What is Value Chain Management? How VCM Works & Benefits

Introduction 

Growth and productivity is the goal of any business, and you may have heard about the significance of the supply chain in it. What about the role of VCM in the development of any business. Today, we’ll discuss what is value chain management (VCM); how it works, and its benefits.

What is Value Chain Management? 

Value chain management is the management and monitoring of various elements involved in the manufacturing process. It comprises distribution, quality control, production and manufacturing, and procurement.

Businesses and companies have started realizing the significance of VCM for the past few decades. Mostly, it’s because of globalization that has brought intense competition. Their focus is now on their main core business competencies and outsourcing the rest of the activities.

Speaking of core competency strategy, its focus is on streamlining the company’s main operations that are most profitable. On the other hand, non-core competency operations are not efficient, and moving or outsourcing them to the other businesses. However, it has amplified the complexity and diversity of the external business processes by increasing the vendor-to-customer chain.

That’s where the role of value chain management comes into play; its goal is to increase efficiency by reducing the cost and adding/delivering maximum value to the customers. It offers you a lot of competitive advantages when you attain the optimum value chain results.

Supply Chain vs. Value Chain Management 

Supply chain management and VCM have close relevance to each other, and often people use them synonymously. The goal of both SCM and VCM is to deliver the final goods/services to the end consumers. However, the focus of VCM is to gain a competitive edge and make the business profitable while doing so. The objective of SCM is to meet the needs of customers efficiently and effectively.  

How Value Chain Works 

The frame of the value chain helps businesses and companies to recognize their functions and operations and categorize them into primary and secondary activities. When studying the value chain activities, then it helps you to understand the relationship among them. however, when you implement the concept of the value chain on your business, then it becomes value chain analysis.

Primary Activities

Some of the main primary activities are as follows;

• Inbound Operations: it’s the management of resources that come from external sources like vendors, the resources you get from outside is the input, it may comprise of raw material
• Operations: it’s the stage of processing the input and converting it into output, the final product that the company offers for sale.
• Outbound Logistics: here you deliver the final output or product to the end customer, it comprises storing, inventory management, collection, and distribution
• Marketing & Sales: it allows you to increase the market reach, product/brand visibility, and communicate with your target regarding your product
• Services: it consists of product support or customer support that allows you to establish a long term relationship with customers after the purchase of the product

Secondary Activities

Some of the secondary activities are as follows;

• Purchasing & Procurement: finding the vendor, developing a business relationship, discussing the price, and procuring the material for the production of the product
• HRM: some of the human resource functions are establishing organizational culture, training, relationship with employees and customers, and recruitment
• Tech Development: managing the company’s usage of technology, cybersecurity, IT management, and research and development
• Company’s Infrastructure: it comprises quality assurance, public relations, finance, accounting, administration, general management, and legal

Benefits of Value Chain Management 

Some of the main benefits of value chain management are as follows;

Improved Profitability

If you implement a better VCM program in your organization, then it improve your company’s profit margin, revenue stream, and overall success and growth of the company.

Low Cost

If you optimize various activities in the VC, then it would lower the cost to a great extent, streamline various processes, better product quality, inventory control, waste management, and lower inefficiencies.

Services & Support

VCM allows you to monitor and manage the engineering resources, customer support and changes in-service product configuration and their coordination among field service.

Better Vendor Management

When you synchronize sourcing and a company’s design with a vendor, then it makes sure to manage subsystem and outsourcing elements in order to meet cost requirements, scheduling, quality, and performance. It avoids waste, excess inventory, and flaws in the design.

Standardized Processes

VCM measures the business processes repetitively for managing the product master data, and it makes sure that the company’s commitment to meeting the customers’ expectations. The active VCM allows better managing the change in the processes from the idea stage to implementation. Standard repetitive processes play a significant role in decreasing waste and operational inefficiencies.

Better Planning/R&D

A good VCM program comprises cross-functional team approaches like product quality, low cost, delivering products focusing on program performance, developing, and planning. It allows you to do effective planning and implement various projects simultaneously, and while managing the allocation of resources, delivery, scheduling, and cost.

Better Proposals & Bids

A good VCM program increases your capability to manage and track the customer market requirements for production, procurement, estimating design, and other service activities to make the cost estimate accurately.

Conclusion: What is Value Chain Management? How VCM Works & Benefits 

After an in-depth study of what is value chain management; how VCM works, and its benefits; we’ve realized that VCM could be beneficial for the growth of a business. If you want to implement it in your business, then you should keep in mind the abovementioned guidelines.