Understanding global value chain is a complicated and necessary part of operating a successful business in the modern era. You already know that it takes an assortment of activities to create and sell a product. Inventory control, marketing, and customer service are just a few of the necessary activities used to manufacture and sell a successful product. This chain of multiple processes that a company uses to turn raw materials into a final item is called a value chain. When this value chain spans across several firms and countries this is referred to as a global value chain.
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Not every global value chain looks alike but in general most chain activities can be split between primary and support activities. These activities are responsible for creating a competitive advantage for the product as well as generating a profit. By breaking down the processes, companies can better evaluate which activities are creating the most cost advantages and which need to be updated. Here are the five primary activities of the value chain:
1. Inbound Logistics
Inbound logistics involve receiving raw materials and inventory control. Firms can add value in this facet of the chain by maintaining less inventory stock in order to be flexible to customer product changes.
2. Operations
The actual production from the assembly line to the final product is known as operations. Thorough quality screenings to reduce defects is one way that you add value during production.
3. Outbound Logistics
Shipping the right product out to the customer on time is the main goal of outbound logistics. Reliable distribution services are a critical element to some customers, such as those in the food industry.
4. Marketing and Sales
Even if you have the best product ever developed, the product will not be a success without the right marketing and pricing strategy. If you have a great product but don’t properly communicate your advantage over the competition your sales may suffer.
5. Service
Customer service, repairs, and return policies are the value added process that goes into effect after the product has been sold. Quality customer service creates value by gaining the consumer’s trust that they are purchasing a great product, guaranteed.
The value chain can be complicated when it is performed by one company, so imagine how difficult the process becomes when it is spread out among various global firms. Communication is vital for global value chains as information and materials need to flow accurately throughout the chain. In order for the primary activities to function seamlessly for any value chain, companies utilize support activities. These activities include research and development, purchasing raw materials, technology development, human resource management, and even financial support.
As you can see, adding steps to the global value chain process can increase the value of a product. For instance, only utilizing the primary functions without research and development would eliminate vital testing needed to satisfy the customer. Therefore, the more quality processes your company employs within the value chain (global or not), the more value the customer will see in your product.
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