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:
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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.
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