An Introduction to Value Chain Analysis

You’ve fixed your sales funnel. You’ve optimized your marketing campaigns. But somehow, your margins still aren’t improving. If that sounds familiar, it might be time to take a closer look through value chain analysis: a method that helps you examine every step that adds cost or value to your product.

The truth is, the problem might not be in your front-end processes at all. It could be buried deeper; somewhere in how your business sources materials, manages inventory, delivers products, or supports customers after the sale.

These areas don’t always show up in dashboards, but they make or break long-term growth. That’s why understanding your value chain is essential.

So, this article will bring you a comprehensive overview about what value chain is, why it’s important, and a snippet of how to conduct it yourself. Keep reading to find out!

What is a Value Chain?

A value chain is the full sequence of steps involved in producing a product, starting from design, then moving through sourcing, manufacturing, and marketing, until it reaches the customer. Each step in the chain adds value to the final product.

As competition increases, businesses must regularly evaluate how they create value to stay ahead. A value chain helps identify which parts of the process are inefficient and need improvement to cut costs and increase profits.

Beyond just fixing internal processes, analyzing the value chain also helps businesses maintain customer trust and loyalty by improving the overall experience.

Components of a Value Chain

According to Porter, a company’s value chain is made up of two types of activities that together determine its profit margin: primary activities and support activities.

Primary activities are directly involved in producing and delivering a product or service. These include:

• Inbound logistics: Handling incoming materials: receiving, storing, and managing inventory.
• Operations: Converting raw materials into finished goods. In some industries, this may include advanced manufacturing techniques. This stage may vary by industry, depending on how a company defines production vs manufacturing. Some focus on assembly, while others on continuous processing or packaging.
• Outbound logistics: Managing how products are packaged, sorted, and delivered to customers.
• Marketing and sales: Promoting and selling the product through advertising, pricing, and sales strategies.
• After-sales service: Supporting customers post-purchase through installation, training, repairs, and support.

Support activities improve the efficiency of the primary activities and contribute to a company’s competitive edge. These include:

• Procurement: Acquiring raw materials, components, tools, and services.
• Technology development: R&D efforts such as product design, process improvements, and market analysis.
• Human resource management: Recruiting, training, managing, and rewarding employees.
• Infrastructure: Core administrative functions like finance, legal, and business planning.

Example of a Value Chain

A value chain example in the Philippines can be seen in Landers Superstore, a popular membership-based retail chain known for offering a premium shopping experience at competitive prices.

1. Inbound Logistics

For the inbound and outbound logistics, Landers partners with global suppliers to bring in thousands of imported products, including around 150 health and beauty SKUs from the U.S. and additional items from Korea and Japan.

These products arrive at the arriving dock and are stored on-site, ready for stocking during store hours, which helps them manage inventory efficiently and avoid extra labor costs.

2. Operations

The store offers a curated selection of both imported and locally sourced goods, with many unique, exclusive private-label items that boost profit margins.

Additionally, Landers has invested in its e-commerce platform (Landers.ph), delivering a same-day, “frictionless” online shopping experience for customers.

3. Outbound Logistics

Landers has extended its service beyond the aisles: online orders are fulfilled via their own system, and same-day deliveries are available in selected areas . In-store, the layout includes broad aisles, sampling booths, and food stations, all designed to enhance the customer journey.

4. Marketing & Sales

Rather than conventional advertising, Landers uses in-store events and member-exclusive offers to attract customers. For instance, its “Super Crazy Sale” promo, now in its ninth year, features massive deals like 50% off and buy-one-get-one promos.

These tactics, paired with targeted SMS alerts, encourage repeat visits and word-of-mouth buzz.

5. After-Sales Services

Landers prides itself on a customer-first culture: membership perks such as fuel discounts, a straightforward returns policy, and a visible, helpful staff presence throughout the store reinforce their reputation for reliable service .

What is Value Chain Analysis?

Value chain analysis is the process of examining each step in a company’s value chain to identify where improvements can be made. It encourages you to evaluate how each activity either adds to or reduces the overall value of your product or service.

This can lead to competitive advantages, such as:

• Reducing costs by making tasks more efficient and cutting unnecessary expenses
• Standing out by putting more effort into areas like R&D, product design, or branding

Improving any of the four support activities, like procurement or tech development, often leads to better results in core operations like production or sales.

For example, a Filipino food manufacturer might realize that importing packaging materials adds delays and costs. Through value chain analysis, they could switch to a local supplier to cut expenses and speed up production.

Or a local clothing brand might invest more in marketing and design to make their products feel more premium, helping them stand out in a competitive online market.

Why is Value Chain Analysis Important?

Value chain analysis helps businesses understand the full set of steps involved in delivering a product or service. Beyond cutting costs and gaining a competitive edge, it also supports:

• Supply chain improvement: By examining how each part of the supply chain adds value, companies can improve coordination with suppliers and manage logistics more effectively.
• Strategic planning: The overview it provides helps guide decisions on partnerships, outsourcing, product development, and expansion opportunities.
• Customer experience: It can reveal ways to improve product quality and service, leading to greater customer satisfaction and loyalty.
• Innovation: The analysis can uncover areas where processes can be improved or new value can be created for customers.
• Sustainability: It also allows companies to assess how their operations affect the environment and society, encouraging more responsible and eco-friendly practices.

How to Conduct Value Chain Analysis

Since we have already explained why you need to take value chain analysis seriously, here’s how you conduct value chain analysis:

1. List All Value Chain Activities

Start by identifying every step involved in creating your product or service, both primary (like production and sales) and support activities (like procurement and HR). If your business offers multiple products or services, repeat this process for each one separately.

2. Assess the Value and Cost of Each Activity

Next, evaluate how much value each activity adds and how much it costs. Think about how each step benefits your customers. Does it make the product better, more durable, or more appealing?

Also, consider how it benefits your business, such as boosting brand appeal or supporting future growth. At the same time, analyze the costs involved in each step and see if any can be reduced without sacrificing value.

3. Find Areas for Competitive Advantage

After mapping out your activities, look for ways to improve based on your business goals.

• If your goal is cost reduction, check which steps are inefficient or unnecessary. Could you simplify, outsource, or remove them to save money?
• If you’re aiming for product differentiation, identify which activities can help you stand out. For instance, can you improve design, add unique features, or deliver better service?

Value chain analysis can reveal many areas for improvement in your business, but deciding which ones to tackle first isn’t always easy. A good approach is to start with changes that require minimal effort but deliver the highest impact or return.

Turn Value Chain Problems into Profits with HashMicro ERP

Value chain analysis often reveals hidden inefficiencies, such as delayed purchase approvals, inaccurate stock levels, or misaligned finance and sales data. These gaps can slow down procurement, trigger stockouts, or cause poor customer experiences.

Instead of juggling multiple tools to fix each issue, HashMicro ERP connects purchasing, inventory, finance, and sales into one intelligent system. With Hashy AI, the in-built AI chatbot, you can also get real-time alerts, smart approval routing, and demand forecasts, so your team makes faster, data-driven decisions at every step.

Whether you’re fixing a single weak link or overhauling your entire value chain, HashMicro helps you cut delays, reduce manual work, and turn inefficiencies into profit opportunities.

HashMicro also has these features to help you maximize your value chain:

• Auto-Approve Purchase Requests based on thresholds, supplier history, or real-time stock levels with smart logic from Hashy AI
• Track Stock Movement by Batch & Location to prevent bottlenecks, monitor expiry dates, and reduce unnecessary reorders
• Sync Sales and Inventory in Real Time so your sales team always sees accurate stock availability during quotation or order entry
• Generate AI-Based Demand Forecasts to optimize procurement planning and avoid overstocking or missed sales
• Automate Financial Consolidation across departments with live transaction syncing and instant bank reconciliation

Conclusion

Value chain analysis helps you examine your business practices and spot what’s helping, or hurting, your bottom line. With this clarity, you can reduce waste, improve quality, and make better decisions across the entire business.

That’s where HashMicro ERP comes in, especially when delays, silos, or manual work are slowing you down. Instead of jumping between tools, you get a single platform to manage procurement, inventory, and sales together.

As a result, your team works faster, your data stays accurate, and every part of the chain moves in sync. So if you’re ready to turn insights into action, try the free demo and start improving your products’ values and quality!

FAQ on Value Chain Analysis

• How often should you conduct a value chain analysis?
  

  It depends on your industry and pace of change. Fast-moving markets may need quarterly reviews, while stable sectors may only need it annually.

• How can you measure the impact of value chain improvements?
  

  Measure changes in production time, operational costs, delivery speed, sales performance, and customer satisfaction before and after implementation.

• Can value chains span the globe?
  

  Yes, global value chains are common—materials may be sourced in one country, produced in another, and sold worldwide.

• How can technology improve your value chain?
  

  Technology like AI and ERP systems helps automate tasks, deliver insights, and optimize each stage of the value chain more effectively.