{"id":750,"date":"2020-02-26T06:16:28","date_gmt":"2020-02-26T14:16:28","guid":{"rendered":"http:\/\/themanwhosoldtheweb.com\/blog\/?p=750"},"modified":"2020-02-26T06:16:30","modified_gmt":"2020-02-26T14:16:30","slug":"how-to-use-the-porters-value-chain-in-identifying-cost-savings-and-differentiation-opportunities","status":"publish","type":"post","link":"https:\/\/themanwhosoldtheweb.com\/blog\/2020\/02\/how-to-use-the-porters-value-chain-in-identifying-cost-savings-and-differentiation-opportunities\/","title":{"rendered":"How to Use the Porter\u2019s Value Chain in Identifying Cost Savings and Differentiation Opportunities?"},"content":{"rendered":"\n<figure class=\"wp-block-image is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/themanwhosoldtheweb.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain1-1024x682.jpg\" alt=\"\" class=\"wp-image-751\" width=\"580\" height=\"387\" srcset=\"https:\/\/themanwhosoldtheweb.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain1-1024x682.jpg 1024w, https:\/\/themanwhosoldtheweb.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain1-300x200.jpg 300w, https:\/\/themanwhosoldtheweb.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain1-768x512.jpg 768w, https:\/\/themanwhosoldtheweb.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain1.jpg 1920w\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" \/><\/figure>\n\n\n\n<p>The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm\u2014in a specific industry\u2014accomplishes to produce a valuable product or service for the market. &nbsp;The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of subsystems of inputs, <a href=\"https:\/\/flevy.com\/browse\/stream\/transformation\">transformation<\/a> processes, and outputs.<\/p>\n\n\n\n<p>Another way to define the Value Chain principle is, \u201ctransforming business inputs into outputs, thereby creating a value much better than the original cost of producing those outputs.\u201d&nbsp; These inputs, processes, and outputs entail acquiring and utilizing resources\u2014finances, workforce, materials, equipment, buildings, and land.<\/p>\n\n\n\n<p>An industry Value Chain includes the suppliers that provide the inputs, creation of products by a firm, distribution value chains, till the products reach the customers.&nbsp; The way Value Chain activities are planned and executed determines the costs and profits.<\/p>\n\n\n\n<p>Value chains consist of set of activities that products must undergo to add value to them. &nbsp;These activities can be classified into 2 groups:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Primary Activities<\/li><li>Secondary Activities<\/li><\/ul>\n\n\n\n<p>Primary activities in <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\">Porter&#8217;s Value Chain<\/a> are associated with the production, sale, upkeep, and support of a product or service offering, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Inbound Logistics<\/li><li>Operations<\/li><li>Outbound Logistics<\/li><li>Marketing and Sales<\/li><li>Service<\/li><\/ul>\n\n\n\n<p>The secondary activities and processes in Porter\u2019s Value Chain support the primary activities.&nbsp; For instance:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Procurement<\/li><li>Human resource management<\/li><li>Technological development<\/li><li>Infrastructure<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Value Chain Analysis Benefits<\/strong><\/h3>\n\n\n\n<p>The analysis of a Value Chain offers a number of benefits, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Identification of bottlenecks and making rapid improvements<\/li><li>Opportunities to fine-tune based on transforming marketplace and competition<\/li><li>Bringing out the real needs of an organization<\/li><li>Cost reduction<\/li><li>Competitive differentiation<\/li><li>Increased profitability and business success<\/li><li>Increased efficiency<\/li><li>Decreased waste<\/li><li>Delivery of high-quality products at lower costs<\/li><li>Retailers can monitor each action throughout the entire process from product creation to storage and distribution to customers.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Value Chain Analysis (VCA) Approach<\/strong><\/h3>\n\n\n\n<p>Businesses seeking competitive advantage often turn to Value Chain models to identify opportunities for cost savings and differentiation in the production cycle.&nbsp; The <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\">Value Chain Analysis (VCA)<\/a> process encompasses the following 3 steps:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Activity Analysis<\/strong><\/li><li><strong>Value Analysis<\/strong><\/li><li><strong>Evaluation and Planning<\/strong><\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\"><img decoding=\"async\" src=\"http:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain.png\" alt=\"\" class=\"wp-image-6405\" \/><\/a><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Activity Analysis <\/strong><\/h3>\n\n\n\n<p>The first step in Value Chain Analysis necessitates identification of activities that are essential to undertake in order to deliver product or service offerings.&nbsp; Key activities in this stage include:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Listing the critical processes necessary to serve the customers\u2014e.g., marketing, sales, order taking, distribution, and support\u2014visually on a flowchart for better understanding.<ul><li>This should be done by involving the entire team to gather a rich response and to have their support on the decisions made afterwards.<\/li><\/ul><\/li><li>Listing the other important non-client facing processes\u2014e.g., hiring individuals with skills critical for the organization, motivating and developing them, or choosing and utilizing technology to gain competitive advantage.<\/li><li>This stage also entails gathering customers\u2019 input on the organization\u2019s product or service offerings and ways to continuously improve.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Value Analysis<\/strong><\/h3>\n\n\n\n<p>The second phase of the Value Chain Analysis necessitates identifying tasks required under each primary activity that create maximum value.&nbsp; This phase is characterized by:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Ascertaining the key actions for each specific activity identified during the first phase.<\/li><li>Thinking through the &#8220;value factors&#8221;\u2014 elements admired by the customers about the way each activity is executed.<ul><li>For example, for the order taking process, customers value quick response to their call, courteous behavior, correct order entry, prompt response to queries, and quick resolution of their issues.<\/li><\/ul><\/li><li>Citing the value factors next to each activity on the flowchart.<\/li><li>Jotting down the key actions to be done or changes to be made to under each Value Factor.<\/li><\/ul>\n\n\n\n<p>Interested in learning more about the other phases of the Value Chain Analysis Approach?&nbsp; You can download <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\">an editable PowerPoint on <strong>Strategy Classics: Porter\u2019s Value Chain<\/strong> here<\/a> on the <a href=\"https:\/\/flevy.com\/browse\">Flevy documents marketplace<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Are you a Management Consultant?<\/strong><\/h3>\n\n\n\n<p>You can download this and hundreds of other&nbsp;<a href=\"http:\/\/flevy.com\/pro\/library\/frameworks\">consulting frameworks<\/a>&nbsp;and&nbsp;<a href=\"http:\/\/flevy.com\/pro\/library\/consulting\">consulting training guides<\/a>&nbsp;from the&nbsp;<a href=\"http:\/\/flevy.com\/pro\/library\">FlevyPro library<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm\u2014in a specific industry\u2014accomplishes to produce a valuable product or service for the market. &nbsp;The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":751,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[426,425,421,423,422,413,245,420,424],"class_list":["post-750","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-activity-analysis","tag-efficiency-enhancement","tag-logistics","tag-operations","tag-suppliers","tag-supply-chain","tag-transformation","tag-value-chain-analysis","tag-waste-reduction"],"_links":{"self":[{"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/posts\/750","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/comments?post=750"}],"version-history":[{"count":1,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/posts\/750\/revisions"}],"predecessor-version":[{"id":752,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/posts\/750\/revisions\/752"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/media\/751"}],"wp:attachment":[{"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/media?parent=750"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/categories?post=750"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/themanwhosoldtheweb.com\/blog\/wp-json\/wp\/v2\/tags?post=750"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}