The importance of engineering and development in the value chain!

Business processes evolve and adapt through time and face greater challenges with new emerging technologies. Being competitive and standing out from the competition in the market necessitate outstanding measures. Implementing a value chain approach can be a basic tool to apply these measures.

What is a value chain? What are the advantages of implementing a value chain approach?

Adopting a value chain approach will help ensure the survival, growth and profitability of a company. Moreover, engineering applied throughout the value chain will allow companies to successfully profit from the implementation of these new technologies.

The concept of value chain emerged from a corporate strategic management theory. Michael Porter mentioned for the first time the terms “value chain” in his book “Competitive Advantage: Creating and Sustaining Superior Performance” published in 1985. It stated that each company should identify its major aspects, and thus determine its value activities. These activities will then constitute the “value chain” of the company’s value. Adopting a value chain concept will allow the competitiveness evaluation in the company, between various industries or even at the scale of a whole country.

What is the value chain?

The value chain is the succession of activities and actions carried out in a firm to create a high-quality product or service. It will allow the reduction of the production cost, increase the value and the continuous improvement of the products and services.

The idea behind a value chain approach is to determine the final value of a product and/or service, and the production and marketing costs. It is a basic tool used by firms to achieve a competitive advantage through the analysis of all the activities of a company and the interactions between them.

One of the best value chain-known tools is Michael Porter’s tool for the value chain analysis (VCA). His method allows the identification of different activities in a firm which generates profits and creates value for all parties involved and especially the clients.

Value chain analysis according to Michael Porter

According to Michael Porter, the value chain can be broken down into two categories: primary and support activities.

It is crucial for each business to clearly define its primary and support activities in order to create a value chain analysis. This will allow the identification of the most costly resources, the improvement points of your processes and your position in the industry’s market. Therefore, each business has its own value chain analysis according to its activities. However, the two categories remain usually the same in all businesses.

Advantages of implementing a value chain approach

Competitive advantages 

Companies in the same industry are in constant competition with each other both in the same country/region and worldwide. To stand out from the competition a company should be able to provide a high-quality product/service for the least possible total cost, which is the major advantage of the value chain.

Organisations benefit from a streamlined manufacturing process, including lower prices with good quality raw materials. The objective is to improve the quality of manufacturing, promote better customer service and optimise delivery times. This can be achieved thanks to the support activities and specifically with innovation and technology.

The value chain will allow the company to determine key elements and improvement points in its processes. The identification of the vulnerabilities is a huge asset for improvement and to keep innovating to gain a competitive advantage over competitors. The value chain analysis will also facilitate the decision-making to establish the improvement and corrective actions. This also includes the determination of lowering unnecessary costs in certain areas and departments of the business. The aim of these procedures is always to deliver a high-quality product/service and a unique one to respond to the customer’s needs and satisfaction.

Sustainability

Nowadays, customers are becoming more and more sensitive to sustainable activities and actions adopted by companies. Thus, sustainability is becoming an important value not only in the long-term presence of the company in the market, but also in the use of renewable energy and resources. Therefore, processes and activities should always be reinvented and renewed in order to improve the company’s impact on the environment and the community. This can be achieved through actions such as the circular economy, monitoring of the product life cycle, the use of new technologies, etc.

In the end, a company should always evaluate and understand the evolving values of their customers, to always deliver the best possible service/product.

Engineering and development in the value chain

As mentioned above, to improve your business processes and costs sometimes you should invest in new technologies. New technologies involve high investment in the research and development (R&D) division of the company. This is why engineering and development are becoming increasingly important in the implementation of the value chain.

Engineering is an important part of all the processes, as well as technological innovation. Technological development is one of the important activities that Starbucks invests in. The company is known for using technology for coffee-related processes to guarantee the best flavour and quality and to answer to their customer’s needs. Starbucks uses various platforms to manage requests, suggestions, share experiences and implement improvement actions.

Apple’s value chain is a great example of investment to generate value, where effective actions are implemented in its value chain. The suppliers must meet the company’s high standards in order to meet their customers' needs. For this reason, Apple conducted a vast supplier evaluation in order to retain those who will bring the wanted added value. The support activity “technology development” at Apple is one of the most important activities in the company, to a mean that one may consider it as a primary activity. Apple invested around 16 billion dollars in its R&D program, allowing it to bring 28 new products into the market.

The value chain has proven through the years its efficiency in evolving business strategies and the improvement of a company’s activities and investment. Nowadays, engineering through the value chain is more important and it is needed more than ever. As companies are looking for alternative resources and green technology, the value chain will allow the managers to make fast decisions and take better actions to revolutionise their processes to help protect the environment and maintain the sustainability of their company in the market.

To go further: 

I> Improve your manufacturing control at the workstation with BlueKanGo’s digital platform and its app Manufacturing checklist (available on BueKanGo’s Marketplace)