What Is Value Chain Management? (Plus Benefits and Examples)
By Indeed Editorial Team
Updated July 19, 2022 | Published May 3, 2021
Updated July 19, 2022
Published May 3, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Value chain management is a way for a company to optimize all the activities in its manufacturing process. Value chain management can have many benefits, including increasing profits, boosting efficiency and improving quality control. If you work in manufacturing, an understanding of value chain management can help you contribute to the overall success of a business.
In this article, we explain what value chain management is, describe 11 benefits that value chain management provides to an organization and review some examples to help you better understand this management system.
Value chain management enables a company to have more control over different business components that contribute to the company earning revenue and generating profits.
Enhancing different value chain components can help improve profits, enhance customer satisfaction and reduce company expenses.
A value chain focuses on five key elements with four additional support components that contribute to manufacturing, production and distribution.
What is a value chain?
A value chain is a group of activities that enables manufacturers to create and sell a product. There are five primary elements, including:
Inbound logistics: This activity oversees inventory and warehousing of products.
Operations: The manufacturers construct and test the materials for the final product.
Outbound logistics: The distribution process takes place, where manufacturers process the products and schedule their deliveries.
Marketing and sales: This stage includes promoting the product's features and prices for consumers.
Service: To provide support to consumers who buy the product, the service activities process refunds and exchanges and repair products.
There are also four support activities of a value chain, which enhance the productivity of the primary elements, including:
Firm infrastructure: The departments of a company, such as finance, accounting and legal, develop strategies for creating a product.
Human resources management: Human resources managers protect the interests of the company, and recruit new professionals to join the team.
Technology development: The company determines what technology it needs to complete the manufacturing process.
Procurement: Procurement involves buying raw materials to assemble the product and establishing relationships with vendors.
What is value chain management?
Value chain management is the act of overseeing the process of manufacturing a product, which includes:
Production: Production is the process of creating new goods from raw materials.
Quality control: Quality control involves evaluating products produced to ensure they meet a company's quality standards.
Costing: Costing is the process of analyzing the cost of manufacturing to determine what the cost of products should be.
Distribution: Distribution is transferring goods from the manufacturer to the buyer.
Value chain management also relates to value chain analysis. Value chain analysis researches a business's different departments, including marketing, logistics and operations, to improve their efficiency. Value chain analysis can be useful for any industry and can have many of the same benefits as value chain management systems.
11 benefits of value chain management
Here are 11 benefits of value chain management:
1. Increasing profits
One benefit of a great value chain management system is that it can increase a company's revenue and profit margins. Value chain management focuses on identifying areas in which a company can streamline processes or improve a product, meaning the company can reduce spending as well. Another benefit of having an effective value chain management is enhanced customer satisfaction, which can also increase the likelihood of new customers purchasing products from the company and ultimately increasing profits.
2. Improving planning
Value chain management can also include creating a more efficient planning process that spans different departments. This can help a company complete projects faster and with less cost, freeing up monetary resources for other areas. Furthermore, a good value chain management system can make it easier for different departments to communicate with one another, which makes planning easier.
3. Reducing costs
Because value chain management can help a company optimize its value chain, it can effectively reduce costs through inventory control and eliminate waste. In turn, the company's value chain management system can see increased profits and productivity. This can also reduce logistics-related costs as efficient internal outbound or inbound logistics operations can help a company reduce expenses than if they opted for third-party logistics operations.
4. Advancing quality control
The process of quality control includes testing and evaluation. Value chain management can help your company streamline its quality control process by creating clear guidelines and criteria for suppliers to meet your company's quality standards. This can improve customer satisfaction, which can influence the other benefits of implementing a good value chain management system.
Related: What Is Quality Control?
5. Establishing standards
Value chain management can also help a company standardize all of its processes related to manufacturing. Standardization is important because creating repeatable processes can help make a business more efficient and reduce waste. When there are standard processes, employees can know what to do in a specific situation because they have a set process to follow. This can increase employee productivity and quality of work.
6. Enhancing product flow
Because value chain management optimizes and improves components of manufacturing, it can also improve product flow. A good value chain management system can help a company shorten the amount of time it takes for a product to get from the manufacturer to the consumer by reducing delays and making it easier to track products throughout the manufacturing process.
Related: What Is Manufacturing?
7. Developing a competitive advantage
Value chain management can help a company create a competitive advantage by optimizing elements that make consumers want to choose the company over other companies. Some of these components may include marketing, logistics and operations. In this way, value chain management can increase productivity and decrease costs, increasing competitive advantage.
8. Advancing information flow
Information flow is the way employees transfer information throughout a company. Value chain management can improve a company's communication processes, which can be key to making good business decisions.
Value chain management can automate the way that information transfers among people and departments, which can allow the company to share information seamlessly and access data more easily. Furthermore, value chain management can help a company fill gaps in information.
9. Resource management
Because value chain management can help your company optimize its processes, it can help a company manage its resources more efficiently. Some of the company's resources might include its budget, information technology and human resources. With effective management, the business can track the resources it has and reduce waste.
10. Strengthening flow of finances
Value chain management can also improve a company's flow of monetary resources by simplifying the many payment processes associated with manufacturing. It can also improve financial flow by helping the company spot problems that are interfering with its existing financial flow.
Simplifying the payment process can also enhance the customer’s experience as they can easily browse, find and purchase products without worrying about extensive or lengthy payment processes.
11. Refining customer service and support
Implementing a value chain management system can help a company improve its customer service and support. Value chain management can enable a company to better track its manufacturing. Manufacturing traceability can make it easier to provide information to customers on the status of their orders, which improves your company's customer service.
Example of value chain management
Here are some examples of different elements that make up value chain management:
Inbound logistics example
Here’s an example of inbound logistics as a part of the value management chain:
Tennent Industries is a large distribution company that has its own fulfillment services. This enables the company to transport its goods with its own transportation equipment. Because the company transports its own products internally, this allows the company to sell its goods at a lower price than if they outsourced this logistic function to a third party.
Outbound logistics example
Here’s an outbound logistics example you can review to better understand this component of value chain management:
RJ Smith’s outbound logistics also includes fulfillment centers strategically located throughout the nation. Due to the fact that it has fulfillment centers throughout the nation and its own fleet of delivery vehicles, RJ Smith can support its own outbound logistics operations to support customer deliveries. This enables the company to deliver products within one week, which helps increase customer satisfaction and reduce outbound logistics expenses than if they outsourced outbound logistics operations to a third-party company.
Here’s an operations example that can help you better comprehend value chain management:
Crane & Jenkins Goods created an extensive online marketplace that enables customers to browse and purchase products from anywhere in the nation. This online marketplace along with internal inbound and outbound logistics operations enables the company to have complete control over the customer’s experience. This control helps optimize logistics-related expenses, improve customer satisfaction and increase the consumer base.
Explore more articles
- Do Employers Check References? (And Other FAQs)
- Learn About 15 Security Companies in Pennsylvania
- How an HVAC License Can Help Your Career
- 11 Jobs for Health Education and Behavior Master's Degree Holders
- What Does an Account Planner Do? (Plus Salary and Skills)
- How To Find Engaging Work That Motivates You in 7 Steps
- 19 High-Paying Jobs in New Hampshire (With Salaries)
- FAQ: What Does a Heavy Equipment Operator Do? (Plus Skills)
- What is a Music Promoter and How To Become One (With Salary)
- How To Become a Junior Architect (Plus Duties and Skills)
- Learn About Manufacturing Companies in Dayton, Ohio
- Learn About 11 Tech Companies in Charleston, South Carolina