The Challenges of Supply Chain Profitability

Supply-chain management consists of developing a strategy to organize, control, and motivate the resources involved in the flow of services and materials within the supply chain. A supply chain strategy, an essential aspect of supply chain management, seeks to design a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy.

A value chain analysis is a strategic analysis of an organization that uses value creating activities (Dess, McNamara, & Eisner, 2016, p. 76). The value chain analysis describes a company’s activities and relates them to an analysis of the competitive strength of the company

Effective value chain as a competitive advantage can contribute significantly to the prosperity of a firm in the competitive arena, but it can cause dire situations if not operated properly (Guy, 2011). However, there are conflicts among companies as to how stakeholders think they gain competitive advantage. Porter (1996) suggests: A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at lower cost or do both.

The value chain is one of the critical elements of a company’s strategy in today’s competitive world, because company’s profit depends on how the successful and efficient it runs its operations and how the end product appeals to the customers at a price that covers all the expenses of the company.

Keane (2008) stated to design, manufacture, promote, offer and facilitate its product or services, all organization engages in some activities. All of these activities of an organization are shown through the use of value chain process. The manner in which organization performs its varying activities along with the firm’s value chain mirrors the organization’s background, strategy along with the way in which the organization executes its strategy. Ponte (2008) stated that the analysis of value chain of an organization is used to develop the organization’s competitive strategies along with formulation the connected and interconnectedness between all the organizational activities that formulate value. Francis, Simons, and Bourlakis (2008) stated that value chain analysis is a helpful tool as an organization looks to attain competitive advantage. Furthermore, Rieple and Singh (2010) stated that a value chain is a useful tool in conceptualizing the varying activities

Successful companies are successful because of their ability manage the intrinsic concept which develops and evolves their value chain and competitive advantage. The purpose of this paper is to provide the reader with a compelling argument as to why an effective value chain creates competitive advantage. The author will also discuss and provide an analysis of the following: three critical concepts when thinking about how a value chain creates competitive advantage in relation to the value chain, competitive advantage, and customer delight. The

Michael Porters (1998) value chain model addresses activities that create, deliver and support a company’s product or service and thus its overall position and competitive strength in the market for global competition shown in Fig. 1.

A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The concept comes from business management and was first described and popularized by Michael Porter (Porter, 2013)

Value Chain Analysis is a tool that used to identify the company’s primary and support activities that can creates value for the product to the customers, to analyze the activities to be cost leadership or differentiation strategy and eventually to develop a competitive advantage and create shareholders value. By simply explaining of creating value, a company takes raw inputs (timber) and to add “value” (designing and manufacturing) to them by converting them into something of worth to people for paying money for it (furniture).

According to Porter and Miller (1985:150), the concept of the value chain 'divides a company 's activities into the technologically and

Harvard Business School invented the concept and believed that competitive advantage cannot be understood by looking at a firm as a whole. The disadvantages of a value chain could include a company becoming too segmented and result in a construed conception of the company’s most important values. Thus, the importance of a successful value chain lies within the linkage of the different processes it incorporates. All in all, the value chain can provide organizations a strategic framework for managing the hundreds of activities that go into making the final product.

Value chain analysis is of vital importance for each and every firm in the business world. It deals with adding value to each and every step in the working of the firm, that is it adds value right from the raw materials being used to the end products or the services of the firm. The value chain analysis describes the activities the organisation performs and links them to the organisation’s competitive position. The idea of value chain was built upon the insight that a company is a random compilation of machinery, equipment, people and money. Hence, value chain came into existence which can arrange things into systems and systematic activities for which customers will feel it worthwhile to buy a product or even access the services of a particular firm.

A value chain may be defined as the chain of activities that firms operating in specific industries, such as the healthcare industry, perform in order for them to deliver valuable service or product for its consumers. The value chain concept comes from management of business and it was first described by Michael Porter in the year 1985 in his book “competitive advantage.” The main idea of value chain may be based on a process view of an organization, the idea to see an organization as a system that is made up of different subsystems that have inputs, different transformation processes, and outputs. Some of the factors within the chain include money, materials labor, equipment land, administration, management, and building. How the value chain is managed, including the above factors, determined the effects on profits and costs. The supply chain may be used for the success of any organization through the subdivision of an organization’s functionality. The division ensures that there is easier management of human assets and resources. An example of a health care value chain is the flow from inbound logistics to operations to outbound logistic to marketing and sale and finally to provision of services and consumption of products.

how its business processes add value and whether any have unique best-practice features. To perform the external value-chain analysis, team members should ask the customer a set of getting-to-know-you questions. What does your supply chain (the upstream value chain) look like? What role does your company play in it? How do your products reach their customers (the downstream value chain)? Your final diagram models only this single customer’s value chain and it represents virtually everything the customer does to add significant value. If your relationship with the customer permits a candid exchange of information, have the customer validate the value chain you have created. As an example of how the diagnostic process works, consider how a supplier to Wal-Mart might learn to enhance its value.[6] The objective of creating both internal and external value chains is to understand Wal-Mart well enough to be able to discern its implicit and explicit strategic concerns. Exhibits 3 and 4 depict preliminary pictures of Wal-Mart’s internal and external value chains. Getting to this initial stage is relatively easy – adding more detail, nuance, and understanding takes more time, involves interviewing Wal-Mart executives, and more closely observing how the firm

Many organizations do not achieve the profits they anticipate by using incorrect methods or models to determine the true costs of products and services. This failure to correctly assess the costs associated with business not only affects the profit margin, but the organizations competitive advantage as well. In order to asses whether the organization is failing to realize optimum resource allocation, the organization should look at the methodology first popularized by Michael Porter titled the Value Chain Analysis (VCA). "VCA seeks to define the entire chain through which goods are supplied to a customer" (Booth, 1997, 2). The VCA can be a powerful tool in increasing an organization's competitive advantage; by