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Value Chain Analysis

Value chain analysis (VCA) is a way to visually analyze a company's business activities to see how the company can create a competitive advantage for itself. The VCA will help the company understand how it adds value to something and subsequently how it can sell its product or service for more than the cost of adding the value, thereby generating a profit margin.

Originated in the 1980s by Michael Porter, value chain analysis is the conceptual notion of value added in the form of a chain (or value chain). Every organization has processes and activities that link together and influence the value of the business. Together, these processes and activities form the organization's value chain. Depending on the type of business, typical activities include purchasing, product manufacturing, distribution and marketing. Value chain analysis is a powerful tool during strategic planning. The ultimate goals in performing value chain analysis are to maximize value creation while also monitoring and minimizing costs.

Value Chain Analysis

How to Create a Value Chain Analysis Chart

See how easy it is to create a value chain analysis chart in just a few simple steps.

  1. Inbound logistics. The first step in value chain analysis is to examine inbound logistical items. Start with a column labeled "Inbound Logistics" and list and describe all of the systems and processes related to inbound logistics, such as purchasing systems, transportation, and other production and employee related activities that may be involved.
  2. Operations. The second step is to analyze operations. Create a new column to the right of Logistics and label it "Operations." List and describe the various operational processes and systems from product development to the finished state. Items to consider may include raw materials and inventory, including how they are moved and handled.
  3. Outbound logistics. Next, focus on outbound logistics. Begin a new column to the right and label it "Outbound Logistics." Consider the processes and systems involved in how the finished product ends up in the hands of customers and clients.
  4. Sales and Marketing. Consider marketing activities and sales processes. Begin a new column, adjacent to the third with the label "Sales and Marketing." Record your analysis of the customer-purchasing experience and the post-purchase experience and activities.
  5. Service. Look at the service-related activities of your business. In the fifth and final column, include analysis related to the various services provided by your business.
  6. Underneath each of the columns you'll want to include the foundational activities of your business layered upon each other. In separate rows, include analysis that focuses on:
    • Administration and Infrastructure
    • Human Resources
    • Product
    • Technology and Development
    • Procurement
  7. Along the right side of the columns and rows, include a delta or triangle shape that focused on profit: "Value Added - Cost = Margin".