The concept of the value chain was introduced by Michael Porter. The concept helps categories’ activities undertaken by enterprise to deliver a successful product to a customer. The concept since its introduction in 1980s has become a forefront in developing strategies around customer delight and commercial success. The value chain is series of activities undertaken by organization to deliver a product to end users. Here the concept does not apply to one single manufacturing organization, but it also applies to the players in the value chain. One of the purposes of the value chain is to understand activities, which add value during creation of the end product.
Enterprise undertakes several primary activities as well as secondary activities to deliver the final product to customers. Here primary activities are defined as activities, which directly support production of product or service. Secondary activities or support activities are activities which primary activities.
Primary activities in the value chain are directly related with the production and delivery of the final product. The objective of these activities is adding value to product that is more than the cost of product. This will ensure that company can generate healthy margin and stay in business. Primary activities mainly consist of inbound supply chain, operations, dispatch, sales and marketing and service.
Inbound supply chain is made up of activities like receiving raw materials, storing raw materials and inventory management.
Operations consist of activities which convert different raw material into final product.
Dispatch activities consist of sending final product to distributors, retailers etc.
Sales and Marketing activities includes promotion of products to potential as well as existing customers, networking with channel partners etc.
Service consists of activities like solving customer issues before the sale of the product as well after sale of the product i.e customer care or customer support.
Commercial Value Chain
Commercial value chain is defined as any value chain used to achieve its organizational goal. Every company in any given industry will have its own value. However, objective all the different value chain is to add value chain at every stage till product is delivered. The value chain of business includes activities:
Potential Customer Attraction and Existing Customer Repeat: For online business it is very important that they are able to generate visitors for their website. This will ensure customers are aware of available products and pricing. Companies also want to ensure that website is able repeat customers also.
Customer Interaction: Website design and navigation should ensure that potential buyers are able to reach the required web page. Another option available is customers entering their requirement and website displaying potential products.
Order Processing and Payment: Once a potential buyer has selected the product, website should be equipped to display other product similar to purchase or pop a question whether customer would be interested in making another purchase. Purchase order should also highlight possible shipping date and number of days before product will arrive. After purchase transaction, the next important step is payment through secured fund transfer.
Order Delivery and Customer Care: Website should be able to provide online tracking of the product; it should also provide details about possible delays. Website should be equipped to solve any queries online through frequently asked question, email support etc.
This is one of the most important stages. Before the beginning of the entire supply chain, it is essential to finalise the strategies and put them into place. Checking the demand for the product or service, checking the viability, costing, profit, and manpower etc., are vital. Without a proper plan or strategy in place, it will be well-nigh impossible for the business to achieve effective and long term benefits. Therefore, enough time has to be devoted to this phase. Only after the finalisation of the plans and consideration of all pros and cons, can one proceed further. Every business needs a plan or blueprint or a roadmap based on which the strategies are made. Planning helps to identify the demand and supply trends in the market and this, in turn, helps to create a successful supply chain management system.
The world today is dominated by a continuous flow of information. In order to be successful, it is essential that a business stays abreast with all the latest information about the various aspects of its production. The market trends of supply and demand for a particular product can be best understood if the information is properly and timely disseminated through the many levels of the business. Information is crucial in a knowledge-based world economy, and ignorance about any aspect of business may actually spell doom for the prospects of the business.
Suppliers play a very crucial role in supply chain management systems. Products and services sold to the end user are created with the help of different sets of raw materials. It is therefore necessary that suitable quality raw materials are procured at cost effective rates. If a supplier is unable to supply on time, and within the stipulated budget, the business is bound to suffer losses and gain a negative reputation.
It is crucial that a company procures good quality resources so it can create good quality products and maintain its reputation in the market. This necessitates a strong role for suppliers in the supply chain management system.
For a highly effective supply chain management system it is essential that an inventory is kept and thoroughly maintained. An inventory means the ready list of items, raw materials and other essentials required for the product or service. This list has to be regularly updated to demarcate available stock and required stock. Inventory management is critical to the function of supply chain management, because without proper inventory management the production, as well as sale of the product, is not possible. Businesses have now started to pay more attention to this component simply because of its impact on the supply chain.
Production is one among the most important aspects of this system. It is only possible when all the other components of the supply chain are in tandem with each other. For the process of production to start it is essential that proper planning and supply of goods, as well as the inventory, are well maintained. The production of goods is followed by testing, packaging and the final preparation for delivery of the finished product.
Any business, that wants to survive as well as flourish, needs a location which is profitable for the business. Take for example, a carbonated drink factory is set up in an area where water supply is scarce. Water is a basic necessity of such business. The lack of water could hamper the production as well as affect the goodwill of the company. A business cannot survive if it has to share an already scarce raw material with the community. Hence, a suitable location, which is well connected, and very close to the source of essential resources for production is vital to a business’ prosperity. The requirement and availability of manpower must also be considered while setting up a business unit.
Transportation is vital in terms of carrying raw materials to the manufacturing unit and delivering the final product to the market. At each stage, timely transportation of goods is mandatory to sustain a smooth business process. Any business which pays attention to this component, and takes good care of it, will benefit from the production and transportation of its goods on time.
It is essential that a company works towards a safe and secure transportation process. Be it in-house or a third-party vendor, the transportation management system must ensure zero damage and minimal loss in transit. A well-managed logistics system along with flawless invoicing are the two pillars of secure transportation.
Return of goods
Among the various components that create a strong supply chain is the facility for the return of faulty/malfunctioning goods, along with a highly responsive consumer grievance redress unit.
No one is infallible. Even a machine may malfunction once in a million times if not more. As a part of a strong business process, one may expect the return of goods under various circumstances. Even the best quality control processes may have unavoidable momentary lapses. In the case of such lapses, inevitably followed by consumer complaints, a business must, instinctively, recall the product/s and issue an apology. This not only creates a good customer bonding, but also maintains goodwill in the long run.
The eight components discussed here are interdependent and ensure a smooth supply chain management system. It ensures the success and reputation of a business. A business must focus on all these components in order to create a flawless supply chain.
Businesses that have a strong supply chain management system in place always put great emphasis on all the components listed, and also ensure that management, as well as the teams at various levels, play by the rules. Profit is the bottom line and to make sure that the business achieves it, it is essential that the supply chain does not have any gaps. Any snag should be dealt with immediately and the weak links repaired or removed.
Demand and supply are two of the most important aspects of a business. For any business to be successful, trends, with respect to demand and supply, need to be studied carefully while implementing an effective plan of execution. A supply chain management system is required not just for the timely manufacture of goods; it is also a very critical system for ensuring that consumer requirements are met effectively.