The Straightforward Guide to Value Chain Analysis

The Straightforward Guide to Value Chain Analysis


5/10/20247 min read

person holding pencil near laptop computer
person holding pencil near laptop computer


Value chain analysis is a market research technique businesses use to identify their place in the supply chain and highlight potential improvement opportunities. It's also known as value stream mapping or supply chain management.

The primary focus of value chain analysis is on the activities that create value for customers—activities that make up the supply side of your company's business model. These activities are carried out by suppliers and distributors, who help turn raw materials into finished products and deliver them to consumers at retail prices.

What is a value chain?

The value chain is a process that describes the activities your company performs to deliver value to your customers. You can think of it as a funnel, with each step in the process becoming more and more valuable until finally reaching its most valuable point: creating customer value. The place where this happens is called the "value proposition."

When we use a value chain analysis to understand how our organization functions, we start by identifying all of its processes and then breaking them down into smaller pieces. We then analyze those smaller pieces until we come up with something that looks like an actual product or service that someone would buy from us (or not).

How can your business use value chain analysis?

Value chain analysis is a tool that business owners and managers can use to improve the efficiency of their operations and reduce costs. It can also help them increase profits, reduce waste, and improve customer satisfaction.

How does it work?

The first step in value chain analysis is to identify the various production or service delivery stages for your company's products or services. The next step is to determine where you lose money at each stage of production or service delivery—and then figure out how you might be able to reduce those losses by making changes to your processes at each stage. Once you've made these changes and re-evaluated them again after a set period (typically three months), you should be able to see whether there has been an improvement in profitability versus what was achieved before implementing value chain analysis measures; if there hasn't been much change at all after six months' worth of data collection, then it's likely that further adjustments need tweaking before they become effective enough.

Primary Activities

Primary activities are the core of the business. They are the activities that create value for customers and for your company. They are what you are in business to do and are at the heart of your competitive advantage.

Primary activities include:

  • Developing an innovative product or service (e.g., developing a new drug or software application)

  • Delivering goods or services (e.g., manufacturing parts, delivering mail)

  • Offering advice (e.g., financial advising)

Inbound Logistics

Inbound Logistics is a company's process of getting raw materials and parts to the factory and moving goods from the factory to the customer. It's also where all goods are received by the warehouse and then shipped out to customers.

Inbound Logistics is usually broken down into four main processes: Order Fulfillment (the process of getting an order fulfilled), Inventory Management (the process of keeping track of your inventory), Shipping (the outbound shipping process), and Receiving (the inbound receiving process).


Operations are the core of any business. Operations are the processes that transform inputs into outputs. Operations are the heart and hands of your business. The best way to understand what operations do is to think about an assembly line at a factory—inputs are placed on one side of the line, then transformed into outputs on another side of the line. You can think of each step in this process as an operation:

Inputs → Operations → Outputs

Outbound Logistics

Outbound logistics is the process of getting the product ready to be shipped to retailers or consumers. Outbound logistics include order fulfillment and Shipping, as well as a range of other activities that happen before goods reach their final destination.

Outbound logistics is an important part of value chain analysis because it takes products from their manufacturing state all the way through distribution into retail or consumer's hands. This can include activities like packing up products for shipment, loading them onto trucks or airplanes, and transporting them over long distances.

Additionally, outbound logistics involves warehousing inventory in distribution centers until orders are placed by retailers or consumers—a process known as stocking goods at retail (SGR). When goods arrive at their point of sale location and are sold by retailers, this is referred to as store replenishment (SR).

Marketing & Sales

In this section, we'll look at marketing and sales. Marketing and sales are the activities that help your business bring in new customers and sell to existing ones.

Marketing is the process of communicating the value of your product or service to customers. Most companies have some kind of marketing department that handles things like advertising, public relations (PR), social media, search engine optimization (SEO), branding, trade shows, etc.

Sales involve converting a prospect into an actual buyer by helping them understand how you can solve their problem or meet their need with what you offer. For example: if you're selling bicycles online, you'd want to ensure that your website has lots of information about what makes each one special so people know why they should buy it from you instead of someone else!


Service activities are the value chain's least visible and often neglected link. Service activities are important because they can be improved by outsourcing or automating, or using technology.

Service activities often include:

  • Order processing

  • Product maintenance

  • Finance support

What are the main advantages of using a value chain?

When you use a value chain, you can:

  • Focus on the most important activities.

  • Identify potential points of improvement.

  • Improve communication between departments and across the business as a whole. For example, suppose marketing needs help with its promotion campaign. It needs help developing an app allowing customers to order from home. In that case, both departments will be able to see what their colleagues need in order for them to improve their services or products further down the line. This means that there will be less frustration at each stage of production because everyone knows what they need to do next!

It also involves identifying strengths within your organization so that you can build upon them when implementing changes or improvements throughout your value chain - this could include anything from designing better packaging for products to having better quality control procedures in place (e.g., checking every single item before sending it out).

What is Value Chain Analysis?

Value chain analysis is a tool that helps companies understand how they create, deliver, and capture value. It also allows them to identify areas where improvement might be possible in order to increase profitability. It's an analytical process used by businesses in all sectors of the economy—from manufacturing firms to service providers and even government agencies.

When you perform a value chain analysis on your own business, you'll be able to view the flow of products or services through your company in terms of four distinct stages: "what," "how," "who," and "where." These correspond roughly with activities such as creating product specifications; developing new technology; hiring employees; operating production facilities at different locations around the world; selling products directly to consumers via e-commerce websites or brick-and-mortar stores; transporting goods from one location to another using trucks or cargo ships...

The Primary Activities of Value Chain Analysis

Primary activities are the basic functions of a business that create value. They include your company's inbound logistics, operations, outbound logistics, and marketing or sales functions.

The primary activities are where value is added to your product or service before it reaches the customer. You can also consider them the core of your business because they form the foundation for everything else you do as a company.

The Support Activities of Value Chain Analysis

The support activities of value chain analysis include:

  • Inbound logistics involves coordinating operations and activities to get a raw material or component into your business. This includes transport, storage, and handling.

  • Operations, which is the process of transforming inputs into outputs. Processes such as manufacturing, assembly, and processing fall under this category.

  • Outbound logistics (or just "logistics") covers the movement of finished goods from your facility to customers or distribution channels so they can be sold or used by other businesses further down the supply chain.

  • Marketing and sales cover all aspects related to promoting a product for sale (e.g., advertising), marketing research as well as channel management - how you distribute products from production through distribution networks like retail stores or wholesalers/distributors until they get into consumers' hands; it also covers customer relationship management - how you interact with customers once they've made purchases through things like customer service call centers or online feedback mechanisms; finally, it includes pricing policies that affect how much money consumers are willing to pay for products versus what retailers charge when reselling them at full price after buying them wholesale from manufacturers/producers who in turn purchased them directly off manufacturers/producers etcetera).

  • Service encompasses all elements related to ensuring that customers experience satisfaction after purchasing something from your company, whether before or after purchase, including warranties, repairs, maintenance, training, support, etcetera).


Value chain analysis is a powerful tool that can help businesses of all sizes to identify and improve their competitive advantage. By breaking down the business into its core activities and analyzing the value and cost of each activity, businesses can identify areas where they can improve efficiency, reduce costs, and differentiate themselves from their competitors.

The Straightforward Guide to Value Chain Analysis provides a clear and concise overview of the value chain framework, as well as practical steps for businesses to follow to conduct their own value chain analysis. The guide also includes examples from a variety of industries to help businesses understand how to apply the value chain framework to their own unique situation.

In conclusion, The Straightforward Guide to Value Chain Analysis is an essential resource for any business that wants to improve its competitive advantage. By following the steps outlined in the guide, businesses can develop a deep understanding of their value chain and identify opportunities to create more value for their customers at a lower cost.