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Value Chain Analysis

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Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers.

In business, we're paid to take raw inputs, and to "add value" to them by turning them into something of worth to other people.

This is easy to see in manufacturing, where the manufacturer "adds value" by taking a raw material of little use to the end-user (for example, wood pulp) and converting it into something that people are prepared to pay money for (e.g. paper).

But this idea is just as important in service industries, where people use inputs of time, knowledge, equipment, services and systems to create real value to the person being served - the customer.

Note that your "customer" may often be another unit within your organisation.

Now, this is really important: In most cases, the more value you create, the more people will be prepared to pay a good price for your product or service, and the more they will they keep on buying from you, or using your services rather than going elsewhere.

So how do you find out where you, your team or your company can create value?

This is where the "Value Chain Analysis" tool is useful. Value Chain Analysis helps you identify the ways in which you create value for your customers, and then helps you think through how you can maximize this value: whether through reduced costs, superb products, great services, or jobs well done.

Value Chain Analysis is a four-step process:

Activity Analysis: First, you identify the activities you undertake to deliver your product or service;

Value Analysis: Second, for each activity, you think through what you would do to add the greatest value for your customer; and

Evaluation and Planning: Thirdly, you evaluate whether it is worth making changes, and then plan for action.

Identification of Better Value Achieved. This could be in the form of monetary savings or greater efficiency leading to faster delivery.

In Activity Analysis, when considering the activities that you, your team or your company undertakes that in some way contribute towards your customer's experience, the Purchasing process is vital.

This is where Supply Project Solutions can help you.

In Value Analysis, we can sit with you to identify the "Value Factors" involved in the Purchasing process - the things that your customers' value in the way that each activity is conducted.

We can help you spot what needs to be done or changed to provide great value for each Value Factor.

Typical considerations in Purchasing Value Analysis are as follows:

  1. Can a cheaper substitute material or product be found which is as good, if not better than the material or product currently used?
  2. Can unnecessary weight or embellishments be removed without reducing the product's attractions or usability?
  3. Is it possible to use standardised components, thereby reducing the variety of goods used and produced?
  4. Is it possible to reduce the number of components?
  5. Can external resources be employed in the purchasing process to reduce in-house costs?

We can facilitate your Plan for Action to improve and make more valuable the Purchasing process, picking out the quick, easy, cheap ‘wins'.

Finally, we can assist you in presenting to your customers the economies you have been able to make.

Contact Pete Smith (07875 516 461) if you need more information about Value Analysis, or to discuss how Supply Project Solutions can assist you in identifying where you, your team or your company can create value by undertaking Value Analysis - with the aim of providing better value service to your customers.