Entering the era of innovation, businesses are competing on price, good product, Marketing strategy and customer loyalty. One of the most valuable tools, it's application paradigm Value Chain Value Chain allows businesses to gain an edge over their competitors. So Value Chain what? How is it different from the supply chain? And how it influences the competitive advantage of the business. Let's find out through Marketing AI through the article below.
An example of an enterprise's value chain (Image: Payever)
What is a value chain model?
The enterprise value chain model is the full range of activities - including design, manufacturing, marketing, and distribution. Businesses take products or services from Concept to the end of delivery. For companies producing goods, the value chain begins with the raw materials used to produce their products and includes other elements added before the product reaches the consumer.
Value chain management is the process of organizing these activities to analyze them correctly. The aim is to establish communication between the manager of each stage to ensure the product reaches the customer as seamlessly as possible.
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Meaning about the value chain model?
Analyzing the value chain model within an organization helps you identify how you can reduce costs, optimize effort, eliminate waste, and increase profits. A business can start by identifying each part of the production process, noting the steps that can be removed and possible improvements. In doing so, businesses can determine where the best value lies with the customer and expand or improve the values, resulting in cost savings or increased production. At the end of the process, customers can receive high quality products at a lower cost.
Value chain model of Michael Porter
Michael E. Porter of Harvard Business School was the first to introduce the concept of the value chain. Porter wrote:
“Competitive advantage cannot be understood by looking at a company as a whole. It comes from the many discrete activities the company carries out in designing, manufacturing, marketing, distributing and supporting its products. Each of these activities can contribute to the relative cost position of the business and provide the basis for the difference. ”
In his book, Porter divides a business's activities into two categories: primary and supporting.
Content of the enterprise value chain - Applying the value chain model (Image: Smartsheet)
Main activities include:
- Inbound Logistics: is the receipt, storage and distribution of raw materials used in the production process.
- Operations: is the period in which raw materials are converted into final products.
- Outbound Logistics: is the distribution of final products to consumers.
- Marketing and Sales: related to advertising, promotion, sales organization, distribution channel, pricing and end product management to ensure targeting groups of consumers. Use appropriately.
- Service: activities that are necessary to maintain the performance of a product after it is manufactured and include such factors as installation, training, maintenance, repair, warranty and translation. after sales service.
Support activities that help the main functions include:
- Procurement: is how the raw materials are obtained for the product.
- Technology development: can be used in the research and development stage, in the process of new products being developed, designed, and in the automation process.
- Human resource management: includes activities related to recruiting and retaining appropriate employees to help design, build and market products.
- Firm infrastructure: is related to the organizational structure and management mechanism, planning, accounting, finance and quality control of the organization.
Value chain approach
There are two different approaches to analyzing value chain models: cost advantages and differences.
Cost advantage: After identifying the main activities and supporting activities, businesses should also identify the costs for each activity. For activities that require a lot of labor resources, costs can include hours of work, wages, work speed, etc. Businesses should identify the link between activities, if costs fall in a fields, they can be reduced in other amounts. Businesses can then identify opportunities to reduce costs.
Advantage of difference: Identifying activities that create the highest value for customers is the top priority. These may include the use of relevant marketing strategies, product and system savvy, quick phone answering and meeting customer expectations. The next step is to evaluate these strategies for value improvement. Focusing on customer service, increasing options to customize products or services, offer incentives, and add product features are some of the ways to improve value. Ultimately, businesses should identify the differences that can be maintained and add as much value as possible.
Differences between value chains and supply chains
The value chain is a FULL SET of activities that create or add value to a product.
On the other hand, the supply chain is THE CONNECTION of all activities from the production stage to the completion of finished products and delivery to consumers.
Both networks of this chain model are aimed at giving consumers the best quality products with reasonable price. Therefore, most of the time, the Supply Chain and Value Chain will be placed side by side.
>> Read more about: What is the supply chain (Supply Chain)
To evaluate the obvious differences of Supply Chain and Value Chain, let's take a look at the following Comparison Chart:
Differentiate between Value Chain and Supply Chain
The integration of activities, people and businesses, through which, products will be transferred everywhere, from place to place, this is known as the supply chain model (Supply Chain). For value chains, it is understood as a chain of activities that helps to increase the value of a product step by step in the process, until the product reaches the hands of consumers.
The idea of the supply chain is rooted in operational management to help create the merger between the business people and those operations. As for the value chain, this is given from Business Management (Business Management) in enterprises.
In addition, the differences also come from the activities of each chain model. While supply chain activities include: Stitching and transporting products from one place to another (from suppliers -> manufacturers -> distributors -> retailers -> customers) . Value chains often focus only on providing and enhancing the value of a company's products.
Supply chain operations are rooted in a demand for the product on a market demand and the process that ends when the product is delivered to the consumer. Meanwhile, the value chain will originate from the customer's request and end with the product created, and also from the value that the customer is willing to pay.
The final difference is the goal of the two models. Supply Chain (Supply Chain) aims to win the hearts and satisfaction of customers and that is not the main goal that the Value Chain (Value Chain) towards.
Closing: The objective and outcome of the value chain
Create Value Chain for business is an essential part of helping businesses thrive. Value chain model will help identify factors that can be optimized for maximum efficiency and profitability. The most important thing is to keep customers feeling confident and safe and loyal to the business. By analyzing and evaluating product quality and service effectiveness, along with cost optimization, a business can find and implement strategies to make the business better.
Hopefully through this article, you can understand more about the concept What is the value chain model and the difference between Value Chain (Value Chain) and supply chain (Supply Chain). Hopefully, after reading the above information, you can have a clearer picture of the chain model in your business and can share it with everyone. Thank you for reading the article of Marketing AI. We will continue to update you with more useful information. Please accompany us.
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