What is a value chain?

The goal of using a value chain is to create a strong combination of activities that yield higher profit margins through improved efficiency and fewer costs. A value-chain analysis, then, adopts a full-lifecycle perspective in which businesses evaluate the major areas of value creation for their customers towards gaining a competitive advantage and improving profitability.

Value-chain analysis can help companies determine their most value-adding activities. When they understand their value chain, organisations are better equipped to enhance their performance and gain an edge over their competitors in the market.

The analysis can be viewed in two approaches: cost advantage and differentiation advantage. A company has a cost advantage when it can produce and offer a product or service at a lower cost. On the other hand, a company gains a differentiated advantage when it can sell goods or services at a higher price that customers are willing to pay because of perceived higher quality, unique features, and favourable brand positioning.

Furthermore, the value-chain framework can help businesses determine the drivers and barriers to cost and operational efficiencies. Conducting a value-chain analysis can help them in strategic planning, especially in these aspects:

• Generating insights that inform decision-making
• Diagnosing bottlenecks and correcting inefficiencies
• Understanding the connections and dependencies between activities and actors in the system
• Identifying potential areas to minimise expenses
• Determining core competencies

 

There are three types of value chains:

• Company-level value chains focus on business units and cover all activities a company undertakes to boost the value of its product and service.
• Industry-level value chains involve a broad range of activities related to product creation, from procurement to distribution. An analysis of this type can help companies explore possibilities of expanding or entering a new market.
• Global-level value chains refer to businesses that operate on a global scale. Every business has a value chain, and its activities aim to transform inputs into outputs. These can be classified into primary and secondary activities.

 

Primary activities refer to functions that directly contribute to a product’s creation, such as the following:

• Inbound logistics. Gathering and storing inputs or raw materials for product creation.
• Operations. Creating finished products (outputs) from raw materials (inputs).
• Outbound logistics. Delivering and distributing products to consumers.
• Marketing and sales. Increasing visibility and promoting products and services among potential consumers.
• After-sales services. Maintaining the value of products or services through customer support, complaint resolution, and product repair and warranties.

 

Secondary activities support the primary activities. These can include the following:

• Procurement. Sourcing raw materials and obtaining the best prices and quality.
• Human resources. Managing human capital through recruitment, training, development, and retention.
• Technology development. Investing in market research, product design, and research and development (R & D).
• Technology development. Investing in market research, product design, and research and development (R & D).
• Infrastructure. Maintaining systems for planning, financing and investor relations.

At GHD, we’re committed to empowering clients to achieve maximum gains in their value chains and create sustainable outcomes. GHD Advisory provides solutions for identifying potential opportunities across their value chain, from capital deployment and investments to value preservation and liability transformation.

As your partner, we’ll be with you at every step. We can help you drive a competitive edge in the following areas:

• Asset management
• Assurance audit and compliance
• Business case and economics
• ESG and strategic sustainability
• Integrated transport consultancy
• Movement strategies
• Origination
• Public policy and government transformation
• Risk management
• Strategic insights
• Transaction advisory

Visit our innovation and expertise page to learn more about GHD’s expertise and services. Together, let’s create opportunities for innovation.

Articles referenced

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^{Chai, Wesley 2021, ‘What is a value chain and why is it important?’ retrieved June 20, 2023, from https://www.techtarget.com/searchcio/definition/value-chain}

^{Institute for Strategy and Competitiveness n.d., ‘The value chain’, retrieved June 20, 2023, from https://www.isc.hbs.edu/strategy/business-strategy/Pages/the-value-chain.aspx}

^{Petropoulos, Pavlos 2022, ‘What is value chain analysis and why is it important?’ retrieved June 20, 2023, from https://www.ibisworld.com/blog/what-is-value-chain-analysis-and-why-is-it-important/44/1127/}

^{Treece, Dock 2023, ‘What is a value chain analysis?’ retrieved June 20, 2023, from https://www.businessnewsdaily.com/5678-value-chain-analysis.html}