Author:TomMacinaReviewers:ScottBender,PeterFisher,CyrusVilla,AmmarMaraqabcValueChainMarch1998Copyright©1998Bain&Company,Inc.bcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis2valuechainValueChainAgenda•Theconcept•ValueChainmethodology•ExamplebcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis3valuechainValueChainTheConcept•Valuechainanalysisisasystematicmethodfordisaggregatingafirmorindustryintoitsmajordiscreteactivitiestounderstandsourcesofcompetitiveadvantage•Valuechainanalysiscanbeusedtoidentifyopportunitiesto–gaincostadvantage/improveperformance–increasecompetitivedifferentiation•Valuechainanalysisisananalyticaltoolwhichcanhelpprovideclaritytoconsultantsandclients–allowsdistinctboundariestobedrawnacrossbusiness(orindustry)process–allowsconsultanttoclearlyevaluateandprioritizeactivitiesonwhichtofocus–facilitatesclientunderstandingbcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis4valuechainValueChainGenericValueChainSuccessivelyfinerdisaggregationsofactivitiesaremadetoexposedifferencesimportanttocompetitiveadvantageThegenericvaluechainconsistsofsixgeneralactivities.Tech.,R&DPurchasing/InboundLogisticsManufact-uring/OperationsMarketing&SalesDistribution/OutboundLogisticsServicebcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis5valuechainValueChainCommonUsesValuechainanalysiscanbeusedasananalyticaltoolintwogeneralsituations.ValueChainAnalysisasatoolforCompetitiveAdvantageCostAnalysis/PerformanceImprovementCompetitivePositioning•RCP•Re-engineering•Businessdefinition•VMR/Industrycollaboration•Competitivedifferentiation•DrawingbusinessboundariesbcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis6valuechainValueChainDistribu-tion/OutboundLogisticsServiceValueChainScopeThescopeofthevaluechaindependslargelyonthepurposeforwhichthetoolisbeingused.SystemorIndustryValueChain:FirmValueChain:MajorActivityValueChain:Tech.,R&DPurchas-ing/InboundLogisticsManu-facturing/OperationsMarketing&SalesMaterialPreparationConversionFinalAssemblyQualityAssurancePackagingInputs(Supplier)Conversion(Manufacturer)Distribution(Distributor/Retailer)Consumption(End-User)•VMR•CostAnalysis•ProcessRe-engineering•CostAnalysisSampleUsebcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis7valuechainValueChainWhentoUseValueChainAnalysisCostAnalysis/RCPProcessRe-EngineeringBusinessDefinitionVMR/IndustryCollaborationCompetitivePositioningMapMajorActivitiesMapSub-ActivitiesAlwaysSometimesUnlikelybcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis8valuechainValueChainAgenda•Theconcept•ValueChainmethodology•ExamplebcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis9valuechainValueChainValueChainMethodology(1of2)1.Whataretheactivities?2.Whichactivitiesaremostcritical?3.Whichcriticalactivitiesprovidethemostopportunity?(Whereisthemostleverage?)Tech.,R&DPurchas-ing/InboundLogisticsManu-facturing/Opera-tionsMarketing&SalesDistri-bution/OutboundLogisticsServiceTech.,R&DPurcha-sing/InboundLogisticsMarketing&SalesDistri-bution/OutboundLogisticsManu-facturing/OperationsService?Therearethreestepsindoingvaluechainanalysis.bcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis10valuechainValueChainValueChainMethodology(2of2)1.Whataretheactivities??Steponeisdeterminingtheappropriateactivitiestomap.•Determinekeystepsindesigning,producing,marketing,deliveringandsupportingaproductorservice•Activitiescanbeseparatedandgroupedbasedon–differenteconomics–processesusingdifferentpeople/equipment/technology–highorgrowingpercentageoftotalcost–distinctioninmindofcustomer•Helpfulmethodologyinmappingoutactivities:–productflow–orderflow–paperflowbcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis11valuechainValueChainSanding/DustingManu-facturingCuttingPackagingCookingFormingWrappingBulkContainersMajorActivities:Sub-Activities:•Wrappingindividualcandies•Baggingindividuallywrappedcandiesforretailsale•Placingindividuallywrappedcandiesinbulkcontainersfordeliverytoretailoutletsthatsellloosecandy•Find“breakpoints”intheprocessflow–cookingthroughsandingallonecontinuousline–productconveyedtowrappingline•Packagingwasactuallyseparatedintotwoactivities,astherearetwodifferentproductpathsfollowingwrapping–mostprocessstepssimilar,however,suggestinga“packaging”groupingBaggingDrawingActivityBoundaries(CandyCo.Example)bcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis12valuechainValueChainValueChainMethodology(1of3)2.Whichactivitiesaremostcritical?Steptwoisdeterminingwhichactivitiesaremostcritical.CostAnalysisCaseTech.,R&DPurch-asing/InboundLogisticsManu-facturing/Opera-tionsMarket-ing&SalesDistri-bution/OutboundLogisticsService5%35%30%15%10%5%•Whatarecostdrivers?Explanation:Percentoftotalcost:•Allocatecoststoeachmajoractivity•DeterminewhichactivitiesaccountforthegreatestportionoftotalcostbcCHICopyright©1998Bain&Company,Inc.ValueChainAnalysis13valuechainValueChainValueChainMethodology(2of3)CompetitivePositioningCaseTech.,R&DPurch-asing/InboundLogisticsManu-facturing/Opera-tionsMarketing&SalesDistri-bution/OutboundLogisticsService•Whichcriteriadrivecustomerdecision