why we do nearly something in business, right? to cut back costs. however with a decent value chain management plan, you’re ready to considerably reduce the end-to-end costs because of standardized, efficient processes, correct inventory management, lowered inefficiencies and waste, and of course, a higher overall product.
this can be the final word goal here. A comprehensive worth chain management arrangement raises profit margins and raises profitability. client demand is met, however not exceeded to the purpose of excess.
Parts of The Value chain
Two categories form the components of a value chain, primary activities, and supporting activities.
The primary activities in your organization are essential to creating competitive advantage and creating value. Five components form the main activities.
This is everything that has to do with incoming goods. Every reception, every storage, every transfer, etc. of the internal supply is part of the inbound logistics. Relationships with your suppliers are critical to evaluating and adding value in this step.
This is the process where you turn inputs into outputs which are then sold to customers. The value is in optimizing your operating systems and business model in this step.
Includes all the processes involved in delivering your product to your customer. Precise logistics, a robust supply chain, and efficient movement add value in this step.
This is everything your business does to persuade a consumer to buy your product and not a competitor’s. Social media is now a big game here. Communicating your prices and winnings creates added value in this step.
This effort is to preserve the value of what the consumer just bought from you. Consistency and communication create value in this step. Support activities in your company are essential to make the primary activities more efficient. Four components make up the supporting activities. When you improve any of these, you improve one of the five primary activities.
This is everything related to purchases and deliveries. However, your company procures the necessary resources, e.g. B. price negotiations or supplier search. Smart decision-makers and good relationships create value in this step.
How to process and manage information. Things like upgrading legacy systems, backing up your databases, and assessing information technology costs fall under this component. Staying up to date with technological innovations related to your processes adds value in this step.
Human Resource Management
Here everything revolves around your employees. How you hire, where you hire, train, retain, reward, etc. is part of this step. The selection of the right employees and their loyalty to you and not to the competition creates added value here. This requires strategic management.
infrastructure is everything with its support systems. All the functions that keep your business running on a daily basis (legal, cleaning, administrative, etc.) are part of the infrastructure. Closing gaps in excess waste or overlaps adds value here.
The History of Value Chain Management
Porter's Value Chain Management
Michael E.Porter is a pioneer, a genius, an academic, and a professor at Harvard Business School. It laid down the blueprint for the value chain and parsed it for easy internalization for the rest of us. His understanding of value chains is unparalleled and remains the foundation on which we work in them today.
In a seminal book that has now become de facto law, Competitive Advantage: Creating and Sustaining Superior Performance, Michael Porter describes the value chain as follows: “…competitive advantage cannot be understood by looking at a company as a whole from the many discrete ones Activities that a company undertakes in the design, production, marketing, delivery and support of its product.”
Examples of Good Value Chain Management
This value chain management is an extensive process. But the big news is that there are many companies that go well, and we can rely on ideas and structures. They do this through their comprehensive and detailed Global Supplier Standards. These standards are upheld in the Supplier Selection Policy, and Medtronic maintains a reputation for the quality of all kinds because of this approach to streamlining inbound and outbound logistics.
This is the most recognized company in the adhesives market in the world. Its value chain is undoubtedly huge, but a small part of it is the acquisition of palm oil. The acquisition is a supporting actor, but as mentioned before, any improvement in the supporting activity is a direct improvement in the primary activity.
By setting and maintaining standards to source only sustainably and renewably grown palm oil, Henkel maximizes its sourcing efforts, which in turn maximizes a fraction of its core activities.
Cisco operates in a hybrid manufacturing model in which about 95 percent of its efforts are outsourced. This is possible due to their massive global network of supply chain management partners. Cisco and its suppliers produce and transport over 35,000 components, which include: designing, fabricating, delivering, and managing roughly 225 hardware product facilities. The inventory control from their SCM is impressive. In short: it’s a massive operation and what could be an organizational nightmare of a supply chain.
Their value chain is so intricate they’ve put together a group dedicated to maintaining it. The Customer Value Chain Management Group has the sole job of running Cisco’s value chain. This is a great example of how to optimize your value chain as a core business. By using people to drive efficiencies across your value chain, Cisco can align directly with hundreds of vendors around the world to ensure best practices are followed.
Implementing The Management of the Value Chain
You will receive the general idea of managing the value chain for now. Once you have mapped your value chain according to key inputs and outputs, start researching the key needs and impacts for each stage of the value chain. This gets the ball rolling in your direction and begins the process of understanding your full worth.
The value stream map helps you to put together your main activities and their supporting activities and to recognize which of them.
Cost Advantage Of Value Chain Management
Your company needs to identify the cost drivers for each primary and secondary activity. Anything that affects the cost of an activity is a cost driver. This includes things like labor hours, machine usage, wages, materials, shipping, etc.
By identifying the communication, vertical integration, and connections between all of these activities, you can investigate inconsistencies and areas for cost reductions in more detail. By going to an area to lower the cost, then the snowballs in the next area to reduce costs. With the money saved, you can pass it on to the customer and, as a cost leader, create added value for your company. This is just one small example of a world of possibilities.
If the market differentiator you are looking for is product differentiation, then there are countless options as well. For example, let’s say you want to focus on your core service business. One way would be to dominate the competition in after-sales service. In every sense.
Make the end consumer appreciate your product design more than other retailers. Whether this means that the return, living guarantees, or only the best call centers and absolute persons, to the fullest, can offer by maximizing your service, another product, and offering the market.
Results and Goals of Value-Chain Management
The goal is to get better every day. That’s broad but true. your bottom line. Predicting your success is a good option.
Any value chain analysis should generate a set of objectives, both specific and general. Its specific goals target primary and support activities, and its general goals increase margins, profitability, and customer experience. These two are intertwined, so it’s important to draft the right goals for your business before you begin.
How KloudPLM Can Help You
Coordination and communication are the most important tools in implementing a value chain management strategy. KloudPLM is the market leader when it comes to giving your company the tools for cross-departmental collaboration. Let us show you how.