Introduction
For a product or service to be sold to a customer, several processes must make it useful and desirable to meet the preferences and needs of the consumer. The value chain involves several stages that help create a finished product, from the original design to the final delivery to the customer. For a business to be successful, each stage of the value chain must add usefulness to the product by enhancing customer satisfaction while reducing costs to maximize profits. Companies should generate more value at each step of the value chain in order to produce more profits. The manner in which a company conducts each activity leads to the production and sales of the final product or service. A company maximizes profit by evaluating the value chain processes to ensure they increase customer satisfaction while reducing costs.
Profit Levels at Different Stages of a Value Chain
The value chain process is a series of steps that create value addition to a product or service. It starts from acquiring raw materials to selling the finished product as the value or profit level changes depending on the product’s usefulness. The value chain process involves primary and secondary activities, which may be value-creation. Primary activities or stages include inbound logistics, operation, outbound logistics, marketing, and sales and service delivery (Straková et al., 2020, p. 1520). The secondary stages include activities that assist in making the primary steps run more efficiently. Therefore, an increase in secondary activities influences the primary steps in a positive manner. These support activities can be referred to as overhead costs listed in the firm’s income statement. They include procurement, technological development, human resources management activities, and infrastructure.
The primary activities are the major steps, but secondary proceedings support them. The changes in profitability depend on the level of value addition. For instance, at the level of inbound logistics, the product is at the first stage of receiving and assembling raw materials. If the product is sold at this stage, the profitability is low compared to the stage where outbound activities are conducted (Perey et al., 638). However, after the conversion of raw materials into finished products, the product’s value increases. At this stage, the company carefully chooses different features to incorporate unique aspects. Such operations may include attaching private labels and refining quality to meet customer preferences. For instance, Trader Joe’s company checks its quality by enhancing the taste of products to ensure customers will be willing to pay more (Grodzicki and Skrzypek, 2020). In outbound logistics, considered the third stage in the value chain process, a company establishes different experiences it wants to provide to customers. Such activities may include transporting goods to the customers’ homes, packing, and shipping practices (Hensen and Dong, 2020, p. 109). These actions and services influence the value of the products because customers can buy the products due to high-quality communication and timely delivery.
The other activities which affect profitability include services, marketing, and sales. At these stages, the manner in which employees respond to concerns such as refunds and complaints affects customers’ willingness to buy products. Additionally, the branding styles and promotion strategies determine profitability because customers can change their minds depending on their needs and preferences (Clay and Feeney, 2019). Therefore, a company must ensure its culture fits the target consumers to maintain and attract more customers.
Repositioning of Different Stages of The Value Chain Process
Organizations should focus on the optimization of different stages of the value chain processes to enhance value creation. To create higher profit margins and competitive advantages, a firm should perform a value-chain analysis to evaluate each production activity or stage and reveal methods to enhance efficiency while minimizing costs. For example, Michael Porter, a professor at Harvard Business School, stated that the primary and secondary value chain processes could be modified to create more value to exceed customer needs (Rocha and Abreu, 2018, p. 370). The payment by the customer should be more than the cost used in creating the product, hence creating profits. When a company is efficient in ensuring each stage uses minimal resources to create a superior product or service, it is obvious that the customer will be willing to pay more, resulting in a higher profit margin.
One way to ensure appropriate optimization of the value chain is to focus on the value proposition. A value proposition involves listing the benefits a firm will deliver to its consumers as a declaration of intent within the business and the marketplace. Communicating the usefulness of a product to the customer differentiates a company from its rivals. Two common strategies for modifying the value chain involve low cost and specialization or differentiation of products and services (Lopez et al., 2022). A company can evaluate each production process section and eliminate unnecessary steps or identify technological solutions that can create more value using minimal resources.
A business can increase profitability by repositioning resources to ensure they work in concert. An enterprise where all resources concentrate on one direction ensures the workforce is skilled enough and has the appropriate technology to influence performance. Additionally, a company can utilize technological and employee capabilities to speed the process, optimize energy and make appropriate decisions. Major changes in the production process and employee training activities can help organizations gain a competitive advantage in an industry.
Optimizing the production process and the value chain are frequently done together. Companies require precise data on the value chain, both in the past and the present, to optimize it effectively. The expenses, availabilities, throughputs, and inputs should all be included in these numbers. In addition, any factor that can affect output must be considered. Much of the sensing data on energy usage and asset productivity is already acquired by companies with an existing process simulation as they adopt industrial digitization strategies (Dwivedi et al., 2021, p. 184). To further improve their value chain, businesses should utilize purchase records that include supplier dependability and cost.
When enough information is collected, teams may determine how a particular control in the value chain contributes to the final product’s worth. It may become simpler to determine which suppliers contribute the most to the company’s success, which is vital information for any astute business. For example, although it may appear that one provider is charging above-market prices regularly, they may provide more value than other suppliers by consistently meeting their deadlines (Sheth et al., 2020, 1786). Through value chain optimization, businesses can evaluate these competing factors in terms of their overall worth to the company.
When it comes to technology, companies should employ the steps related natural value chain. Organizations should restructure their approach to involve the innovation value chain process, which entails a three-stage strategy of idea generation, development, and diffusion of the final developed concepts. Across the three phases, the managers conduct six critical activities. The first three stages include internal, cross-unit, and external sourcing. Other steps involve selection, development, and company-wide diffusion of the idea (Antimiani et al., 2018). Every step among the six is vital to the total value, where innovation must be pursued through a systematic process. A company’s strongest linkages along the innovation value chain are those in which it demonstrates a particular expertise.
To strengthen the company’s innovation, the first stage should involve evaluating the organization’s weak points. This assessment should check if there is collaboration within units, across units, and with outside parties in idea generation. Analysis can assist the company in revealing whether it collaborates with individuals within and outside the organization (Werning and Spinler, 2020). The next is to check if the screening and funding process could be highly strict about ignoring ideas relevant to the organization and whether the firm develops ideas into valuable services and products. The last area to check should be evaluating whether the ideas diffuse to the targeted customers, geographical, and distribution channels.
After evaluating the company’s state of preparedness and understanding its weaknesses, the next step is strengthening the weak links. The firm should build external and internal cross-unit networks to ensure that novel links generate more ideas. The goals of the two distinct strategies for constructing external networks are distinct. The first method is constructing a network of resources dedicated to solving a particular issue (Rosca & Bendul, 2019). At P&G, this is what A.G. Lafley focused on most (Andrișan and Modreanu, 2022, p.7). To find answers to the issues presented in the technology briefs, the company reaches out to its external network, which includes technology scouts, suppliers, research labs, and merchants worldwide. Eli Lilly, a pharmaceutical corporation, is behind InnoCentive, a website used by Lilly, Procter & Gamble, and other businesses to solicit and evaluate alternative approaches to technical and scientific issues.
The second strategy involves creating a discovery network to find novel concepts in large-scale technological or product spaces. Siemens, an electronics and engineering business based in Germany, has used this strategy in the Silicon Valley market. It has had a 15-strong scouting team stationed in Berkeley, California, since 1999 (Suwandi, 2019). Researchers at the Technology-to-Business (TTB) Center network with academic institutions, private businesses, government laboratories, and graduate students. Building cross-unit networks within firms is a complementary strategy to getting fresh ideas from outside enterprises. After all, coworkers who are strangers cannot develop novel ideas together (Ros-Tonen et al., 2019, p. 15). Holding sporadic cross-functional brainstorming sessions cannot reduce it since it unfairly implies that individuals with little to no prior knowledge of one another will be able to collaborate to produce ideas on demand.
Impediments in Attempting Repositioning of Value Chain Activities
Depending on the type of company, there can be different challenges in repositioning the value chain stages to increase profit. For example, in the production chain activity, the lack of access to raw materials may occur due to poor relationships with suppliers or financial constraints. If there are affordability and availability issues, the inbound logistics may be affected, which in turn influences the ability of the company to implement its planned objectives. The value chain process must be supported by access to affordable supplies, adequate storage space, equipment, and good external relationship to maintain the flow of raw materials. The absence of any of the required elements can derail the ability of the company to achieve the aspired value chain activities.
Another issue that may impede the execution of novel approaches linked with the value chain is the failure to utilize technology appropriately. Current technological advancements can be a resourceful tool for avoiding waste and reducing costs (Prasetyo and Dzaki, 2020, p.748). However, challenges associated with technology can pose a negative influence on the capability of an organization to execute its planned activities. For example, technology is utilized in various production activities, including processing, storage, and marketing; hence, its absence can be an enormous impediment (Oliveira et al., 2021, p. 115). Technological combinations such as machine learning, artificial intelligence, and data analytics can help automate operations and enhance delivery time and production efficiency. Therefore, companies must pursue ways to ensure that technological advancements are incorporated into the activities of the value chain.
Furthermore, regulatory rules such as extreme taxation and unfavorable business environment can affect the execution of programs planned by the company or raise expenses too high, making it difficult to make high profits as expected. Repositioning the value chain aims to maximize profits by ensuring low production costs. Strict government policies can hinder the ability of a company to access raw materials and labor at an affordable price.
Conclusion
The value chain is a series of activities involved in making a product or providing a service. Each stage of the value chain adds usefulness to the product by increasing quality and customer satisfaction. Companies optimize the value chain process to ensure waste reduction, minimization of cost, and value addition to ensure consumers are willing to pay favorable prices. Value chain analysis can be utilized to obtain data, reveal weaknesses, and strategize the repositioning of operations to enhance sales.
Reference List
Andrișan, G. and Modreanu, A. (2022) ‘Achieving Business Success in the Fourth Industrial Revolution: the Case of Procter & Gamble’, Economic Sciences Series, 22(1). Web.
Antimiani, A., Fusacchia, I. and Salvatici, L. (2018). ‘GTAP-VA: an integrated tool for global value chain analysis’, Journal of Global Economic Analysis, 3(2), pp.69-105.
Clay, P.M. and Feeney, R. (2019) ‘Analyzing agribusiness value chains: a literature review’. International Food and Agribusiness Management Review, 22(1), pp.31-46. Web.
Dwivedi, A., Agrawal, D., Jha, A., Gastaldi, M., Paul, S.K. and D’Adamo, I., (2021) ‘Addressing the challenges to sustainable initiatives in value chain flexibility: implications for sustainable development goals’, Global Journal of Flexible Systems Management, 22(2), pp.179-197. Web.
Grodzicki, M.J. and Skrzypek, J. (2020) ‘Cost-competitiveness and structural change in value chains–vertically-integrated analysis of the European automotive sector’, Structural Change and Economic Dynamics, 55(3), pp.276-287. Web.
Hensen, A.H. and Dong, J.Q. (2020) ‘Hierarchical business value of information technology: toward a digital innovation value chain’, Information & Management, 57(4), p.103-109. Web.
Lopez, T., Riedler, T., Köhnen, H. and Fütterer, M. (2022), ‘Digital value chain restructuring and labor process transformations in the fast‐fashion sector: evidence from the value chains of Zara & H&M’, Global Networks, 22(4), pp.684-700. Web.
Oliveira, L., Fleury, A., & Fleury, M. T. (2021) ‘Digital power: Value chain upgrading in an age of digitization’, International Business Review, 30(6), p.101-120. Web.
Perey, R., Benn, S., Agarwal, R. and Edwards, M. (2018). ‘The place of waste: Changing business value for the circular economy’, Business Strategy and the Environment, 27(5), pp.631-642. Web.
Prasetyo, P. and Dzaki, F. (2020). Institutional performance and new product development value chain for entrepreneurial competitive advantage. Uncertain Supply Chain Management, 8(4), pp.753-760. Web.
Rocha, R. and Abreu, M., (2018) ‘Emerging strategies and flexible forms of governance: the dynamics of role exchange in local value chains’, Competition & Change, 22(4), pp.363-382. Web.
Rosca, E., & Bendul, J. C. (2019) ‘Value chain integration of base of the pyramid consumers: an empirical study of drivers and performance outcomes’, International Business Review, 28(1), pp.162-176. Web.
Ros-Tonen, M.A., Bitzer, V., Laven, A., de Leth, D.O., Van Leynseele, Y. and Vos, A., (2019) ‘Conceptualizing inclusiveness of smallholder value chain integration’, Current Opinion in Environmental Sustainability, 41(2), pp.10-17. Web.
Sheth, J., Jain, V. and Ambika, A., (2020) ‘Repositioning the customer support services: the next frontier of competitive advantage’, European Journal of Marketing, 54(7), pp. 1787-1804. Web.
Straková, J., Rajiani, I., Pártlová, P., Váchal, J. and Dobrovič, J., 2020. Use of the value chain in the process of generating a sustainable business strategy on the example of manufacturing and industrial enterprises in the Czech Republic. Sustainability, 12(4), p.1520. Web.
Suwandi, I. (2019). Value chains: the new economic imperialism. London. Monthly Review Press.
Werning, J.P. and Spinler, S., (2020) ‘Transition to circular economy on firm level: barrier identification and prioritization along the value chain’, Journal of Cleaner Production, 245 (2), p.118609. Web.
