Definition of value chain analysis: Examination of the value chain of an enterprise to ascertain how much and at which stage value is added to its goods and/or services, and how it can be increased to enhance the product differentiation. 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.
.A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable (i.e., and/or ) for the. The concept comes through business management and was first described by in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.
— IfM, CambridgeThe concept of value chains as decision support tools, was added onto the competitive strategies paradigm developed by Porter as early as 1979. – In Porter's value chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and Infrastructure (, pp. 11–15).According to the OECD Secretary-General the emergence of (GVCs) in the late 1990s provided a catalyst for accelerated change in the landscape of international investment and trade, with major, far-reaching consequences on governments as well as enterprises. Michael Porter's value chainThe appropriate level for constructing a value chain is the, not or level. Products pass through a chain of activities in order, and at each activity the product gains some value.
The chain of activities gives the products more added value than the sum of added values of all activities.The activity of a can illustrate the difference between cost and the value chain. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. A firm's value chain forms a part of a larger stream of activities, which Porter calls a value system.
A value system, or an industry value chain, includes the suppliers that provide the inputs necessary to the firm along with their value chains. After the firm creates products, these products pass through the value chains of distributors (which also have their own value chains), all the way to the customers.
All parts of these chains are included in the value system. To achieve and sustain a, and to support that advantage with information technologies, a firm must understand every component of this value system. Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation.The value chain categorizes the generic -adding activities of an organization.
The activities considered under this product enhancement process can be broadly categorized under two major activity-sets. Physical/traditional value chain: a physical-world activity performed in order to enhance a product.
Such activities over time by the experience people gained from their business conduct. As the will to earn higher profit drives any businessprofessionals (trained/untrained) practice these to achieve their goal.: The advent of computer-based business-aided systems in the modern world has led to a completely new horizon of in modern business-jargon – the cyber-market space. Like any other field of computer application, here also we have tried to implement our physical world's practices to improve this digital world.
All activities of persistent physical world's physical value-chain enhancement process, which we implement in the cyber-market, are in general terms referred to as a virtual value chain.In practice as of 2013, no progressive organisation can afford to remain stuck to any one of these value chains. In order to cover both market spaces ( and ), organisations need to deploy their very best practices in both of these spaces to churn out the most informative datawhich can further be used to improve the ongoing products or to develop some new product.
Hence organisations today try to employ the combined value chain.Combined Value Chain = Physical Value shown in sample below.Inbound LogisticsProduction ProcessOut-Bound LogisticsMarketingSalesActivitiesGATHERORGANIZESELECTSYNTHESIZEDISTRIBUTEThis value-chain matrix suggests that there are a number of opportunities for improvement in any business process.Industry-level An industry value-chain is a physical representation of the various processes involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the ). It is based on the notion of value-added at the link (read: stage of production) level.
The sum total of link-level value-added yields total value. The French Physiocrats' is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published in the 1950s, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S.
Economy.Global value chains. Main article: Cross border / cross region value chains Often multinational enterprises (MNEs) developed global value chains, investing abroad and establishing affiliates that provided critical support to remaining activities at home. To enhance efficiency and to optimize profits, multinational enterprises locate 'research, development, design, assembly, production of parts, marketing and branding' activities in different countries around the globe. MNEs labour-intensive activities to and, for example, where the cost of labor is the lowest. the emergence of global value chains (GVCs) in the late 1990s provided a catalyst for accelerated change in the landscape of international investment and trade, with major, far-reaching consequences on governments as well as enterprises. Global value chains in development Through global value chains, there has been growth in interconnectedness as MNEs play an increasingly larger role in the internationalisation of business. In response, governments have cut Corporate income tax (CIT) rates or introduced new incentives for research and development to compete in this changing geopolitical landscape.In an (industrial) development context, the concepts of global value chain analysis were first introduced in the 1990s (Gereffi et al.) and have gradually been integrated into development policy by the, the and others.Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain.
Although commonly associated with export-oriented trade, development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones.For example, the has investigated strengthening the value chain for as a crop in. Its aim in doing so was to provide a sustainable means of making ethanol that would increase the incomes of the rural poor, without sacrificing food and fodder security, while protecting the environment. Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for. The simpler concept of, a cross-functional process which was developed over the next decade, had some success in the early 1990s.The value-chain concept has been extended beyond individual firms.
It can apply to whole and networks. The delivery of a mix of (goods and to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the 'value system'. A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and information flowing along the value chain, the firms may try to bypass the intermediaries creating new, or in other ways create improvements in its value system.Value chain analysis has also been successfully used in large petrochemical plant maintenance organizations to show how work selection, work planning, work scheduling and finally work execution can (when considered as elements of chains) help drive lean approaches to maintenance.
This section does not any. Unsourced material may be challenged. ( September 2014) Once value has been analysed and the contributing parts of the organisation have been identified, other models can be used in conjunction with the value chain to assess how these areas can either be improved or capitalised upon.
Sorry, but copying text is forbidden on this website!Value chain analysis is a method to review all the activities in an organization that contribute to maximizing competitive advantage and customer delight while identifying non value added waste and costs in the value chain process (Walter & Rainbrid, 2007). The purpose of this paper is to analyze Amazon’s value chain. Amazon’s mission statement reads as “our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
” This paper will provide facts to analysis if this mission has been accomplished (“About amazon,”). The company was founded in 1994 by Jeffery P.
In the early years of Amazon they were mostly known for selling books. The idea behind it was that traditional brick-and-mortar stores could not hold more than a few hundred thousand books, whereas Amazon being an online store could hold an infinite amount of books (“History of amazon.com,”). Since its early days of being an online book store Amazon as grown to become a fortune 500 company with a global reach. Amazon operates in over 10 countries worldwide with over 88,000 employees (“Inside amazon,”).Amazon is one of the most visited sites in the world, with over 500,000,000 monthly visitors, and over 100 million active members (“Top 15 most popular websites”, 2014).
Amazon’s growth is deeply rooted in its value chain. Value chain represents the internal activates a firm engages in when transforming inputs into outputs. In this paper Amazon’s value chain processes will be reviewed. By understanding which activities Amazon engages an analysis can provide the reasons that Amazon has an effective competitive advantage and an increasing number of customer delight among its industry rivals.
In 1985 Porter describes the value chain as the internal activities firms engage in to produce goods and services, these activities have been broken down into primary activities and support activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include firm infrastructure, procurement, human resource management, and technology (Jurevicius, 2013.)The value chain can also be view as the combination of the demand and supply chain. The demand chain deals with the needs of its customers. Demand chain is defined as the complex web of business processes and activities that help a firm understand, manage, and create consumer demand (Walters & Rainbird, 2007). The supply chain deals with the relationship between the company and its suppliers. The supply chain is defined as the steps taking to get goods or service from the supplier to the customer.
Since the demand and supply chain add value to the company, too fully analyze Amazon value chain, this paper will also include both supply and demand chain analysis.Demand Chain AnalysisAs stated above the demand chain are the processes and activities that come together to help a firm understand, manage, and create consumer demand. This section will analyze Amazon’s demand chain. It will identify the customers, market, wants and needs, market opportunity, and value drivers.
Amazon’s understanding of its demand chain has been critical to its success over the years. Amazon’s demand chain as ensure a level of customer satisfaction highest in its industry. Amazon’s customer satisfaction rating it at 88 percent, this is above the industry average rating of 78% and of its leading competitors (“ACSI”,).Identification of Customer, Market, Wants and NeedsAmazon is an e-commerce business, which means it has a wide range of customers. The company’s target market is all users that shop online. These are the individual that don’t have time to shop at traditional stores. Also many of Amazon users are unable to find their desired product in their local area.
With the new fast pace world Amazon customers are accustom to using technology to do their everyday tasks, this includes shopping. Amazon offers a wide range of products from books to apparel and jewelry to consumer electronics. Amazon has come a long way from just being known as an online bookseller. It has become the “Everything Store” with around $75 billion in annual revenue, a $140 billion market value.It has launched a marketplace in India, opened a website to sell high-end art. Also with its Kindle and other tablet products to rival other competitors and also providing web services. From this we can see that Amazon is trying to break into all markets (Stone, 2013). Amazon has spent millions of dollars in its marketing approach to its customers.
Amazon uses a personalized e-mail system to market its deals to its customers based of their past browsing history. Also once a customer log back into their Amazon account they will see personalized listed of items they may be interested in purchasing.Market Opportunity AnalysisAmazon has a great deal of market opportunity.
This section will review Amazon market opportunity analysis. A market opportunity analysis is defined as “a planning process that focuses on identifying future opportunities and assessing the organization’s financial, technological and competitive readiness to exploit them” (“Investorwords”,). Amazon’s SWOT analysis shows that there are a few potential opportunities for the company to invest in; some are already in the process others are still under review. A few of these opportunities are; developing an online payment system, the payment system will be a great benefit to the Amazon customer that use their smart phones and are not in a position to input their bank information.Opening more online stores in other countries. Amazon is a growing household name and with the increase in the accessibility of the internet in growing economy this will give Amazon the ability to expand into new territory and markets which in return increase its market share and profitability.
Also increasing its services and product portfolio through development and acquisitions, the company has already started to increase its portfolio with the introductions of its kindle products, and it is looking to move into the TV/Film industry with Amazon Studios (“SWOT analysis of Amazon”, 2013).Identification and Analysis of Value DriversThe term “value” refers to the total value created for all parties involved in the transactions that a business model enables. Value can be measured as the sum of the values that can be appropriated over all participants in the business model and over all transactions enabled by the business model. The term “value drivers” refers to a factor that enhances the total value created by a business model.
Amit and Zott broke value drivers into four factors; efficiency, complementarities, lock-in, and novelty (Amit & Zott, 2000). Efficiency goes up when the costs per transaction goes down. Amazon as increased its efficiency by investing money into its system to make the site user friendly with a wide range of selections.
Providing a greater selection of items at a reduce cost, and its partnership with UPS it has been able to decrease its order fulfillment time. Complementarities are offers that are bundled together, when purchasing items on Amazon there is a small section titled recommended items.These are list of times that are related to the items being purchased this increase value because it decrease the time the customer are looking for other times, thus saving the customer time by bundling the items together. The lock-in value driver refers to customer retention. Amazon as locked in a core group of users by offering great deal with loyalty programs and creating a safe trusted interface where customers can complete transactions and not worry about their information being stolen. The last of Amit and Zott value drivers is novelty.
They define novelty as “innovations as the introduction of new products or service, new methods of productions, distribution, or marketing, or as tapping new markets. Amazon as excel in all the above with its introduction of the kindle, expanding into the art world, and creating new distribution channels; thus increasing customer satisfaction through its value driver (Amit & Zott, 2000).Value PropositionValue proposition is a clear, compelling and credible expression of the experience that a customer will receive from a supplier’s measurable value-crating offering. Value proposition should emphasize both the benefits the customer will receive and the price the customer will be charged as compared to the competition. A strong value proposition can create a strong and effective competitive advantage (“Value proposition (VP),”).Value Proposition as related to Demand ChainThe value proposition as related to demand chain comes in different forms. Amazon has a large selection of product which meets the needs and wants of its customers. The company use technology to track of their customer’s preference. The company offers its users the best customer service.
When a customer experiences dissatisfaction it goes to the top of the chain. CEO Jeff Bezos gets involves and demand an explanation for how this occurred. In a Bloomberg BusinessWeek article it explains that Amazon is built to adapt. Finding new ways to serve its existing customers and expand to new customers in ways.By identifying value that are important to the customer’s needs that have not be served as of yet. CEO Jeff Bezos says “if you want to continuously revitalize the service that you offer your customers, you cannot stop at what you are good at.
You have to ask what your customers need and want, and then no matter how hard it is, you better get good at those things” (Johnson, 2010). With the technology in place and the drive of the company to meet the needs of its customers at all level shows a strong value proposition on the demand side.Value Proposition as related to Supply ChainAmazon’s value proposition as related to supply chain is based of its low cost prices for high selection of goods. Their partnership with key suppliers allows Amazon to maintain very little physical inventory. With technological advancement Amazon as designed unique systems that entirely automates it product ordering system that is linked with its supply. This allows them to minimize human intervention reducing cost and also speeding up the ordering system (“Customer value propositions,”).Supply Chain AnalysisA supply chain is defined to be the processes whereas raw materials are converted into final products. The supply chain just like the demand chain is critical to the success of the value chain. It is the successful combination of both supply and demand chain that adds value to a company.
The supply chain is comprised of two integrated processes; the productions planning and inventory control process, and distribution and logistics process (Beamon, 1998). Amazon supply chain consists of inventory segmentation, order sourcing, fulfillment, and transportation (Chiles & Dau, 2005).Value Production and CoordinationProduction is an important part of the supply chain. In terms of Amazon’s supply chain the production part is an expensive component. Although Amazon doesn’t produce most of its inventory it is critical for its success that the suppliers it does business with are producing products of the highest quality. Its business model has provided it with the ability to negotiate lower prices with its suppliers to over its users the best deals. Amazon ordering system it top of the line; with the ability to automatically order products once inventory is low to keep up the demand.Value DeliveryAmazon ships millions of products every year.
Being an online story with no physical location having an effective delivery system is key to success. Amazon offers different shipment options, from same day, next day, to standard. Amazon is able to deliver orders its customers in two forms, from its warehouse and distribution centers and also directly from suppliers through partnership with distributors, publishers, manufactures, and other partners.
This adds great value to the company’s supply chain (Chiles & Dau, 2005).Value ServicingAmazon puts great pride in its customer service. In a Forbes article the author states that Amazon has been the driving force behind the growth in e-commerce and the evolution of customer service excellence in the modern day. Customers have used words such as “efficient”, “reliable”, “easy”, and “hassle free” to describe Amazon’s service. Amazon rated #1 in an Customers’ Choice Award by the National Retail Federation, beating out traditional brink-and-mortar retailers like Khol’s and JC Penney (Goodfellow, 2012).Enterprise ValueEnterprise value is a measure of a company’s value. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Enterprise value is basically what a company is worth to another company, in a buyout situation.
If eBay wanted to buy out Amazon it would have to raise $159.03 billion to takeover Amazon, as of now eBay’s enterprise value is $71.18 billion. EBay is not even in the same ball park (“Amazon.com Enterprise Value”, 2014).Industry DriversIndustry drivers are all factors that affect how a business operates, such as economy, environment, political, and the market itself. Amazon industry’s drivers are price, quality, availability, and customer service. In the online retailing industry companies try to use price as there biggest industry driver. But from Amazon it is its’ customers, Amazon believe with a focus on its customers it can be able to provide them with all of the drivers, such as price, quality, logistics and great customer service.Competitive AdvantageCompetitive advantage is the advantage a firm has over its competitors. Competitive advantage can be in two forms cost advantage and product advantage.
Amazon’s competitive advantage comes from its strong value chain. Amazon has been able to keep its advantages by tapping into both forms of advantages. Amazon offers its customers the lowest price on products with its strong and effective supply chain. The system it has developed allows the customer to directly order from the supplier anywhere in the world at the lowest price possible. Amazon’s business model allows the company to negotiate the lowest price with supplies and passing those savings on to its customers.Amazon not only has a cost advantage it also has a product advantage. Being an online retailer that started out with selling only books has now expanded into many other departments.
Compare to one of its biggest competitors Barnes and Nobles, it is able to offer more selections in books due to its unlimited storage space. Also with its kindle tablet it saves customers a trip to the store and allows them to download instantly.
Amazon’s greatest competitive advantage is its customer service, which has ranked #1 year after year (Goodfellow, 2012).Customer DelightThe business dictionary defines customer delight as the very favorable experience of the client of a business when they have received a good or service that significantly surpasses what they had initially anticipated (business dictionary, ). Amazon already has great customer service proven by all the awards it has earned. Amazon wants to truly be “Earth’s Most Customer-Centric Company.” The company not only provides extra service like free shipping, but its customer service is its key to bring its customers that extra delight.
The way Amazon handles problems that arise are a big part to its customer retention rate. They have revolutionized the “Contact Us” experience, if they is a problem with a customer’s order they can go to the site and under the contact us page they will find a “call me” button. This is Amazon’s way of having a more impactful experience for its customers. Instead of having to talk to a computer, you can leave your number and a live human being will call you back to resolve you issues with the upmost respect (Hampton, 2013).ConclusionThis paper has analyzed how Amazon brings its supply chain and its demand chain together to create an effective value chain.
A chain is as strong as its weakest link, and Amazon has effectively strengthened all aspect of its value chain. It truly is “Earth’s most customer centric company.” All these factors put together has helped it create such a competitive advantage in its industry with an enterprise value of over $150 billion.
For these reasons the company has been seeing constant growth both in the number of users and number of new service because it believes in improving on everything.
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