Raw material supplier
Manufacturer
Figure 3 . Generic value chain for a product
Wholesale trade
The value chain in its original setup is a highly simplified representation of reality . The concept is convenient if you want a quick overview of a business within its sector , but the value chain is not usable for gaining an insight into new business opportunities . To that end , the concept must be augmented with the four insights outlined below .
1 . The value chain consists of more than goods and money
The concept seems simple : goods and services move through the chain from raw materials producer up to the consumer , in return for money . However , the economic truth is much more complex . Banks furnish money for money , and insurers cover risks . Knowledge streams also form an important part of the economy in the form of patents , copyrights and databases . Experiences , ease and reputation add value as well . Finally , there are a lot of intangible ' assets ' such as goodwill , reputation , customer loyalty and community formation that are vital to a business , but are not made manifest in the traditional chain 4 .
Relevance to your customer is one of the most underestimated assets a business can have . Imagine you have developed a magnificent new pollen filter that can stand on your bedside table and do its job without making any noise . A lot of hay fever patients could benefit from this . However , if you were to offer this under your own name , it takes a very long time for the product to break through . Were the product to be produced and distributed by Philips Healthcare , it
Retail trade |
End user |
would be presented as part of a marketing framework that is trusted by the public . Active promotion by |
family doctors would also help , as they often see hay |
fever patients about their complaints . |
Only in some cases is having customer contact truly financially appreciated . If someone clicks on an advert next to the Google search results for mortgages or insurance , Google charges the advertiser multiple dollars . In the electricity and gas supply securing a new customer can cost up to 100 dollars and these costs are activated on the balance sheet and depreciated over three years .
2 . Primary and support activities in the chain influence each other
If you work out the details of the value chain further , you will distinguish different activities within one link ( often one business ). These activities influence each other :
�
�
�
�
The decision of the purchasing department to work with a far-away or nearby supplier directly affects the logistics process . The decision of the marketing department to focus on far-away or nearby customers will affect shipment or delivery and the service . The personnel policy and investments in buildings and ICT networks of the business influence productivity . Product development influences almost all activities .
11