It is important to understand the value chain concept. That’s why the organization exists and generates value. This article aims to reiterate the importance of clearly identifying the value chain of its organization and gives some tools to exploit it at best.
Value chain definition
An organization’s value chain includes all the steps required to transform inputs into outputs. In the manufacturing sector, it is very easy to identify: you have to look at what are the steps to transform the delivered products (inputs) into products that leave the production or assembly line to be sold (outputs).
If I take for example a vineyard of Champagne, it is all the stages required to transform the vine into wine, including the maintenance of the vines, the harvest, the vinification, the bottling and, depending on the vineyards, the distribution . In the service sector, the value chain is more difficult to identify because it is not material. Let’s take the example of a hairdresser: his value chain consists of all the steps between the call of the customer to make an appointment to pay for the service, including waiting, shampooing and and the haircut itself.
The value of identifying your value chain is to be able to optimize your operations: what brings value to the customer, how to improve it. It is also helpful in ensuring that the value proposition offered by the organization is competitive in the marketplace.
There are several methods to formalize the value chain. Whatever the tool used, it is necessary to ask the question “does the client want to pay for this operation?”. This is a very effective way to find out what is in this value chain or should not be included. It is also a way to refine your value proposition to customers.
This diagram includes all the activities of an organization. It can help you identify your main processes.
SIPOC (Supplier, Input, Process, Output, Customer) identifies processes by focusing on inputs and outputs. Its advantage is that it clearly identifies the interactions between the value chain and the outside. This is a good way to start if you are unsure of your main processes. It can be broken down into different levels of detail as needed.
It is also useful for defining the “sandboxes” or the limits of each process. Here is an example for the vineyard.
Value Stream Mapping (VSM) and Flow diagram
Two other maps can be used. Value chain mapping, or VSM, focuses on operating times and waiting times. It follows a fairly precise nomenclature, you will find more information on T Earley’s website …
Flow mapping is more intuitive, it is useful for describing the different stages of a process. To use it in a very simple way, a rectangle symbolizes an action and a rhombus a decision, a choice. To illustrate, here is a basic example of grape harvesting:
Flow mapping is also subject to several standards, but can be used by everyone, with the famous post-it. The goal is to talk to each other, understand and share the value chain of the organization. Before improving your processes, identify them through your value chain!