Value chain analysis (VCA) is a process used by businesses to identify their primary and support activities that adds to the value of the final product. The business tool is used to breakdown the sequence of the chain into smaller components starting with the raw materials and each step is analysed to reduce cost or increase differentiation. The idea of the value chain is to transform inputs into outputs with two main aims which are to increase the value of products and to create a competitive advantage for a firm (McLaney and Atrill, 2020). Firms that compete through competitive advantage aim to perform activities better than their rivals. Firms that compete through cost advantage aim to implement internal activities at a lower cost to their competitors. Firms are profitable if they can provide superior products or produce goods at lower costs than the market (Piboonrungroj et al. 2017).
Porter (1985 as cited in Zamora, 2020) introduced the value chain concept to describe the full set of activities required from a products conception, through to the production, distribution to consumers and disposal. As the product moves through each phase or player it is assumed it will increase in value. The value chain has many complexities as businesses need to fully understand every aspect of the chain. Multiple layers or segments to analyse and evaluate decreases efficiency and is time consuming. Focusing on each micro-detail can cause a business to lose sight of their long-term strategy. Poor chain analysis can result in each activity not linking in the chain. However, the VCA does have some value as the methodology does not lend itself to one type of industry or the size of an organisation. An efficient analysis can iron out any strategic issues and support the identification of competitive analysis. This is fundamental for any businesses, to understand the sequences of a product or service and to challenge aspects of that sequence to dispel poor quality and high cost where the substantial level of input gives dividends to the output (Vattikoti and Razak, 2018).
Can businesses ever shorten the value to chain to be more time and cost effective?
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