Ways to Increase your Profits through Value Chain or through any other way is one of those questions that you must have an answer to as a business person. Otherwise what you have is not business. In this post we are concerned with value chain specifically, what value chain consist of and how value chain management can help your business.
WHAT IS VALUE CHAIN?
A value chain can be defined as:
A combination of systems your business or your organization uses to make money
From the Value chain definition you can quickly tell why you must understand your business and its system of value creation because your business makes a margin by increasing the gap between the cost of creating the value it creates and the value itself i.e Value created – cost of the value = margin creation
WHICH ARE THE WAYS TO INCREASE YOUR PROFITS THROUGH VALUE CHAIN?
Understanding the primary and secondary activities of a value chain according to Michael porter is fundamental to finding an answer to the question ways to increase your profits through value chain.
According to Michael Porter a value chain consists of two activities: Primary activities and secondary activities
The primary activities in your value chain will involve a lot of direct procurement, since these activities are concerned with bringing of resources into the organization, transforming them by means of production process, moving finished products to customers and marketing them.
What are the primary activities of a value chain?
- Inbound logistics
The activities at this level relate to how you get inputs into the business, for instance, raw materials means forming relationship with suppliers, receiving the raw materials, warehousing and inventory control
From an ecommerce point of view this could mean receiving products that you plan to sell online from a manufacturer
If you do not pay attention to the inputs you use then you may as well start forgetting profits. Imagine a juice parlor that doesn’t pay attention to the nature of fruits it uses, yap you get the picture
- Operations
This means the process of converting raw materials into finished product. Basically all the activities needed to transform inputs into outputs
Depending on the type of business you are in this could be as simple as adding packing and adding labels or actual manufacturing of a product
- Outbound logistics
These are all activities required to collect, store and distribute the output created. You shoot a video where do you store it, you make products where do they end up as they are about to go to the clients?
Outbound logistics depend on the nature of the output
- Marketing and sales
The activities undertaken here are aimed at increasing visibility and targeting the desired customers. Things like promotions, advertising, pricing strategies etc
The idea is to inform buyers about the products and or services, induce the buyers to purchase and facilitate their purchase. Remember if the buyer has no idea that you exist, how do you expect to get their money?
- Services
These activities often take place after a sale has been concluded.
They include all activities needed to keep the product or service working effectively for the buyer it is sold to and delivered. This is basically where you end up with customer service, maintenance and repair.
Doing a good job at this point means increasing the chance of getting a repeat sale.
What are the secondary activities of a value chain?
The secondary activities in Porter’s value chain which will include indirect purchases, and are basically concerned with supporting the primary functions.
They include:
- Procurement – in this case the activities relating to acquisition of inputs or resources for the business
- Human resources management – consisting of hiring and retaining employees who help the firm meet its objectives as well as design, market and sell products and services
- Technology and development – all the tech and software than support the transformation of inputs into outputs
- Infrastructure – this covers the firms support system , departments like accounting, finance, security and other departments that make it possibly to maintain its operations
CONCLUSION
In business people pay for either the value they perceive or the solution to a problem they have. One of the ways to Increase Your Profits through Value Chain is by actually looking at the entire process and picking points in the process and adding value. Picking the right inputs, offering after sale services all these small things will contribute majorly to your bottom line.
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