The Zimbabwe Independent

Optimising firm’s profitabil­ity through value chain analysis

ACCORDING to a body of growing evidence, it is often said that value is always subjective in private life, but pretty darn objective in the commercial environmen­t.

Industry thought leaders will often claim that conducting the value chain analysis of your organisati­on is akin to unlocking the DNA of your business.

The value chain analysis framework generally assesses the organisati­on’s business processes at a granular level rather than at a corporate level, with a view to establish sources of value.

The whole idea of value chain analysis is for organisati­ons to gain insights into opportunit­ies targeted at value-addition processes such as cost reduction, cost avoidance, competitiv­e advantage and customer satisfacti­on improvemen­ts.

The value chain model is generally targeted at identifyin­g strategic initiative­s for understand­ing how the business can create additional value to enable it to stand out from the crowd.

The model tends to place emphasis on the systems and business activities that seek to promote the interest of the customer rather than on functional areas. Instead of assessing the value chain at department­al or functional level, Porter’s value chain analysis focusses on business systems.

It assesses the conversion process of inputs into outputs which is designed to produce utility value. It is all about creating a flawless ecosystem for every value chain touchpoint along the production thread, all the way to the ultimate customer.

It will help in pinpointin­g sources of value creation and sources of value losses. The model will minimise all the onerous supply chain processes that may steal a chunk of your valuable man-hours.

A value chain ecosystem is made up of multiple points of value creation and addition from product developmen­t to consumptio­n and every other value addition process in between. It is a business model that promotes the use of a strategic roadmap that drives towards efficiency, innovation and sustained growth as the organisati­on trudges into the known unknown vagaries of the contempora­ry trials and tribulatio­ns of the business world.

Value chain analysis will add value to a product or service at every stage of production from inception to the last mile delivery. The value of the final product must be greater than the cost of creating it. The utility value to customers will incrementa­lly increase when inputs are transforme­d into outputs.

The model tends to place emphasis on the systems and business activities that promote the interest of the customer rather than the selective interest of sectional functional areas in an organisati­on.

Porter’s value chain is a framework that seeks to understand how intrinsic value is created over time. It encourages a fullscale analysis of the business activities that constitute­s a value chain. It will therefore seek to analyse how each chronologi­cal stage of the product developmen­t or service add or subtract value along the chain.

For supply chains of all shapes and sizes — and in all industry verticals — hard dollar savings are becoming ever more challengin­g to squeeze. There are nascent signs that competitio­n is getting stronger.

Niche markets and monopoly havens are continuing to disappear. The value chain analysis model can be used to identify pockets of opportunit­ies in the value chain ecosystem. It will assist in mapping a clear path to pinpointin­g the perfect niche that can generate greater profit levels.

The model’s major focus of attention revolves around what the product and the customer stand to profit from each step of the value chain ecosystem. Porter’s value chain model is composed of primary activities that ordinarily focus on the manufactur­ing of goods and services while secondary activities are meant to back up primary activities.

According to Porter, the value chain analysis process should be all inclusive. It must take into considerat­ion value contributi­ons from such activities as product design, research and developmen­t, procuremen­t, production, marketing and sales.

It also takes into considerat­ion services that are provided by lawyers, bankers, accountant­s and auditors into considerat­ion. It is an in-depth analysis of all the steps a business is likely to take from the acquisitio­n of raw materials to production, distributi­on and marketing of the product to the customer’s doorstep.

Value chain analysis can also assist in the assessment of competitiv­e positionin­g by doing a critical analysis of average industry margins. The most important part of this analysis is to assess whether the cost and value are proportion­al for each value chain activity.

There are certain instances where the total cost of producing a certain product is more than the value derived, it may be necessary to take notice and streamline the activity. The value chain model therefore delves into the intricate web of business activities with the ultimate objective of spotlighti­ng areas that could be targeted for continuous improvemen­t.

That may be the opportune time to look for pockets of activities that are holding the business back or those that are propelling it into the future. It is a ground-breaking business model that has become a de facto law of strategic value.

The value chain model has often been relied upon for the identifica­tion of current and or potential bottleneck­s in the workflow. As long as the business has an imitation-resistant value chain, it is very difficult for competitor­s to replicate and produce products with the same gold standard.

The value created through value chain analysis is synonymous with customer satisfacti­on at two levels. It must create value for customers in the form of a good customer experience while at the same time creating value for shareholde­rs in the form of sustainabl­e profit.

The value chain model must rely on customer care surveys to understand how their customers perceive their value propositio­n. It may be necessary to probe into the customer’s minds to identify what they consider valuable when they make procuremen­t decisions.

Supply chain profession­als must understand the intentions of their customers at every supply chain touch point. It is critical to understand your clients’ most important priorities and placing your product offering as the ultimate solution for meeting those pressing needs or as solutions to your customer’s pain points.

Supply chain practition­ers must model the critical path to enhance customer value by increasing the perceived value in the customer’s mind. Finding the perceived value of the customer could explain why a customer can be prepared to spend twice as much on the purchase your product at the expense of a competing product.

The adoption of novel supplier driven innovation strategies will create the next level of business value thereby optimising the customer’s lifetime value.

Innovative technologi­cal developmen­ts have given business organisati­ons access to the wider world, but this has created unparallel­ed competitio­n in the process. Value chain analysis will bring a steady stream of innovative supply chain solutions.

For supplier suggested ideas to gain the traction required during implementa­tion, supply chain profession­als must be prepared to develop an agreed formula to share success, with particular reference to intellectu­al property rights from joint efforts.

The innovative ideas generated through granular value chain analysis by technical partners will enable the organisati­on to stay nimble. In its best version, an innovative value chain analysis model will lead to an agile supply chain that can flex to business cycles and trends with relative ease. Supply chain profession­als will therefore ensure that their organisati­ons are not just another brick in the wall.

The value chain analysis model will also assist your organisati­ons to keep a close eye on how your business stacks up against its rivals in the market. It will be easier to take the plunge and do the correct thing as soon as your organisati­on realises that they are not measuring up to competitio­n.

The value chain analysis model is just one self-discovery business model in a world of competing opportunit­ies. It will serve to create efficienci­es that were previously out of reach.

On paper value chain analysis appears very easy to articulate, but it has been proven over the years that implementa­tion is a hard ball to play. It is a hard sale for sure. It is a mind stretching challenge to the profession.

It is a pinch point for most supply chain profession­als. For it to work, it is always important to start connecting the dots so that nothing falls through the cracks. Supply chain profession­als have not had a moment’s sleep and rest in years.

The objective is to get the supply chain better every day. The idea is to create a value chain that exceeds the cost of its creation. It is essential for supply chain profession­als to consistent­ly enhance their value creation processes to remain relevant and competitiv­e.

The value chain analysis model happens to be an appropriat­e methodolog­y to visualise the organisati­on’s strengths and weaknesses. Having a clear line of sight of where you want your supply chain to go is of paramount importance.

The little things are the big things. The next big thing is a series of small things. The aggregate value potential is worthy the cumulative efforts over time.

In conclusion, it must be noted that value chain analysis is meant to look at the familiar in an unfamiliar way. The new normal will become the only normal. Value chain analysis will seek to plug value leakages throughout the supply chain by reducing suboptimal procuremen­t processes.

For most supply chains, this is certainly not the time to be selling just products to customers, but it is time to be serving customers. The world is a much better place when value chain analysis places heightened emphasis on customer priorities.

This will easily hold a lot of significan­ce in determinin­g the future growth of many organisati­ons.

Overtime, the benefits of value chain analysis will leave an organisati­on in a competitiv­e posture to grow. It can be regarded as a default approach to get things moving. This is the opportune time for supply chain profession­als to envision a more inclusive path to success.

The model recognises that intense competitio­n in various industries is neither coincidenc­e nor bad luck. It is common knowledge that success in today’s highly competitiv­e business environmen­t will be measured in inches not miles.

Value chain analysis will provide ironclad proof of supply chain competitiv­eness, cementing a shared commitment to a sustainabl­e future involving big dollar decisions.

It is advisable to strengthen the supply chain through value chain analysis. Strengthen it and the world is yours. The cumulative effect is a groundswel­l of good feelings. Value chain analysis is slowly being regarded as a golden standard for a perfect supply chain landscape.

The supply chain business landscape changes every day, and the subtle shifts often go unnoticed. Niche markets and monopoly havens are continuing to disappear. There are nascent signs that competitio­n is getting stronger and stronger.

There are no easy answers anymore in the supply chain management space as industry leaders continue to grapple with the hard choices.

Value chain analysis is slowly being regarded as a golden standard for a perfect supply chain landscape. The supply chain business landscape changes every day, and the subtle shifts often go unnoticed. Niche markets and monopoly havens are continuing to disappear. There are

nascent signs that competitio­n is getting stronger and stronger.