Value Chain Analysis and Development
By
Bizuayehu Admasu ([Link].)
June 2023
Arba Minch University
The Main Objectives of the Course
General Objective/Competency
Providing the basis to develop a new value chain as well as improving an existing
value chain by developing value chain strategies
Specific objectives /learning outcomes
Will gain clear insights the process of value chain formation, structure, networks,
relationships and chain development strategies.
Will be able to conduct value chain analysis and apply value chain approach in
development intervention
They will also appreciate the importance of different organization’s value chain
development approaches.
The basis to develop a new value chain as well as improving an existing value
chain by developing value chain strategies
The basis for developing a new value chain is to identify opportunities to
create value for customers in ways that your competitors are not.
This could involve developing new products or services,
• improving the quality of existing products or services, or
• finding new ways to deliver them to customers.
There are a number of ways to improve an existing value chain.
One is to focus on reducing costs.
• This can be done by streamlining operations,
• negotiating better prices with suppliers, or automating tasks.
Another way to improve an existing value chain is to focus on increasing
differentiation.
• This can be done by developing new features or benefits for products
or services, or by improving the customer experience.
Cont...
Value chain strategies can be used to improve a company's competitive
position in a number of ways.
They can help to:
Reduce costs and improve efficiency
Increase differentiation and create a competitive advantage
Respond to changes in the market
Develop new products and services
Enter new markets
The following are some examples of value chain strategies:
1. Cost leadership: This strategy focuses on reducing costs to a level that is
lower than that of competitors. This can be done through economies of scale,
efficient operations, or low-cost suppliers.
2. Differentiation: This strategy focuses on creating products or services that
are unique and valuable to customers. This can be done through innovation,
superior quality, or excellent customer service.
3. Focus: This strategy focuses on serving a specific market segment or niche.
This can be done by providing products or services that are tailored to the needs
of that segment, or by providing superior customer service.
The best value chain strategy for a particular company will depend
on a number of factors, including
• The company's goals,
• Its competitive environment, and
• Its resources.
1. The process of value chain formation, structure, networks,
relationships and chain development strategies
1. Value chain formation: The first step is to identify the value-creating activities that
are required to deliver a product or service to customers.
• These activities can be divided into primary activities, such as inbound
logistics, operations, outbound logistics, marketing and sales, and service, and
support activities, such as procurement, technology development, human
resource management, and firm infrastructure.
2. Value chain structure: The next step is to determine the optimal structure for the value
chain. This includes decisions about how to integrate the different activities, how to
allocate resources, and how to manage the flow of information and materials.
3. Value chain networks: The value chain can be extended beyond the
boundaries of the firm to include suppliers, distributors, and other partners.
These networks can help to reduce costs, improve efficiency, and increase
innovation.
4. Value chain relationships: The relationships between the different players
in the value chain are critical to its success. These relationships should be
based on trust, cooperation, and mutual benefit.
5. Value chain development strategies: The value chain should be
continuously developed and improved. This can be done by identifying
new opportunities to create value, by improving the efficiency of existing
activities, and by building stronger relationships with partners.
2. Conduct value chain analysis and apply value chain approach in
development intervention
Value chain analysis is a tool that can be used to understand the
different activities that are involved in creating a product or service.
It can also be used to identify opportunities for improvement and
to develop strategies for increasing efficiency and profitability.
Value chain analysis: Value chain analysis is a tool that can be used to
understand the different activities that are involved in creating a product or
service. It can also be used to identify opportunities for improvement and to
develop strategies for increasing efficiency and profitability.
Value chain approach: The value chain approach is a strategic planning
tool that can be used to improve the efficiency and profitability of a
business. It is based on the idea that a business can create value for its
customers by performing a series of activities, each of which adds value to
the product or service.
The value chain can be divided into two main categories.
1. Primary activities and
2. Support activities.
1. Primary activities: are those that are directly involved in the
creation and delivery of the product or service.
2. Support activities: are those that provide the infrastructure that
enables the primary activities to take place.
To conduct a value chain analysis, you will need to identify the different
activities that are involved in creating your product or service.
These activities can be divided into
Primary activities, such as
inbound logistics,
operations,
outbound logistics,
marketing and sales, and
service, and
Support activities, such as procurement, technology development, human
resource management, and firm infrastructure .
The primary activities are:
Inbound logistics: This involves receiving, storing, and distributing the
inputs that are used to create the product or service.
Operations: This involves transforming the inputs into the final product or
service.
Outbound logistics: This involves storing and distributing the final product
or service to the customer.
Marketing and sales: This involves creating awareness of the product or
service, generating leads, and closing sales.
Service: This involves providing support to customers after the sale, such as
providing repairs or maintenance.
The support activities are:
• Procurement: This involves acquiring the inputs that are used in the primary
activities.
• Technology development: This involves developing new technologies that
can be used to improve the efficiency or effectiveness of the primary activities.
• Human resource management: This involves recruiting, training, and
developing the employees who work in the primary and support activities.
• Firm infrastructure: This includes activities such as accounting, finance, and
legal services that provide support for the entire value chain.
Once you have identified the different activities, you will need to
assess their value-adding potential.
This can be done by considering the following factors:
The cost of the activity
The time it takes to complete the activity
The quality of the output of the activity
The customer's perception of the value of the activity
Once you have assessed the value-adding potential of each activity,
you can identify opportunities for improvement.
This could involve
• Reducing costs,
• Improving efficiency, or
• Increasing customer value.
Value chain analysis can be used to identify opportunities for improvement
in the following areas:
Cost reduction: By identifying activities that add little value, businesses
can reduce costs by eliminating or streamlining those activities.
Increased efficiency: By improving the way that activities are performed,
businesses can increase efficiency and reduce costs.
Improved customer value: By adding new features or benefits to products
or services, businesses can improve customer value and increase sales
N.B: By understanding the value chain and applying a value
chain approach, businesses can,
1. Improve their efficiency,
2. Profitability, and
3. Competitive position.
3. The importance of different organization’s value chain development
approach
The value chain development approach is important for different
organizations
Because it can help them to improve their efficiency, profitability,
and competitive position.
By understanding the value chain and applying a value chain
approach, organizations can identify opportunities for improvement
and develop strategies for increasing value for customers.
The best value chain development approach for a particular organization
will depend on a number of factors, including
• the organization's goals,
• its competitive environment, and
• its resources.
Benefits of developing a value chain
Improved efficiency: By identifying and eliminating unnecessary
activities, organizations can improve their efficiency and reduce costs.
Increased profitability: By improving efficiency and adding value for
customers, organizations can increase their profitability.
Enhanced competitive position: By improving efficiency, profitability,
and customer value, organizations can enhance their competitive
position and gain an advantage over their competitors.
The importance of value chain development for different organizations
Value chain development can help organizations to improve their efficiency. By
identifying and eliminating unnecessary activities, organizations can improve their
efficiency and reduce costs.
Value chain development can help organizations to increase their profitability. By
improving efficiency and adding value for customers, organizations can increase their
profitability.
Value chain development can help organizations to enhance their competitive
position. By improving efficiency, profitability, and customer value, organizations can
enhance their competitive position and gain an advantage over their competitors.