Where do you start with a Activity/Value Chain Analysis?
Sketch a detailed picture of the actual process situation – this is indispensable for a meaningful analysis.
A flow diagram provides a graphical representation and is a good starting point – for extensive process modelling there also a number of software programs available such as EPC diagram.
I tend to use a whiteboard and/or paper with my clients to draft up the initial process flow:
- Start listing key activities, identify dependencies and overlaps with particular focus on weak or ambiguous spots.
- After that you can start and build your activity/value chain in sequential order
- Then review the potential for the direct changes to the process, at technical or human level.
In principle, the value aspect is the focus: you may detect unnecessary activities or duplications, which effectively diminish your value chain.
This may a good point-in-time to clarify which business areas are serviced in your own company and which fit better better with external service providers (‘make or buy’ decision).
Core Business Activities
It is vital to really question all areas and to check whether the cost of in-house activities are lower than the external providers. I usually recommend a strict focus on the core areas of the company and ‘pass-on’ any ancillary activities to third parties.
It goes without saying that if and when third party providers are used – an intensive information and communication exchange is required if you wish to strengthen the interfaces between activities rather than weaken them – such as Just-In-Time (JIT) delivery comes to mind.
This is an area where even the best in world have at times big issues.
A carefully conducted value chain analysis is not only beneficial when the company hits the wall – it is extremely useful for a regular review of the internal supply chain and the development of future strategy.
A sound value chain analysis can lead to the identification of advantages (or the lack of) over competitors and provides a checking point how you can improve the market position of your company.
I continue to scratch my head and wonder why this wonderful tool is not used more widely.
Follow me on part 3 next week – then we look at horizontal and vertical activities within the activity/value chain.I read enough give me access to the tool!