Strategic Frameworks Value Chain

Description

The Value Chain framework has been thought of as a powerful analysis tool for strategic planning at large, multi disciplined firms. The premise of the Value Chain is that the delivery of a mix of products and services to the end customer mobilizes different economic factors, each managing its own value chain. Capturing the value generated along the chain is the objective of the Value Chain strategy framework.  The concept can apply to whole supply chains and distribution networks. Furthermore, the industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent called a value system.

Capturing the value generated along the value chain can be illustrated in the following example. A manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firm attempts to bypass the intermediaries creating new business models, or in other ways create improvements in its value system.

The value chain analysis usually incorporates three things:

• Supplier-Related Value Chains – Activities, costs and margins of suppliers
• Company Value Chains – Internally performed activities, costs and margins
• Forward Channel Value Chains – Buyer or end-user value chains

Once value has been analyzed and the contributing parts of the organization have been identified, other models can be used in conjunction with the value chain to assess how these areas can either be improved or capitalized upon. For example, a SWOT analysis can be used within the outbound logistics function to understand what its strengths and weaknesses are, and what opportunities there may be to improve that area, or identify the threats to what may be a critical part of the value delivery system.

Equally, other models can be used to assess performance, risk, market potential, environmental waste, etc.