A value chain is the sequence of business functions in which utility is added to the products or services of the firm. Through proper analysis of each segment of the value chain, customer value is enhanced. No-value creating activities are eliminated.
In value chain analysis, each of the business functions is treated as an essential and value contributor and is constantly analyzed to enhanced value relative to the cost incurred. Like business functions, in value chain approach also, it is important that the efforts of all functions are integrated and co-ordinate to increase the value of the products or services to the customers.
Limitations of Value Chain Analysis are given below:
(i) Non availability of Data
Internal data on costs, revenues and assets used for Value Chain Analysis are derived from financial of a single period. For long term strategic decision- making, changes in cost structures, market prices and capital investments etc. May not readily available.
(ii) Identification of stages
Identifying stages in an industry‘s value chain is limited by the ability to locate at least one firm that participates in a specific stage. Breaking a value stage into two or more stages when an outside firm does not compete in these stages is strictly judgment.
(iii) Ascertainment of costs of Revenues and Assets
Finding the Costs, Revenues and Assets for each value chain activity poses/gives rise to serious difficulties. There is no specific approach and much depends upon trial and error and experiments methods.
(iv) Identification of cost Drivers
Isolating Cost Drivers for each value creating activity, identifying Value chain Linkages across activities and computing supplier and customer profit margins present serious challenges.
(v) Resistance from employees
Value chain Analysis is not easily understandable to all employees and hence may face resistance from employees as well as managers.
In value chain analysis, each of the business functions is treated as an essential and value contributor and is constantly analyzed to enhanced value relative to the cost incurred. Like business functions, in value chain approach also, it is important that the efforts of all functions are integrated and co-ordinate to increase the value of the products or services to the customers.
Limitations of Value Chain Analysis are given below:
(i) Non availability of Data
Internal data on costs, revenues and assets used for Value Chain Analysis are derived from financial of a single period. For long term strategic decision- making, changes in cost structures, market prices and capital investments etc. May not readily available.
(ii) Identification of stages
Identifying stages in an industry‘s value chain is limited by the ability to locate at least one firm that participates in a specific stage. Breaking a value stage into two or more stages when an outside firm does not compete in these stages is strictly judgment.
(iii) Ascertainment of costs of Revenues and Assets
Finding the Costs, Revenues and Assets for each value chain activity poses/gives rise to serious difficulties. There is no specific approach and much depends upon trial and error and experiments methods.
(iv) Identification of cost Drivers
Isolating Cost Drivers for each value creating activity, identifying Value chain Linkages across activities and computing supplier and customer profit margins present serious challenges.
(v) Resistance from employees
Value chain Analysis is not easily understandable to all employees and hence may face resistance from employees as well as managers.
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