A value chain is a set of steps or activities that gradually add value to a good or service produced.
It covers the activities, resources, and relationships that a company uses and relies on the creation of new products or services, and include:
- People operating in a company such as human resources
- Activities resources and relationships along the channels of supply, placing on the market, distribution, supply of materials and services and sales and delivery of products and services
- The financial, geographical, geopolitical and regulatory environments in which the company operates.
The value chain also includes actors who play key roles, and they can be:
- Suppliers
- Primary processing
- Secondary processing
- Distribution
- Consumers
- Market agents
- Customer support
- Recycling
The value chain is crucial for businesses because it enables:
- Competitive advantage – allows companies to recognize their advantages over the competition and to focus on what makes them recognizable in the market
- Cost optimization – enables the identification of costs at each stage of production or service leading to cost reductions and increased profitability
- Quality improvement – helps identify areas that are good, but also that need to be improved, which leads to an increase in quality, more satisfied customers and a better reputation of the company
- Strategic planning – helps better business planning, risk identification
How does value chain analysis differ in small and large businesses?
Value chain analysis has different characteristics and applications in small and large enterprises.
Small businesses often have simpler value chains, fewer activities and easier monitoring and optimization, due to limited resources they focus on key activities and are mostly their direct partners.
On the other hand, large companies often have more complex value chains with multiple phases, suppliers, and distribution channels, and monitoring itself is more challenging and slower. Due to more resources, they can deal with all stages of the chain, but at the same time they have to follow a wider range of suppliers and customers, often they are global value chains, but because of their size they have a greater impact on the value chain and have the ability to initiate positive changes.
Value Chain Analysis and Sustainability Reporting
Value chain analysis also plays a key role in reporting on the sustainability of companies. By analysing the value chain, the company helps to understand and communicate the company’s sustainable practices.
Aspects in which the value chain plays an important role:
- Assessing the impact– special emphasis is on environmental impact, but equally important is the impact on society and the economy in which the company operates – it is necessary to include all stages from production, through transport to the use and disposal of products, and to assess whether there are adverse environmental impacts or whether there are unsustainable practices in the supply chain that allow the company to take corrective action.
- Analyzes transparency of suppliers – Companies can monitor and report on sustainable practices at all stages of the chain through value analysis. This includes information on suppliers, production, transport, resource use and recycling. It allows a company to understand its suppliers and their practices and influence sourcing the suppliers themselves. Therefore, suppliers who are not obliged to report on sustainability will be forced to evaluate their value chains and activities, as well as their impact on all topics covered by the mandatory Sustainability Reporting if they still want to be competitive, attract investors and positively grow and develop in the market.
- Assesses social responsibilities – through value chain analysis, the company identifies social aspects including working conditions, human rights, social responsibility, and impact on the community in which it operates.
- Encourages innovation and product design – environmental impact and social responsibility analysis encourages the company to develop sustainable products, select recyclable and recycled materials, use sustainable energy sources, and extend the life of products. In addition, cooperation with suppliers and partners in the value chain can stimulate innovation and sustainable practices.
- Creates values for all stakeholders – by connecting, stakeholders influence each other and encourage sustainable practices across the value chain, which can improve the company’s reputation and attract investors, but also responsible consumers.
By using value chain analysis in reporting, the company monitors progress in achieving goals and recognizes risks and opportunities that are important to both the company and its stakeholders.
