Value chain management is the concept of integrating all of the areas of a business in an effort to minimize waste and maximize output. In other words, value chain management assesses every step the business takes to produce the product or service it is selling in order to make the process as efficient and effective as possible. Some of the areas of a business that are considered in the process include information, materials, labor, facilities, and logistics.
In order for the value chain to work in being effective and efficient, business executives and managers must first conduct a value chain management analysis. This requires an assessment of the processes of the business from beginning to end, and from inside to outside of the organization. Evaluating the process allows the business to identify the resources, time cycle, and information that needs to be integrated. Once the various aspects of the business are integrated, it provides the most efficient use of the company's products, supplies, and resources.
For example, if a business manufactures rubber bands, the first stop in the value chain management analysis is where and how the company gets its supply of rubber and other ingredients that go into manufacturing the rubber bands. The analysis should include determining if it is the best source, the least expensive source, and if there may be a more cost effective way to obtain the ingredients than the way the company is receiving them now. This type of analysis then moves on to the next part of the business, which is the machinery that makes the rubber bands. An analysis of this kind is done until each department and area of the company has been analyzed.
After a thorough analysis, it is important to identify the areas where cost cutting or implementation of more efficient practices can be made. For example, a company may be importing ingredients from outside of the country. If it is possible to order supplies from a local company that are of the same quality, but which will cut shipping and delivery costs in half, then this is adding value to the management chain.
In the end, value chain management is developed over time through comprehensive planning and evaluation on the part of the business. The concept envelops the integration of supply chain planning and scheduling and reducing and minimizing the cycle time. It also depends on full use of the company's resources, optimized use of those resources companywide, and fully integrating all company information.