What is a value chain identify the key functions of a companys value chain?
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A value chain is the combination of activities a business undertakes to move a product or service along its life cycle, including design, marketing, distribution, and customer support. Show A company’s end goal is value creation, particularly in the form of profit. By understanding each stage of the value chain, a business can create greater profit by making necessary changes to the process. With so many activities and suppliers involved, the value chain has many facets. Definition and Examples of a Value ChainA value chain documents, in detail, the various steps a business goes through to bring a product or service to the customer. The chain covers the activities, workers, and outsourced firms employed in bringing a product from concept to distribution. Harvard Business School economist Michael Porter developed the value chain concept to pay specific attention to how impactful each phase is for a company’s bottom line. The goal of using the value chain is to create an operationally strong combination of activities that bring about higher sales prices at lower costs to the business. Analyzing your company’s value chain allows you to increase value at each stage in the chain so you can deliver a stronger product, impress customers, and build more profit. You can then reinvest in specific parts of the value chain and continue your business’ growth. Starbucks is an example of a corporation that uses the value chain to boost its international sales presence. Starbucks operates in over 60 countries, yet each cafe has the same well-known appeal. Starbucks uses the value chain to identify its most and least costly activities, then uses this information to make changes, create more value for the customer, and create more profit for the business. But even small businesses can identify the activities that make up their value chains so they can focus on more affordable practices—and bigger profits.
How a Value Chain WorksA value chain details the activities, workers, and suppliers that take a product or service from concept to distribution. The chain is made up of primary and secondary activities that affect a product’s value to both the customer and the company. Primary activities directly contribute to a product’s creation, including:
Secondary activities support the primary actions to create a product, and they include infrastructure, team management, technology development, and material procurement. These supporting activities are crucial to the success of the primary activities; for example, without product design and market research, a company could not successfully market and sell a product. NoteIdentifying a value chain is essential for understanding your business’s profit margin and operating margin so you can ensure the least input leads to the highest output. Detailing the value chain helps you easily see where an expensive part of the process could lead to decreased margins and take steps to lower expenses. Let’s review the Starbucks value chain to see how it helps encourage stable growth. Starbucks’ value chain is relatively straightforward, so a small business could use it as a model. A Harvard Business School case study identified the primary activities behind the coffee chain, including:
Secondary activities that support Starbucks’ annual revenue creation, which topped $23 billion in 2020, include employee benefits, well-designed cafes, and an easy-to-use mobile app. Types of Value ChainsYour business’s manufacturing and distribution process may fall into one of two distinct types of value chains: a typical value chain or a global value chain. A typical value chain records the business activities and players within a single geographic location or firm. For example, a small business that operates solely in one state would use a typical value chain, as might a larger company that operates within a single country. Duke University describes a global value chain as the activities and critical players spread across different firms and countries. As described above, Starbucks is an example of a global value chain, since it sources coffee beans from various countries and ships supplies to Starbucks locations around the world. Key Takeaways
Was this page helpful? Thanks for your feedback! Tell us why! Other SubmitSources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. What is a value chain and what are its functions?“The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use.
What are the key functions in a value chain?The value chain framework is made up of five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, service -- and four secondary activities -- procurement and purchasing, human resource management, technological development and company infrastructure.
What is a value chain in a business?The term value chain refers to the various business activities and processes involved in creating a product or performing a service. A value chain can consist of multiple stages of a product or service's lifecycle, including research and development, sales, and everything in between.
What is a value chain example?In contrast, the differentiation advantage model seeks to create customer value through superior products. The best value chain example is the car manufacturing industry, where companies use both approaches of value chain analysis to create value for the customer depending on their target market.
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