Meaning of Value Chain

A value chain is known as a theoretical concept that describes the way in which the actions and activities of a company are developed. Based on the definition of a chain, it is possible to find in it different links that intervene in an economic process: it begins with the raw material and reaches the distribution of the finished product. In each link, value is added, which, in competitive terms, is understood as the amount that consumers are willing to pay for a certain product or service.

According to abbreviationfinder, the analysis of the value chain allows optimizing the production process, since the operation of the company can be appreciated in detail and at each step. The cost reduction and the pursuit of efficiency in resource utilization are usually the main objectives of the employer when reviewing the value chain. In this way, every firm is able to expand its margin (result of the difference obtained when comparing the total value with the cost of the activities).

On the other hand, the study of the value chain makes it possible to achieve a strategic advantage, since there is a chance to generate a value proposition that is unique in the market.

It is important to underline in this sense that in the economy and also in the configuration of the aforementioned value chain, what is called the competitive landscape acquires a relevant role and in a great step, which is also fundamental in this advantage.

Specifically, a total of four aspects of this panorama are established that strongly influence the chain that concerns us. Thus, in the first place, there is what is called the degree of integration and that is a term that defines all those activities that are carried out in the home or company and not in other independent companies.

Secondly, we find the industrial panorama, which is the set of industrial sectors that are related to each other and in which our company competes thanks to a perfectly defined and coordinated strategy with the clear objective of achieving the goals that have been set. marked.

The third element that can influence the value chain is the segment landscape. More precisely, it refers to the variations to which both the specific product and the buyers of it can be affected.

And finally, the fourth element that concerns us is the geographical panorama. As its name suggests, this name encompasses the countries, counties or regions where the company competes based on a perfectly coordinated strategy.

There are specialists who distinguish two subsystems in the conformation of the value chain. A demand chain, which involves the processes related to the creation of demand, and a supply chain, dedicated to satisfying demand in a timely manner.

It is also possible to differentiate between two types of value activities. One of them is related to primary activities, a group of actions focused on the physical elaboration of each product and its transfer to the buyer. The support activities, on the other hand, sustain the primaries and involve the participation of human resources, inputs and technology, for example.

Value Chain