The Importance of Value Chain Analysis
Discuss about the Estimate Egyptian Aquaculture Sector Performance.
The value chain is a central which helps in identifying the areas of cost savings. By adding value in the different process the cost can be saved. The value chain is made by every company to increase the efficiency. The overall goal of the value chain analysis is to give maximum value for the least possible cost (Gereffi, et. al., 2010). Value chain analysis breaks down the flow of production into five categories. The reason behind the break down is to increase the efficiency in production by creating a competitive advantage. There are five primary activities which are essential in adding value.
Identify the firm’s value-creating processes: It is the first step to identify the value-creating process of the business. In a business, the main things are the different costs, revenue and profit centres. The reason behind the identification of value-creating process is to understand the competitive advantage of the business.
- Determine the portion of total cost of the product: The Company uses estimates to assign costs to the value-creating activities (Neilson and Pritchard, 2011). The cost associated with the support activities needs to be transferred to derive the total cost.
- Identify the cost drivers of each process: The next thing management needs to do is to identify the factors which derive the costs. If there is any change in the cost drivers then it may lead to change in the overall cost of the company. Cost drivers are the essential part of determining the overall cost. The company also uses activity-based costing to correctly allocated the cost of the activity and determine the correct value of the cost.
- Identify the links between processes: One of the main features of the value chain analysis is to consider individual value activities as separate and discrete (Van Weele, 2010). The total cost affected by the activities in the value chain is interdependent. The company has to find the link between the processes to reduce the impact of activities on the total cost.
- Evaluate the opportunities for achieving relative cost advantage: In past, business adopted broad cost reduction where the cost of all the heads reduces by the same The reduction of cost in all the heads does not solve the problem as costs are not reduced strategically. This affects the sales as the forceful reduction in cost affects the marketing.
The value chain is the foundation of good operating model work. Segmentation is the tricky part of the value chain analysis (Wake, 2013). Each segment needs to be served for an effective value chain analysis. The five segments of value chain analysis are as follows:
- Inbound logistics: Logistics are always treated as an important part of the organization as many activities are related to inbound logistics (Bolwig, et. al., 2010). There are several costs associated with inbound logistics. Inbound logistics includes receiving, storing, inventory control, transportation scheduling, etc. The storage of goods is an important aspect of the carrying cost of inventory needs to be controlled by the management in order to make an effective value chain in inbound logistics.
- Operations: The Company earns money from its operations and the operations include machining, packaging, etc. The testing of equipment along with assembling is the major parts of the operations. These are used for converting the input into the final products. Different cost arises in the operations which are the cost of packaging, cost of testing of equipment, cost of assembly, etc.
- Outbound logistics: The outbound logistics are used as a way to deliver the goods to the consumers. Distribution forms a major part of the outbound logistics. The cost incurred in the outbound logistics is the cost of warehousing, transportation, order fulfilment (Macfadyen, et. al., 2012). The goods need to be a store somewhere before it delivered to end consumers and it is stored in the warehouses of the company.
- Marketing and Sales: Marketing is necessary to sell the product. It is the strategy to attract the buyers to buy the product of the company. Marketing is the process which helps in deciding the selling price of the product. Different cost is associated with marketing which is the cost of advertising, selling and promotional expenses, retail management, etc.
- Service: Selling of goods to the consumer is not the final task that is done by the company. To maintain the value of the product, the company needs to give different services which are customer support, repairing and maintenance services, installation services of the product, upgrading of the product. The cost associated with some of the services is bear by the company as it is already included in the sale of the product (Rieple and Singh, 2010). After sell, services give satisfaction to the customer and it helps in increasing the value of the product of the company.
The main task of the manager apart from his usual activities is to develop a plan that helps him in reducing the cost of the goods and services by using the value chain analysis. The different segments of the value chain are analysed by the manager to reduce the overall cost. The effective value chain analysis describes the cost of each segment and helps in deciding where the cost can be controlled (Fearne, et. al., 2012). Operations are the important aspect of the business and it is an important aspect of the value chain as it helps in building a competitive advantage. The management has to thoroughly analyse the different cost in the operations and decide that how to reduce these costs.
The main purpose of the value chain is to analyse the competitive advantage by disintegrating an organization into discrete activities or progress and examine how each activity contributes to the organization’s relative cost position or the customer’s comparative willingness to pay. The use of value chain is to determine the cost advantage which can be gain by either reducing the cost of individual chain activities or changing the whole segmentation of value chain (Soosay, et. al., 2012). Value chain analysis applied at almost in all the business as it helps in building a competitive advantage on the others. Cost advantage can be built on a better understanding of the costs.
Austal Ships is a worldwide shipbuilding organization in Australia alongside the prime barrier temporary worker that can develop the safeguard vessels alongside the business vessels (Slocombe, 2017). The main item sold by the company is naval vessels, offshore wind farm, vehicle ferries.
Austal ships have begun its business in the year 1988 and the company listed its share on Australian stock exchange after some years of its establishment. The registered office of the organization is in Henderson, Western Australia. The chairman of the organization is John Rothwell and the present CEO of the organization is David Singleton. The organization has three noteworthy shipbuilding offices, the defence vessels are made in Henderson, Western Australia, commercial vessels are built in Cebu in the Philippines, and the vessel bolster is made in Darwin, Cairns (Gereffi and Fernandez-Stark, 2016). The main client of the Austal Ships is Australian Border Force, Condor Ferries, The United States NAVY, The Royal Navy of OMAN, and so on. The record appears at the beginning of 2017 the organization has developed 260 vessels. The organization has in excess of 100 administrators and deals its items in excess of 44 nations.
The company implement value chain analysis to build a competitive advantage by reducing the cost of the products. The CEO of the company decides that the value of the support activities in the USA and Australian defence needs to be increased by 20%. The inventory of the company includes different types of vessels and both inbound logistics and outbound logistics is used for the safe warehousing and transportation of the goods of the company (Wiggins, et. al., 2010). The company wants to increase its distribution channels in order to ship more goods.
References
Bolwig, S., Ponte, S., Du Toit, A., Riisgaard, L. and Halberg, N., 2010. Integrating poverty and environmental concerns into the value?chain analysis: a conceptual framework. Development Policy Review, 28(2), pp.173-194.
Fearne, A., Garcia Martinez, M. and Dent, B., 2012. Dimensions of sustainable value chains: implications for value chain analysis. Supply Chain Management: An International Journal, 17(6), pp.575-581.
Gereffi, G. and Fernandez-Stark, K., 2016. Global value chain analysis: a primer.
Gereffi, G., Frederick, S. and Gereffi, G., 2010. The global apparel value chain, trade and the crisis: challenges and opportunities for developing countries. Washington, DC: World Bank.
Macfadyen, G., Nasr-Alla, A.M., Al?Kenawy, D., Fathi, M., Hebicha, H., Diab, A.M., Hussein, S.M., Abou-Zeid, R.M. and El-Naggar, G., 2012. Value-chain analysis—An assessment methodology to estimate Egyptian aquaculture sector performance. Aquaculture, 362, pp.18-27.
Neilson, J. and Pritchard, B., 2011. Value chain struggles: Institutions and governance in the plantation districts of South India (Vol. 93). John Wiley & Sons.
Rieple, A. and Singh, R., 2010. A value chain analysis of the organic cotton industry: The case of UK retailers and Indian suppliers. Ecological Economics, 69(11), pp.2292-2302.
Slocombe, G., 2017. Australian industry: Key supporter of CASG and the RAN. Asia-Pacific Defence Reporter (2002), 43(6), p.46.
Soosay, C., Fearne, A. and Dent, B., 2012. Sustainable value chain analysis–a case study of Oxford Landing from “vine to dine”. Supply Chain Management: An International Journal, 17(1), pp.68-77.
Van Weele, A.J., 2010. Purchasing and supply chain management: Analysis, strategy, planning and practice. Cengage Learning EMEA.
Wake, M., 2013. Austal Ships. Phone Interview.
Wiggins, S.K., Blue Cross and Blue Shield of South Carolina, 2010. Insurance claim filing system and method. U.S. Patent 7,668,738.
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