What is local optimization in the supply chain

Value chain

The Value chain or Value chain (Value Chain) represents the stages of production as an ordered sequence of activities. These activities create value, consume resources and are linked in processes. The concept was first introduced in 1985 by Michael E. Porter, an American business economist, in his book Competitive Advantage. According to Porter, it is "a collection of activities by which a product is designed, manufactured, sold, shipped and supported".

The value chain shows the path a product or service takes during the transformation process: from the raw material to its use. The various tasks for the provision of services are described. The representation ranges from development, procurement and production through sales to debt collection and subsequent services. An important area within the value chain is supply chain management, which deals with resource optimization within the supply chain.

The added value thus represents an essential indicator of the economic performance of a company. It provides information about how well a company can meet the expectations and needs of its customers.

The basic model

The value chain consists of primary and secondary activities. The primary activities make a direct, value-adding contribution to the creation of a product. This includes:

  • Inbound logistics
  • production
  • Outbound logistics
  • Marketing and Sales
  • Customer service

The secondary activities serve as supporting measures, which are considered a necessary prerequisite for the creation of the products. This includes:

  • Corporate structure
  • Human resource management
  • Technology development
  • procurement

The value chain is based on the principle that a company's competitiveness only results from the optimal implementation of each of these value chain activities. The value chain can be optimized using different approaches and methods. Lean Management deals with concepts that can be used in different areas of a company in order to minimize waste within a value chain and thus reduce costs.

In practice

In practice, the value chain is used for analyzing company activities and is therefore a sophisticated methodological instrument. It is an important part of market and competition analyzes. It shows in which areas a company generates its added value along the process. The company analysis is combined with strategy development in order to identify strengths and weaknesses. In this way, the company's core competencies are recognized and a competitive strategy is developed on the basis of this.

Tasks and applications of the value chain

  • Analysis of value creation activities
  • Design of internal company processes
  • Analysis of internal processes along the value chain
  • Identification of optimization potential
  • Realization of competitive advantages
  • Implementation through prioritization according to cost-benefit arguments

Consider alternatives

Alternative scenarios for the individual stages of the value chain are considered during an analysis. On the basis of this, the value chain can be optimized. For example, it can be profitable to outsource parts of development, production or sales from the company. Outsourcing can therefore be a possible approach to optimization. But there are also business models in which it makes sense to bring outsourced or purchased services back into your own value creation processes.

Looking to the future

The analysis of the value chain is therefore an instrument for optimizing a business model. It provides an important input to Corporate planning and to create a Business plans. With the help of the value chain, not only can new products and innovations be analyzed, but it is also useful for existing products. If new competitors or changed purchasing behavior put pressure on the price achieved and profit margins fall, then it is possible to develop new approaches and methods for viewing and analyzing the value chain.