Definition of Value Chain

If we think of a chain, we can see that all its links are interlaced. If we extrapolate this idea to the business world, each activity carried out corresponds to a link. In a company there are all kinds of links: about production, design, accounting, distribution, sale, etc. Each of them fulfills a role and all together are oriented towards efficiency and cost effectiveness of the company.

As we move through a company's chain of activities, the value of the product to the consumer increases. Hence the denomination of value chain comes from. In short, a value chain implies that the greater the number of activities carried out (more links in the chain), the greater the value of the final product.

Types of activities or links in a value chain

The set of activities carried out to sell a product or provide a service can be divided into two types: primary or line activities and support or support activities.

The former are those that are directly related to production and

commercialization of a product or service. In this section we can include internal logistics, which refers to the reception and storage of the raw materials needed to make a product.

On the other hand, raw materials must be processed to transform them into the final product

Another aspect of the chain would be marketing and sales, two strategies with which a product is made known. Finally, the services section includes guarantees, repairs and maintenance of a product.

Regarding the support or support activities, they are not directly related to the production and marketing, but they are essential to ensure the smooth running of a business. The most prominent are the following: the organization's infrastructures, accounting, finances, management of human Resources, the development of technology or the section of the innovation.

The utility of the value chain

Once all the links in the chain have been seen, it is possible to analyze the value chain of a company. For this, all the links are investigated to try to correct possible faults. One of the objectives of this type of analysis may be to reduce costs, but it is important that the cuts are made in the most appropriate part of the chain.

In an analysis of the value chain one could arrive at the conclusion that outsourcing is advisable, that is, the outsourcing of certain activities for other companies to carry out.

Photos: Fotolia - lozochka / Dmitry

Issues in Value Chain