Question

briefly explain what is an industry value chain? and provide an real company as example

Answer 1

answer-

Industry value chain or Value chain analysis (VCA)

is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.

Value chain-represents the internal activities a firm engages in when transforming inputs into outputs.

Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

lets take example of Walmart-

Primary Activities:

Inbound logistics:

Walmart’s suppliers are thousands of businesses spread globally. To keep its costs lower than the competitors, Walmart has to depend on it suppliers. Since Walmart buys in bulk from its suppliers, it has no difficulty managing prices. Based on its financial clout and size, Walmart is able to press the suppliers for lower prices. Apart from it Walmart has also focussed on efficient supply chain management and inventory management to manage its supply chain costs. It has made use of technology and apps to manage supply of material and inventory which also helps keeping costs low.

Operations:

Walmart operates in the retail sector and this sector has seen a lot of growth during the recent three years. Today, Walmart operates across 28 countries and under 63 banners. It has more than 11500 retail units operational worldwide. In US alone, Walmart has 4,692 retail units operational. The number of Walmart Super centers is 3,534 and that of discount stores is 412. There are 48 small format Walmart retail stores and 698 neighborhood markets in US. Today, more than 1.5 million associates are employed across more than 5,000 retail stores of Walmart in US.

Outbound logistics:

At the core of Walmart’s inventory management technique is a supply chain practice called cross docking. The products received from the suppliers are cross docked at the distribution centres and then forwarded to the stores. This keeps the inventory and transportation costs low and cuts down on the time needed for transportation and thus eliminates inefficiencies. In this way, the Walmart stores are immediately replenished without having to wait for long periods.

Marketing and sales:

Walmart’s slogan is “Save money. Live better”. Its pricing strategy is one of the key elements of its marketing strategy. The everyday low prices strategy has helped it build a reputation of the best price retailer. However, apart from it Walmart also spends billions on marketing. It advertises and promotes its brand and deals through several advertising channels including traditional and digital channels.

Support Activities:

Technology:

Walmart has made extensive use of technology for better supply chain management and sales as well as customer service. From smarter apps for inventory management to ecommerce websites it has used technology to gain efficiency. A number of technological tools are used to keep the managers updated and the stores well supplied. Technology has become indispensable for efficiency in the retail business.

Human Resource Management:

In the past, Walmart has faced severe criticism for its poor Human resource practices. However, things have changed in the recent years. It had faced most criticism over its wage policy. Now, it has improved the minimum wages to more than $13 and is investing $2.7 billion in wages, education and training. Last year, it also promoted more than 200,000 people to jobs with higher responsibility and better pay.

Procurement:

One of the key focus areas at Walmart is procurement. It has managed strategic relationships with its suppliers to keep costs of material lower. These suppliers provide standard products and services as mentioned in the suppliers’ code.

Firm Infrastructure:

The infrastructure of any organization plays a key role in the success of that firm. Walmart has built a very large infrastructure that includes its management, supply chain, human resources, its distribution and fulfilment centers and more. It has kept increasing its investment in technology and people during the recent years considering their importance for the faster growth and success of the brand.