Value Chain is: understanding, function, and strategy to apply it
The value chain or value chain is a series of business activities that at each stage or step can increase the value of utilization of goods or services produced.
The person who first suggested Value Chain was Michael Porter in his book entitled Competitive Advantage: Creating and Sustaining Superior Performance which was published in 1985.
In the book, there is a collection of business activities that aim to make and build value to be able to produce value-added margins for the company.
Value Chain also has the concept of analysis which is usually called value chain analysis, which is an activity to analyze the key to the key business processes related to other entities that are outside the company, such as suppliers, customers, up to relations between entities within the company.
Value chain grouping
In a business, Value Chain will form a framework whose purpose is to identify and also inventory various areas of business function. This grouping is carried out based on the main activities and mentoring.
In the main and mentoring activities, several categories can be included, such as logistics. The sample companion category can be from technology development. The following is the full explanation.
1. Main Activities (Primary Activities)
The main activities in Value Chain are all business activities that can create values or benefits for customers in presenting something that can show the privilege of companies in the market. This main activity is considered an important activity in running a business.
Some of the company’s activities included in the main categories are as follows:
- Inbound Logistics is a company activity related to storage, acceptance, and also spreading products.
- The operation, which is an activity that changes raw material products into the final product.
- Outbound Logistics, is a company activity related to spreading products or services to customers.
- Marketing and Sales are an activity related to marketing and sales such as promotion, etc.
- Service is an activity related to providing services to further improve the maintenance of a product, such as maintenance, repairs, and training.
2. Supporting activities (Support Activities)
Supporting activities in Value Chain are a company activity that aims to provide activities to achieve the company’s main activities.
In this case, supporting activities are supporting the main activities, which without this activity will make the main activity less maximal or cannot run at all.
Some examples of activities included in supporting activities are as follows:
- Company Infrastructure (Firm Infrastructure) is an activity related to costs and also assets related to general management, finance, accounting, security, and safety of information systems.
- Human Resources Management (HR Resources Management) is a training, development, and compensation for all types of personnel in which includes developing the level of workers’ expertise.
- Technology Development (Technology Development) is an activity related to improving the process, product, software development, design tools, telecommunications systems, new database capabilities, to building computerized system support.
- Procurement (procurement), is an activity related to how to get resources, such as the purchase function used in Value Chain
Value Chain Strategy
A company that wants to apply a Value Chain must have the first strategy. This strategy is a series of more coordinated activities and is also more integrated to get a competitive advantage.
The strategies contained in the value chain itself consist of strategies of excellence in competition, cost advantage strategies, and differentiation strategies. The three types of Value Chain strategies are as follows:
1. Competitive Advantage Strategy
Competitive Advantage Strategy is an ability to companies in getting economic benefits to profits that can be obtained by competitors in the market in the same industry. The success of this company can be measured by strategic competitiveness and high profitability.
Both of these are the result of the company’s ability to use and develop its competence to compete in the market with its competitors. Companies that have a competitive advantage means being able to understand the structural changes in the market and choose a more effective marketing strategy.
2. Strategy of cost excellence
Selling prices, costs, and other fees will be considered in every company that wants to sell an item or service. In terms of consumers, the advantages of this cost can be seen in terms of cheaper selling prices for an item whose value is the same.
This cost excellence strategy will be an instrument that is very important to win in market competition. Costs will be important for implementing the next strategy, namely differentiation. Why? Because competitors must be able to maintain cost positions with other competitors so that they can remain superior.
On average, every company wants to focus more on manufacturing costs and ignore the impact of costs in other activities, such as marketing, infrastructure, and services.
The way to get around it is that the company must be able to offer products and also functions that can be accepted by consumers but at prices that are still able to compete at the market level.
3. Differentiation strategy
The meaning of differentiation is different. In times like today, companies that only release the same product with others will certainly not look attractive. Even the same as in business strategies, companies can implement this strategy effectively.
Why? Because even though it is not superior in one criterion, a product will remain considered interesting if different.
For example, just like the Samsung A80 dares to be different from the camera that can rotate forward and backward. So it can be used as a front camera as well as a rear camera.
Tips for companies that want to do this strategy must be based on product attributes, product delivery, marketing design, and other aspects that can distinguish. Using a different display must also be maintained so that consumers will not forget your product quickly.
Value chain function in the company
The main objective of implementing a value chain is to increase the company’s profits and as much as possible reduce the company’s production costs. In addition, Value Chain can also increase the value of utilization of products or services to be produced.
More than that, another function of the value chain is as follows
1. Research and development
The implementation of this system will make it easier for companies to conduct research and the development of goods products or services that have been marketed. As companies can see whether products that have been distributed on the market can compete with competitor products or not.
If indeed it is not, for example, because the price is much more expensive than competitors, you can implement a differentiation strategy or product superiority so that the high prices that have been banded are not claimed to be too expensive.
2. Product design or service to the process
A business that applies a value chain will be more helped on the side of designing products or services to the process so that it can be easier for sale on the market. Because using this system the company will know that the product does not only provide quality goods or services.
This function is very much related to Value Chain. You can use the Value Chain strategy that can increase production on the side of the number and also cost-efficiency. All strategies in the value chain can be applied to the production team.
4. Marketing and sales
Marketing and also sales are two important things in companies related to product sales income or services. For this reason, Value Chain can be relied on in the marketing process and sales.
By applying the Value Chain strategy, you can increase the opportunity for competitiveness in the market. Examples are simply with differentiation strategies that are implemented since planning businesses to production. This will make it easier for you to continue this strategy by the marketing division and sales.
Distribution and also customer service also become another function of the implementation of the value chain. Both of these will be a function based on differentiation strategies and also competitive advantages in the market.
So, we can conclude that Value Chain is a series of business activities that at each stage or step can increase the value of utilization of goods or services produced.
For those of you who already have a business or make a business, consider applying a value chain so that the business you live in can be more smooth.
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