Value chain

The value chain and value chain ( value chain ) represents the stages of production as an ordered sequence of activities dar. These activities create value, consume resources and are connected with each other in processes. The concept was first published in 1985 by Michael E. Porter in his book Competitive Advantage:

"All is Every company is a collection of activities, designed by the product manufactured, sold, delivered and supported. These activities can be represented in a value chain. "

With ' value chain ' only the representation is called ( for example, as a value chain diagram ) frequently. In extended and proper sense but actually or potentially occurring processes form the value chain, which is also called eg supply chain. According to D. Harting called ' value chain' of " the stages of the transformation process that goes through a product or service, from raw material until the final use ."

Basic model

The value chain is composed of the individual value activities and margin. Value-added activities are activities that are performed to produce a product or service. The margin is the difference between the yield that produces this product, and the resources used.

The graph shows the basic model of the value chain according to Porter. Primary activities are the activities that provide direct value-added contribution to the creation of a product or service. In the basic model, the inbound logistics, production, outbound logistics, marketing & sales and customer service. Support activities are activities that are a necessary condition for the exercise of the primary activities. They thus provide an indirect contribution to the creation of a product or service. In the basic model, the enterprise infrastructure, human resource management, technology development and procurement. The value chain of a company is linked to the value chains of suppliers and buyers. Together, they form the value chain system an industry.

Definitions

To define the value chain must be assigned to all company activities to the corresponding activity types. Within the types of activities, the activities must be distinguished from each other according to the following criteria:

• Activities of different economic sectors
• Activities with a high potential for differentiation.
• Activities with a significant or rising cost share.

Competition Irrelevant factors, however, can be summarized. The classification of activities requires creativity and judgment. The specific situation of the company and the industry is taken into account. A trading company is the input and output logistics, a goods producer pay special attention to operations.

Each category of the primary and support activities can be divided according to the following criteria:

The traditional cost accounting summarizes the indirect and quality assurance activities usually together as overheads. This, however, competitive information will be lost. The breakdown of the types of activities in direct, indirect and quality assurance activities, however, provides valuable information for the diagnosis of competitive advantage. Making the indirect and the quality assurance activities in many sectors of a large and rapidly growing share of costs. Thanks to their correlation to the direct activities, they also play a crucial role in the differentiation and / or cost leadership ( thus lowering eg a higher maintenance costs for machinery).

A further development of the value chain represents the value circle

The concept of Porter model follows a station, wherein the model elements are mainly the sites of production. Similarly, were later developed models that follow a flow model, in which the material or value flows the primary model elements. Both modeling approaches can be complementary, but not entirely replace.

Solid value chain: Increased effectiveness ( doing the right things ) and efficiency ( doing things right ) of processes seem more achievable if the value chain ideally a " pull " strategy follows, in which any request from the ( final or intermediate ) beneficiaries emanates. This applied in the Lean Management principle is called " solid value chain " (as opposed to " pushed "); in is called " pull principle " this.

Procedure for the analysis of

An in-depth analysis usually requires the creation of multiple value chains (eg, for each product group or Strategic Business Unit). In this way, differences between geographical areas, between product and customer segments, and the relationship between the business units can be made visible.

The definition of the value chain can be very costly. Esser therefore proposes a simplified procedure which can be deepened as necessary, on individual value activities. The structure and organization of the company serves as a framework for the assignment of activities in the value chain. This one builds on the knowledge and experience of managers and to operational information and accounting systems. The definition of the value chain must follow the principle "Integrity before detail ." In order to ensure efficient operation, it is advisable to divide the own value chain as well as those of key competitors provisionally before the actual strategy session.

Analysis

Is the value chain defined, you can then answer the following questions:

• How high are the costs of each activity?
• Are the activities customary in the industry? Do they lead to a competitive advantage or a cost disadvantage (because customers do not perceive this activity )?
• Is the value chain matched to the buying criteria of customers?
• How are the value activities within the value chain linked together own?
• What are the competitive activities linked with those of suppliers and customers?

Strategic Cost Analysis

From the cost structure and from the differentiation potential of all value-added activities, existing and potential competitive advantages of a company can be determined. The choice of the desired competitive advantage ( cost advantage or differentiation ) determines the focus of the value chain analysis. Is it to a cost advantage, so are the value activities that determine the cost behavior in the foreground. If the target differentiation, then one uses the value chain to find out how to stand out from the competition. The costs, however, are also in differentiation strategies is crucial. To provide a better performance over the competition is only worthwhile if the obtainable price premium above the costs of differentiation lies.

The cost analysis based on the value chain enables a strategic and holistic analysis of cost behavior of a company. You can show ways to lasting cost advantage. Nevertheless, it does not replace the ( detailed ) cost accounting and the ratio analysis. A strategic cost analysis is especially important for companies that have little or no differentiation in their industry and thus gain a competitive edge only on cost and price basis (this is, for example, on many common consumer goods, the case).

In a first step, you allocate the costs (operating and investment costs) the individual value activities. Activities that require significant or rapidly increasing share of the costs, thereby deserve special attention. However, in this cost analysis, no computational precision is required. There satisfy purchased inputs into categories to divide personnel costs and equipment costs. This division alone can have valuable information on opportunities for reducing costs ( such as when you realize that the inputs purchased account for a significantly larger share of costs than previously thought ).

In the second step measures the cost of the value-added activities of key competitors. While this is difficult to assess their own situation but very important. It is mostly rely on estimates. Just knowing whether a competitor a value activity performs cost-effective or cost-intensive, is very useful.

A third step of analyzing the difference of their own value chain and the competitor. Here is the question about the reasons for a different cost structure of particular interest. To answer it, you have to determine the structural and procedural costs driving forces. So you can show the possibilities to improve the relative cost position. A company can improve its relative cost position by changing the position over the cost drivers and / or the composition of the value chain in his favor. The following cost drivers explain where and why the cost of various competitors are different:

• Size-related economies of scale, for example by carrying out rational or proportional increase in overhead costs, or progressions, eg due to greater complexity or increased coordination effort
• Learning processes lead to higher labor productivity, manufacturing-oriented product design, etc.
• Structure of the capacity utilization, the proportion of fixed costs in total costs
• Linkages within the value chain with suppliers and customers
• Linkages, synergies with other strategic business units, such as joint production
• Vertical integration, make-or -buy decisions in upstream and downstream activities
• Time choice, such as first-mover advantages and disadvantages, cyclical interest costs
• Strategic decisions, such as product design and supply, cost of marketing and technology development, choice of distribution channels
• Location affects cost of labor, raw materials, energy, taxes, etc.
• Except operational factors, such as government policies / regulations
• Organizational skills such as time management, process orientation, etc.

These cost drivers can be mutually reinforcing (eg a good location often depends on the timing down) or neuter (eg economies of scale due to a lower capacity to be neutralized ). It is usually extremely difficult, if not impossible, to quantify the cost-effectiveness of the driving forces exactly. In many cases, however, it is sufficient to grasp the relationships intuitive. The cost analysis, however, proves to be in practice often be very difficult, since the conventional cost accounting systems capture only (salaries, travel expenses, depreciation, etc.) cost categories. Therefore, the cost management has increasingly shifted to indirect costs ( overheads). With the approach of activity based costing ( Activity-based costing - ) attempts to reverse this trend and the cost of re- assign individual activities. Activity-based costing, aims to make the overheads transparent and to avoid all non- strategy serving overheads. A comprehensive understanding of the activity costs demands an extension of the consideration on the entire value chain of the industry (suppliers, internal activities, strategic partnerships ). This then allows a comparison of their own internal costs with those of key competitors. Starting point of an activity-based costing - is the activity analysis, which should provide answers to the following questions:

• Who is a customer of the activity or the process?
• Input / Output of the activity / process?
• Total cost of the activity / process per year?
• Primary cost drivers?
• Financial performance measures?
• Productivity metrics?

The analysis, which is best done in discussion with the parties directly involved, covers a variety of cost drivers and therefore the reference to the relevant business decisions. It further allows the description of the internal processes and illustrates the diversity of activities.

The approach of activity-based costing - is limited to the analysis of the overheads. He thus represents not a separate cost accounting system, but should sensibly be integrated into the traditional cost element and cost center accounting. Activity-based costing - serves both product pricing as well as the evaluation of processes and their services. Particularly useful however, this approach is the analysis of the entire value chain of strategic allocation. Starting from the same activity database, the data can be specifically allocated to " strategic activities ". In this way we arrive at the important decision basis for revision or adaptation of the strategy.

Application in the practice

The value chain as a methodological ideal and as a sophisticated instrument allows to analyze the company's activities comprehensively and consistently. It combines the analysis of the company with the strategy development by the relative strengths and weaknesses in the value chain are the basis for the identification of core competencies and then permit the formulation of competitive strategies. The practical operation of the value chain but is associated with some problems:

• The analysis requires considerable time and methodical effort.
• In practice finds " strategic planning " instead usually in the form of moderated sessions with the responsible executives. A comprehensive value chain analysis is in this context often too complex, or it encounters a lack of acceptance and motivation. With appropriate preparation for such meetings of this difficulty may be encountered.
• For a quantification of the value chain, the usual account classification rarely true (for example, overhead costs, fixed costs, direct labor costs) in accordance with the value activities. The department -based-costing must therefore be transformed into a complex process in a activity- or process-oriented cost accounting. The allocation of costs to the value of activities (especially if these are mutually strongly linked and span several strategic business units) is very difficult and remains over long distances discretionary.

If the effort for a quantitative value chain analysis is not worthwhile, it is advisable to resort to the traditional cost structure analysis and on the existing cost accounting system. Flexible and used appropriate to the situation, the value chain is an extremely valuable diagnostic and analysis tool that also makes good services for the systematic support of the other analysis instruments.