Business Basics – Profit from the “Value Chain”? 

By Joanne Mansell. 

 We all know that any chain is as strong as its weakest link.  The value chain is the key to profit in your business – which links do you need to reinforce or redesign?

 This article is an overview of the value chain and will give you ideas on where to reinforce or redesign your business.  Like many useful business models, the value chain comes from the work of Michael Porter. 

 Key points about the value chain:

 ·         Every business has a value chain, with the same elements.  The differences are that businesses may outsource or de-emphasise certain elements.

·         By analysing the value chain of your competitors you may gain insights into how to better structure your own business.

·         The value chain relates your business to your customers.  Even if your customer is an individual you are still linking to them by performing or assisting with an activity on their value chain.  These tend to be based around saving time or money for the customer by doing a job better than they could.

·         The value chain is one of the most important concepts in business to grasp.

·         An essential part of business profitability is margin.  How well you manage the components of the value chain ultimately determines your margin.

·         The value chain is broken up into Support Activities and Primary Activities.

  SUPPORT ACITIVITIES

 Firm infrastructure (“systems”) being quality systems and management systems including accounts and payroll.  These admin systems (payroll and accounts) are often seen by small business as a “necessary evil” and are addressed with diligence and efficiency.  GST and BAS have forced many small businesses into looking at “the books” quarterly – ideally you will be doing checks monthly against targets and your business plan.

Human Resource Management is crucial to small business.  Everyone involved in the business represents the business.  If you are hiring someone to do the “little jobs” like banking, typing or answering phones beware that you get what you pay for and what you are paying for is the first impression your customers receive of you.  Beware of legal action and responsibilities with insurance, dismissal and training of employees.

Technological Development can be a great way for small business to appear bigger.  1800 and 1300 numbers are becoming affordable, as is having your own fax machine and website.  Investing in machinery (even a computer or upgrades) can streamline other processes such as ordering, accounting and marketing.

Procurement of supplies is important to small business.  Whether it is not running out of paper when you have reports to print or as major as raw components to manufacture your product you need quality supplies at a minimum cost and possibly even on credit or consignment.

PRIMARY ACTIVITIES

 Inbound logistics appears to be a concern mostly to manufacturing or producers of a product and not to services, many of which is small business.  Your business design should account for information as an inbound commodity – whether it is orders, leads, feedback, suggestions or information (such as trends) you need to have systems for inbound logistics.

Operations are the core of most businesses.  This is what produces the product or output of your business.  The temptation to small business is to spend time and money here at the detriment of other elements of the value chain. 

Outbound logistics how to you deliver your product to your clients?  Small businesses who are making the most of technology can fax or email paperwork or intellectual property type products which makes them competitive by their responsiveness.   In this “no waiting” generation it may “pay” you to spend more on outbound logistics (couriers or express post) than providing a slower or less reliable product delivery.  Consider the linking of outbound logistics with service – would it be of interest to your customers to have you install the product rather than just deliver it?

Marketing and Sales is an often overlooked area for small business.   Particularly with a small budget there is a tendency to dabble and hope or rely on word of mouth.  There is truth in statistics that it is cheaper to get a repeat sale from a client than win a new client.  It may appear easier to get new leads by new advertising but perhaps the maximum benefit is in increasing lead generation (changing the wording of advertising) or conversion ratios.

Service isn’t just for service industries.  Where else does service fit along your value chain – for many businesses this will be with outbound logistics.  What information could you provide to customers? 

 In summary – some questions to get you started in maximising the profit in your business:

 What could/should you change about YOUR value chain?

 Which elements can you outsource?

Which is the key value chain element for your business – what do you DO? 

Whare are you doing well?

What aren’t you doing well?

Who can help you streamline or redesign your value chain?

What inbound logistics need to be added, updated or revised?

How can you provide better service?

 How does your value chain fit with CUSTOMERS?

 The keys in reaching any customers relate to satisfying a need within their value chain. 

 What are you involved with on your customers value chain? 

Is this reflected in your marketing?

Is there a better (or additional) place to link with your customers value chain?

How does your value chain compare with COMPETITORS?

 Is there technology or systems you are not taking advantage of?

How do they handle in or outbound logistics?

What HR procedures do they have?

How are they marketing their connection with customers value chains?

Are you connecting to customers in the same way as those you perceive as competitors?

 For more information on these concepts, or to book a business or life coaching session with the author, Joanne Mansell please phone 0416 181 654.  The first half hour consultation is complimentary.  For more articles (including business planning basics) see www.kaizencoaching.com.au

 Joanne Mansell, Kaizen Coaching – “Mind, Body, Life Fitness”

(c) Kaizen Coaching 2000-2009. Trademarks Kaizen Coaching, Building an Extraordinary Business and Sportsmind are used with permission of their respective owners.