Value Chain Analysis
Presented by
D Ramya 08MB29
P Usha 08MB45
S Saravanan 08MB34
What is Value Chain?
- Strategic tool, based on the principle that
organisations exist to create value for their
customers.
- Describes activities within and around an
organisation and relates them to an analysis of
the competitive strength of the organisation.
- Evaluates the value added by each activity to
the organisation’s products and services.
- Formulated by Michael Porter to overcome the
shortcomings of his five forces model.
Linking VCA to CA
• The activities undertaken by a business is
directly linked to achieving CA.
• Eg : Differentiating factor
- Quality – Best value chain activities
- Cost leadership – Reduction in cost
w.r.to its VC activities / Reduction in the
total resources used.
Steps for conducting VCA
• Break down the orgn`s operations into
primary and support activities.
• Assess the potential for value addition in
each activity or identify current activities
where the business appears to be at a
competitive disadvantage.
• Determine strategies focusing on activities
where CA can be sustained.
Primary and Support activities
• Primary
- Are those related to production such as Inbound logistics,
Operations, Outbound logistics, Marketing and
Sales and Service.
• Support
- Are those that provide the background necessary for the
effectiveness and efficiency of the firm such as
Procurement, HRM, Technology development and Firm
infrastructure.
Why is VCA important?
• Systematic competitiveness is becoming
increasingly important with the growing division
of labor and global dispersion of production.
• Efficiency in production is only a necessary
condition for successful penetration of global
markets.
• Entry into global markets requires an
understanding of dynamic factors within the
whole value chain.
Types of Value Chains
• Buyer driven chains – Labour intensive
and consumer goods industries –
footwear, clothing furniture and toys.
• Producer driven chains – Capital and
Technology intensive industries –
Automobile, aircraft, computers, semi
conductors and heavy machinery.
Pros and Cons of VCA
• Pros
- Analysis of cost
behavior and existing
and potential sources
of differentiation can
be made.
Generic Template of VCA
Primary activities
These are directly concerned with the creation and
delivery of a product or service
• Inbound logistics – Receiving and warehousing of
raw material and their distribution to manufacturing
as & when required.
Eg – Aluminium can producers and Beer
breweries, Automotive part suppliers and auto
assembly plants, California wine country – grape
growers, irrigation, grape harvesting and wine
making equipment cos, firms making barrels, caps,
corks and labels are clustered near 700 wine makers.
• Operations – Transforming inputs into
finished products and services - `Mc
Donalds – Replication of OS in 25000+
outlets across world – identical quality fast
food items – omnibus manual of detailed
rules and procedures /Intensive training of
franchise operators and outlet managers
• Outbound logistics – Warehousing and
distribution of finished goods
Eg – Direct selling,sales via internet –
saves on intermediary margins.
Chocolate manufacturer – Shipping bulk
chocolate in liquid form I/o molded bars –
saves cost for him and the manufacturer –
molding & packing, unpacking and melting
• Marketing and sales : Identification of
customer needs and generation of sales,
advertising, promotion, selling, pricing,
channel management
• Service – Support to customers after the
products and services are sold to them
-installation, servicing, spare part
management
Secondary activities
These activities support the primary activities and improve their
effectiveness and efficiency
• Infrastructure of the firm – Organizational structure, control
systems, company`s culture, general management,
planning, finance, legal, investor relations
• Human resource management – Employee recruiting, hiring,
training, development and compensation
• Technology development –research & development, IT,
product and
• process development;
• 9.Procurement – Purchasing inputs
• Crucial portion of a value chain that
determine the success varies with industry
• Wholesaler – Important activities & costs
depends on inbound and outbound
logistics.
Hotel – Operations – Housekeeping, room
service etc
Public accounting firm – Customer service
and HR management.
Popular examples
• Domino`s – Outbound logistics
• Coca Cola – Sales and marketing
• Amazon.com - Supply chain management
and distribution
Value Chain Analysis of Dell
Dell’s History
Founded by Michael Dell in 1984
USP – Mass customization, Low Selling
price
Strategy: Selling computer systems
directly to customers
Designed and built the first computer
system of its own design in 1985
Dell’s Value Chain
Dell’s Value Chain
•Dell has used its direct sales and build-to-
order model to develop an exceptional
supply chain.
•Close relationship with customers and
suppliers
•First-hand and pure customer feedback
•Analysis of high volumes of customer
information has helped Dell in value addition
of its activities
Dell’s VC in the context of primary
and support activities
• Inbound logistics:
- Build to order and JIT policies of Dell keeps the inventory in the
supplier`s books till Dell places order. This, along with close
relationships with suppliers allow them to maintain low inventory.
- Dell constructs special Web pages for suppliers, allowing them to
view orders for components they produce.This allows suppliers to
plan based on customer demand.
• Operations:
- Perfect production process due to efficient supply chain
-Highly efficient assembly operations designed so that defect in
assembly of any PC can be traced to the single worker. Brings in
accountability.
Contd….
• Outbound Logistics:
- Dell sends individual PCs to customers from its factories.
-Elimination of intermediaries from value chain - Increase in Dell’s profit margin due
to saving on retailer and distributor margins
• Sales and Marketing:
- Once an order matures, The sales executive is made entirely responsible to run the
product chain for ensuring timely delivery.
- Dell brings products to market faster than its competitors
- Buyers can click through Dell and assemble a computer system piece by
piece, based on their budgets and needs
– Dell uses direct sales via Internet, whereas Traditional PC manufacturers
previously assemble PCs ready for purchase at retail stores.
– PCs have life cycles of only a few months
– Early-to-market advantage.
– Uses the Internet to sell its products
– Offers a virtually unlimited variety of PC configurations .
Contd….
• Value addition on account of direct sales
Because of direct sales, Dell is in a position to collect payments 5
days after they are sold. (on an average).But, Dell pays its suppliers
according to the traditional billing schedules. So, suppliers finance
Dell’s growth.
Direct sales system gives Dell the advantage of price and
differentiation.They can forecast better due to better sales
information and feedback.
Low level of inventory and negative working capital helps Dell
increase its profitability and performance which leads to lesser
pricing for the customer.
Contd….
• Service:
For retail customers
-Pioneers in providing home service for personal computers.
For large business customers
-To facilitate B2B sales, the Dell site offers each corporate customer
an individualized interface called “Premier page”.Purchasing
managers log on and order using an interface customized for their
company's needs.
(About 15 percent of their total revenue is consumer business and
the rest is B2B)
Contd…
• Procurement
-Dell out sources all its component manufacturing, including sub
assemblies, but not the final configuration. Keeps control over the
production and supply chains.
Technology development
- Dell established a unique e-commerce model by embracing the Internet in
its supply chain.
Interaction
Questions welcome !!!
