Now Reading: What is Value Chain Analysis? | Business Guide
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What is Value Chain Analysis? | Business Guide
What is Value Chain Analysis? | Business Guide
Ever feel like business terms are too complicated? Let’s break one down. We’ll show you how to map out your business in a way that’s simple, clear, and incredibly useful.
Every Business is a Recipe
Forget spreadsheets and complex charts for a moment. Think about making a sandwich. You don’t just magically have a sandwich. You follow a recipe, a series of steps.
Each step adds “value”—you’re getting closer to the delicious final product. If you buy better cheese, the sandwich becomes more valuable. If you deliver it faster, that’s also valuable. A business works the exact same way. It’s a chain of activities, where each link in the chain should add some kind of value for your customer.
So, What's a "Value Chain Analysis?"
It is simply the act of looking at all these steps—this recipe—your business uses to create its product or service. You’re drawing a map of your entire business process. The goal is to see exactly where you’re creating the most value, where you could be more efficient, and what makes you different from the competition. It turns a gut feeling about your business into a clear, visual plan.
The Two Main Types of Activities
To make your map clear and organized, we divide all the steps into two groups: “Primary Activities” (the core things you do to make and sell your product) and “Support Activities” (the essential background tasks that make everything else possible).
Primary Activities
These are the fundamental steps of creating, delivering, and supporting your product. Think of this as the main path your product takes from raw idea to happy customer.
1. Inbound Logistics
This is all about getting the resources you need. For a bakery, it’s flour and sugar. For a software company, it’s server space and code libraries. It covers receiving, storing, and managing all your raw materials.
2. Operations
Here’s where the transformation happens. You take your raw materials and turn them into the final product. It’s baking the bread, writing the software code, or assembling the furniture. This is the core ‘creation’ step.
3. Outbound Logistics
Once your product is ready, how do you get it to the customer? This includes everything from packaging and warehousing to shipping and delivery. It’s the journey from your door to theirs.
4. Marketing & Sales
A great product is useless if no one knows it exists. This category includes all activities that build awareness and persuade customers to buy, like advertising, social media, your sales team, and your website.
5. Service
What happens after the purchase? This covers all post-sale support, such as customer service, installation, repairs, and training. Excellent service can turn a one-time buyer into a loyal fan.
Support Activities
These activities run in the background to make the primary ones happen smoothly and efficiently. They are the foundation upon which a strong business is built.
Procurement
This is the act of purchasing everything the business needs, from raw materials for the product to office supplies. It’s about finding the best suppliers and negotiating the best prices.
Technology Development
This covers the tools and systems you use to be more efficient, from the manufacturing automation on a factory floor to the e-commerce website that processes your sales and the accounting software you use.
Human Resources (HR)
A business is its people. HR is responsible for recruiting, hiring, training, and retaining your team. A happy, skilled team is one of the biggest assets any company can have.
Firm Infrastructure
This is the operational backbone of your company. It includes crucial functions like general management, planning, finance, accounting, and quality control. It’s the structure that holds everything together.
Our Tool Makes This Easy
Instead of a messy whiteboard or a confusing spreadsheet, our tool gives you a clear, interactive framework to map these activities, assign costs, and identify value.
Why Does This Simple Map Matter?
Because once you see all the steps laid out clearly, you can start making smarter decisions. It’s not just an academic exercise; it’s a practical tool for improvement.
Find Cost Savings.
When you map everything out, you can see exactly where your money is going. Maybe you notice your delivery costs (Outbound Logistics) are surprisingly high. Could you find a cheaper shipping partner? Or perhaps a specific software subscription (Technology) isn’t being used enough to justify the cost. The map illuminates these opportunities to trim waste and improve your bottom line.
Boost Customer Value.
The analysis isn’t just about cutting costs; it’s about maximizing value. You might realize that customers rave about your fantastic packaging (Outbound Logistics). That’s a huge value creator! You can then double down on it as a selling point. By identifying which steps your customers truly care about most, you can focus your energy and resources there to create something they love even more.
Gain a Competitive Edge.
Your value chain is unique. By understanding it, you can pinpoint what makes you different from your competitors. Do you have a faster, more reliable supply chain (Inbound Logistics)? A friendlier, more helpful support team (Service)? These differences are your competitive advantages. The value chain map makes them visible so you can build your strategy around them.