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The importance of a value chain for small business

Do you want to have a competitive edge? Do you need to contain costs? Then you should consider the importance of the value chain in your small business.

What is a value chain?

The value chain concept was first developed by Michael Porter in his book “Competitive Advantage: Creating and Sustaining Superior Performance”. In this book, Porter speaks about dividing business activities into two groups: primary and support activities. Primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities are procurement, technology development, human resource management and the firm infrastructure. In this concept the product or service gains value as it moves through the chain and depending on the effectiveness of each stage of the chain depends on the service or products final value.

Seven ways to manage your value chain

1. Understand your customer.
You need to know what role the customer plays in the marketing channel of your business. How do you they want to receive the product you have produced? What type of packaging appeals to them?

2. Do not underestimate the supply chain.
Though the customer meetings, marketing plans and product design is important, you should consider the supply chain. Do not leave it to the last minute. Make sure you understand what the product or service is. How will the product be produced and then be distributed to the suppliers and finally into the hands of the customer.

3. Understand your product, service or technology.
It is important to understand the ins and outs of what you are selling. You also need to analyse your competitors and see what they are doing to get their product through the value chain.

4. Go for walk.
If it is possible, try to see how your product or service is produced from raw materials to end product. You will learn a lot about the systems you have in place and how you can improve on them.

5. People are key.
Without good people in all aspects of your business you will struggle. You need to ensure you have the best people in place to do the job properly. It is also important to nurture the relationship you have with your suppliers and vendors so when you find yourself in a pickle they may be more than willing to assist you.

6. Cost saving is one aspect.
Value chain management will not only help you with cost saving, but it will help to ensure that you offer great business value to your suppliers, vendors and customers. Furthermore, it will ensure you offer a product which people will want to buy.

7. Be objective.
It is important to make decisions based mainly on the facts and figures rather than on your emotions. By doing this you will ensure you make accurate decisions. Emotions have no place in the decision-making process of your business.

By taking these points into consideration you will be able to use the value chain model to ensure you have the best business in town.

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