Value Chain Analysis | Sustainable Competitive Advantage

Value Chain Analysis | 

Sustainable Competitive Advantage 

In today’s era, there is a competition in nearly every industrial segment. The major Chances to succeed in it, when we must generate value to our own capabilities.

It is nothing but a way to construct a sustainable competitive advantage. And believe me, if you have that skill then no one could substitute you. It is an important aspect of all industrial concerns, academicians, agro and food aspirants, technology concerns, other industries like automobile, service, textile, financial institutions, or any professional industry. It also includes Agribusiness firms and students from different disciplines.

VCA: Value Chain Analysis

The value chain is a combination of different activities that a firm operating in a specific industry performs in order to deliver a valuable product or service.

The concept first of all coined by Michael Porter in 1979 and neatly described in his best seller book: Competitive advantage in 1985.

In VCA; there are arrangement and synchronization of three words namely Value, Chain and Analysis.

Value is benefit against cost. This means the amount generated against the cost incurred for the same. A chain is the systematic linkage of the activities which are needed to run the organization. Whereas, analysis is a set of strategic advancement with concern to the future for the betterment of industry with the help of requisite skills.

Hence, the entire parameter yields the advantage that could be sustained in the coming future. It paves a way towards SCA; which is useful to differentiate our goods and services from the other competitors. To achieve and sustain a competitive advantage and to support that advantage with IT, a firm must understand every component of the value system.

In a nutshell VCA is a chain of activities gives the products more added value than a sum of added values of all activities.

So let’s begin with the concept of Value chain analysis in detail.

There are two types of different activities in VCA.

1. Primary Activity

2. Secondary Activity

 

1. Primary Activity:

There are five primary activities which are prerequisite in adding value and creating a competitive advantage with the firm. All are directly linked with the production and selling of the products.

1. Inbound logistics: It includes movement of materials, inventory, Semi-Finished Goods, assembly from suppliers.

2. Operations: Here the conversion of raw material to finished goods takes place. It means conversion of resources like men, machine, labor into the tangible goods and services.

3. Outbound: It includes storage and movement of final product and related information to the end-users.

4. Marketing and sales: marketing is nothing but includes creating, communicating, and delivering value to the customer by value exchange system to maintain the relationship with customers. With the help of it one could able to identify the untapped opportunity and promote it via sales.

5. Service: It includes all activities to keep the product working effectively for the buyer after it has to be sold. It includes post-sales service and important for a word of mouth publicity point of view.

Any or all activities are important to produce the required competitive advantage. Various technologies used in these activities are as follows.

No.	Activities	Technology
1.	Inbound Logistics	·         Transportation ·         Material Handling ·         Material Storage	·         Communication ·         Testing ·         Information Systems
2.	Operations Tech.	·         Process ·         Materials ·         Machine Tools ·         Material Handling ·         Information Systems	·         Packaging ·         Maintenance ·         Testing ·         Building Design and Operation
3.	Outbound Logistics	·         Transportation ·         Material Handling ·         Packaging	·         Communication ·         Information Systems
4.	Marketing & Sales Technologies	·         Media ·         Audio / Video	·         Communication ·         Information Systems
5.	Service Tech	·         Testing ·	·         Communication ·         Information Systems

 

Many of these activities are employed at support activities like information systems and communication also computed aided designs.

2. Supporting Activity process: 

All are associated with basic primary activities and support the value chain as a whole.

1. Gen. Admin or Infrastructure: It is nothing but the basic infra facilities like general mgt., accounting, finance, legal, PR, QA, etc. It requires maintaining daily routine activities.

2. HRM: Consist of all activities involved in recruitment, selection, training, appraisal, motivations of an employee. It mainly focuses on the selection of the most appropriate candidate for the right position at the right time for the organization.

3. Tech. Development: It related to the use of equipment, software, technology, process, standards to convert the Raw material into Finished goods. Mainly deals with the processing of information with technological inputs.

4. Procurement: Includes acquisition of goods, services, or works from an outside external source. It involves the decision like purchase, order, in-time procurement and also useful as a machine, building, lab equipment, etc. It covers the management of vendors and the procurement of raw material with negotiation skills.

5. Margin: It is present in both primary as well as in secondary activities. It is nothing but net gain or profit in the business or for the organization.

Each support activities play a significant role in each primary activity.

The VCA model is a useful tool for defining a firms core competencies and the activities by which it pursues an SCA via two modes: Cost Advantage concept an Differentiation Concept.

A firm may create a cost advantage by reducing the cost of the individual value chain activities or by reconfiguring the value chain.

A Differentiation advantage achieved by changing individual value chain activity to create uniqueness to the product.

Several Factors enlisted below.

1.    Economies of scale

2.    Learning

3.    Capacity utilization

4.    Linkages among activities

5.    Interrelationships among business units

6.    Degree of vertical integration

7.    Timings of market entry

8.    Firms policy of cost or differentiation

9.    Geographic location

10. Institutional factors like regulations, tax, etc.

Ex.: McDonald’s sources suppliers for items like vegetables and fruits, meat, coffee and etc. Hence, able to get low cost and previously selected suppliers as a part of Inbound Logistics.

Operations : More than 35000 outlets owned by franchisees.

Outbound Logistics: Rather than traditional seating arrangement they go for a counter service and self-service.

Marketing and Sales: Social media is a major concern for the marketing campaign.

Service: Focus on the quality and training of the employee which creates a positive impact on the organization.

VCA is a system of interdependent activities and that are related by the linkages within the value chains.

Decisions taken by one activity may affect the value of other activities. Like correlation between procurement and operations. Procurement involves the storage of different raw resources and its quality concerns will affect production cost, inspection cost, and the main quality of the product. Hence here the ERP system plays a big role.

It’s your work to learn these things as generally, no one will teach you that system in the industry. So behave like an all rounding ability to learn such things.

YouTube Video Link:

https://youtu.be/9kHcmP7JZ7E 

Summary:

1.    So, the major learning is to know the correlation between the value chain and look out the way which solves the purpose effectively.

2.    VCA as a framework to know the organization's concerns. 

3.   It gives a clear understanding of where true values lie in the industry and where cost can be reduced in order to increase the margin.

4.   Make this knowledge as your sustainable competitive advantage (SCA) which promoted your VALUE.