All businesses have their own unique value chain and for new business owners the idea of the value chain or its concept may seem a little murky. This article will provide insight on what the value chain is all about!
The value chain model or concept was first introduced to the world and accepted by all factions including academia by Michael E Porter. The initial structure of the value chain mainly involved business inputs and the process that subsequently follows until it becomes the output. This concept was eventually stretched to other areas of business as different industries began to adopt the concept. From a very simple perspective a value chain is the set of process that finished products are put through before becoming the ‘end result’.
Businesses have since the 80s perused each process involved in making the product and try to optimise each stage of the process by either reducing the amount of raw material that is needed, reducing the man hours needed, reducing the time that is needed for each stage of the process and by doing this, companies have managed to save billions of dollars over the last 2 to 3 decades. So what is your business value chain? Well, here is an example that you could look at and have a better understanding of your value chain.
John runs a grocery store and his value chain starts with the suppliers bringing the products that he would be selling at his store. So this would be stage one and how can he improve it? Increase quality control on perishable products; engage another supplier to have better price options etc.
The next process would be storing and displaying items and taking a stock count, here John might want to look at his inventory and make sure he does not have too much inventory as this is money sitting around in his store collecting dust, keeping inventory optimised would allow him to keep more money in his bank account and earn interest. After all he could always order inventory whenever he needs it.
Then there is maintenance of the store, this means the ‘cost of operations’ which include both fixed and variable costs. Fixed costs include salaries, rent etc., whereas variable costs are bills, stationeries and even the cost of receipt paper rolls that you use.
For instance, your POS system may be using a dot-matrix printer that requires an ink cartridge and 2 or 3 ply bond paper to print your receipts. While the dot-matrix and bond paper may be suitable for invoices and purchase orders as these documents have to be durable enough till the audits are done, using them for POS systems is not a cost effective measure!
At this point you need to improve your value chain of ‘outgoing logistics’ by changing the POS system to include a thermal printer that uses thermal paper rolls which are much cheaper than 2 ply receipt paper. Apart from that ensuring that cashiers only give out receipts when they are requested is another great way to improve cost saving via the value chain model and also be friendlier to the environment as paper comes from trees.
If you interested in the value chain and how to optimise your business, like this page and as soon as we have 1000 likes, we will write more on how you would be able to improve your business by choosing the right employee right up to choosing the right kind of paper receipt rolls.