Value Chain Analysis of Veem Ltd can offer various advantages:
By conducting the Value Chain Analysis of Veem Ltd during the planning process, possible sources of competitive advantage can be identified. The firm/company is a collection of different activities that share relatedness to some extent. Veem Ltd cannot trade all activities in the external market. The Value Chain approach suggests that a company can consider these activities as economic rent sources. These activities can also act as barriers to new entrants or cause cost disadvantages to competitors.
Veem Ltd can identify various internal and external linkages among activities through the value chain lens. The internal linkages are- interrelationships between activities within same organisational units and external linkages are between business units of same or different firms. Studying these interrelationships can help a company take benefit from coordination and joint optimisation.
The use of Value Chain Analysis can optimise the finances, products and information flow.
Veem Ltd Value Chain Analysis can be used in the competitive strategic decision-making process. However, choosing the right competitive strategy (cost leadership, differentiation or focus) requires knowledge of own and rivals’ cost structure.
Porter's value chain model is highly popular in the business world. However, Veem Ltd must not take it as a rigid, standalone framework by assigning the equal importance to all activities. The effective Value Chain Analysis requires Veem Ltd to realise that all activities or functions do not require same scrutiny level. Hence, the first step of adapting the Porter Value Chain framework is to identify the importance of activities according to their role in product/service delivery process.
Here is the list of primary value chain activities as proposed by Porter:
The primary value chain activities of Veem Ltd are directly involved in producing and selling the product to targeted customers. Analysis of primary value chain activities can improve the performance of Veem Ltd as explained below.
It is important to develop strong relationships with suppliers as their support is necessary to receive, store and distribute the product. Without analysing the in-bound logistics, Veem Ltd can face various challenges in product development phases. Analysis of in-bound logistics requires a company to focus on every aspect of transformation from raw material to finished product. Some examples of inbound logistics are retrieving raw material, storing the inputs and internally distributing the raw material and components to start production.
The importance of analysing operational activities raises when raw material arrives, and Veem Ltd is ready to process the raw material into the end product and launch it in the market. Some examples of operational activities are machining, packing, assembling and testing. Equipment repair and maintenance also falls into this category.
It includes both- manufacturing and service operations. Analysis of operational activities is important for improving productivity, maximising the efficiency and ensuring the competitive success of Veem Ltd. The increased productivity can help Veem Ltd to achieve consistent economic growth, increase profitability and set a powerful basis for competitive advantage.
Outbound logistics include the activities that deliver the product to the customer by passing through different intermediaries. Some outbound logistics activities are material handling, warehousing, scheduling, order processing, transporting and delivering to the destination. Veem Ltd can analyse and optimise the outbound logistics to explore competitive advantage sources and achieve its business growth objectives.
Because, when outbound activities are timely managed with optimal costs and product delivery processes put a minimum negative effect on the quality, it maximises the customer satisfaction and increases growth opportunities for the firm. Veem Ltd should pay specific importance to its outbound value chain activities when its offered products are perishable and require quick delivery to the end customer.
At this stage, Veem Ltd will highlight the benefits and differentiation points of offered products to persuade the customers that its offering is better than competitors. Only producing a high quality product at affordable costs and distinctive features cannot create value until Veem Ltd invests on the marketing and sales activities. The sales agents and marketers play an important role here.
Some examples of Veem Ltd's marketing and sales activities are- sales force, advertising, promotional activities, pricing, channel selection, quoting and building relations with channel members. The company can use the marketing funnel approach to structure its marketing and sales activities. The marketing strategies can either be push or pull in nature, depending on the Veem Ltd’s business objectives, brand image, competitive dynamics and current standing in the market.
Effective and wisely integrated marketing activities can develop the brand equity of Veem Ltd and help it stand out from the competition. However, Veem Ltd must avoid making false commitments about product features that cannot be fulfilled by the production department. It indicates the need to ensure coordination between different value chain activities.
The pre-sale and post-sale services offered by the Veem Ltd will play an important role in developing customer loyalty. The modern customers consider post-sale services as important as marketing and promotional activities. The power of negative e-WOM due to poor support service cannot be undermined in the current technologically advanced era. The company must analyse its support activities to avoid damaging brand reputation, and instead use it as a tool to spread positive word of mouth due to quick, timely and efficient support services.
The support activities play an important role in coordinating and facilitating the primary value chain activities. Veem Ltd can also benefit from analysis of its support activities as explained below.
The firm infrastructure denotes a range of activities, such as- quality management, legal matters handling, accounting, financing, planning and strategic management. Effective infrastructure management can allow Veem Ltd to optimise the value of the whole value chain. Veem Ltd can control the infrastructure activities (or commonly called overhead costs) to strengthen the competitive positioning in the market.
Veem Ltd can analyse human resource management by evaluating different HR aspects, including- recruiting, selecting, training, rewarding, performance management and other personnel management activities. The effective HR management can allow Veem Ltd to reduce competitive pressure based on motivation, commitment and skills of its workforce. The company can also achieve its cost minimisation objectives by analysing hiring and training costs with their relative return. The heavy dependence of Veem Ltd on employees' talent will increase the importance of this value chain support activity.
In a modern, technological advanced era, almost all value chain activities depend on technological support. The technological integration in production, distribution, marketing and human resource activities requires Veem Ltd to realise the importance of technology development. It can be divided into product and process technological development activities. Some examples are- automation software, technology-supported customer service, product design research and data analytics. The research and development department of Veem Ltd is classified in this category.
The procurement in value chain denotes the processes involved in purchasing the inputs that may range from equipment, machinery, raw material, supplies, raw material and other items necessary for producing the finished product. Due to its linkage with multiple value chain activities, Veem Ltd should carefully consider its procurement activities to optimise the inbound, operational and outbound value chain.
As mentioned above, the application of Porter Value Chain model depends on understanding the importance of all activities. After understanding the relative importance of identified value chain activities, Veem Ltd should highlight areas where value can be added, cost efficiency can be achieved, differentiation basis can be set, or processes can be optimised.
Here is a pictorial presentation of Porter Value Chain model:
It is important for Veem Ltd to base its competitive advantage on activities in which it has access to the rare or scare resources. It may include- intellectual capital, assets, skills or distribution network. The Value Chain Analysis can help Veem Ltd identify those activities and develop those areas to get a strong competitive edge over rivals. There are many examples (like Toshiba and Sharp) that consider Value Chain Analysis as a tool to get a competitive advantage and invest heavily in research and development activities within their value chain network. Porter’s generic strategies for achieving the competitive advantage and value chain model can be used together to set strong competitive advantage basis.
Following diagram shows Porter's competitive advantage model:
The analysis of the value chain activities can be done to understand the competitive advantage sources. Veem Ltd can either use the operations, marketing and other relevant value chain activities to avail the cost advantages or it can use the human resource, technology, infrastructure, service or other relevant activities to set the strong differentiation basis. Broadly, the competitive advantage sources can be grouped into two types- cost and differentiation. Veem Ltd can obtain a competitive advantage from one or both sources, depending on the depth and breadth of its Value Chain Analysis. Next parts of the article present in detail how Veem Ltd can configure primary and/or secondary value chain activities to achieve the desired cost and differentiation objectives.
Veem Ltd can avail the cost advantages by reducing the costs associated with the value chain activities. However, it requires the company to firstly map the activities and then associate costs to make necessary adjustments. The connection between the value chain and cost leadership strategy reflects a parallel focus on the low cost operational activities. If Veem Ltd aims to obtain cost advantage, it needs to identify each element within the value chain can be optimised to get the whole effect
If Veem Ltd aims for the low-cost, the Value Chain Analysis can optimise the profitability. If product differentiation is the aim of Veem Ltd, Value Chain Analysis will help the company in maximising the efficiency and enhancing the product quality by improving processes.
Veem Ltd can control following drivers to add value, set differentiation basis and enhance efficiency.
However, it is important to note that costs can be reduced only to some extent. Veem Ltd Value Chain Analysis must also consider the customers’ perceived value that may justify the higher price charged by the company compared to competitors.
Veem Ltd can obtain the differentiation advantage by analysing different value chain activities. For instance, a company can procure the unique and valuable inputs that are not easily available to competitors. Veem Ltd can either reconfigure the whole value chain or change individual entities to set the differentiation basis. The cost drivers (such as timing, interrelationships, linkages, scaling and integration) can also be altered to develop uniqueness.
Some examples of differentiation through analysis of value chain are:
Veem Ltd can individually analyse the primary activities from all aspects and create differentiation basis by identifying the following sources:
Veem Ltd can also analyse the secondary value chain activities to set differentiation basis:
Value Chain Analysis of the Veem Ltd can be better understood with the help of some examples.
The above-stated examples show how Veem Ltd can benefit from conducting a detailed Value Chain Analysis. However, it is also important to note that the Porter Value Chain model application depends on the unique contextual variables that must be considered when assigning the weightage to primary and secondary value chain activities.
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