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Home : Articles : Supply Chain : Value Chain

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VALUE CHAIN

Companies today know that competition is increasing and buyers have more power than ever so they recognize the need to achieve a greater advantage in the market. The only way to accomplish this is by adding additional value to their product or service. That's where the value chain comes in.

The value chain idea has been around for nearly 20 years and its basic purpose has been to help companies move closer to an ideal. That ideal is being able to smoothly meet all of their customers expectations by introducing improved products, better customer service, and faster delivery. Unfortunately this ideal has always been nearly impossible to achieve, but the value chain concept allows companies to view their current processes and to determine where value can be added along the chain.

The value chain's bottom line is the need for almost constant analysis. Because the economic conditions are frequently changing, companies need to be able to adapt and to continually re-evaluate their competitive advantage and to learn how to make the most of it in different market situations. Simply maintaining the status quo won't work.

In order to examine the value chain and to determine how best to position a company for success in the market, an organization must look at its functional components: the supply chain, its logistics, procurement, product development, and customer order management specifically. In this way, companies can get an idea of what changes to make in order to add value, increase profits, boost revenue, and decrease costs.

One way to add value is through the development of new products. However, companies must be careful in this area. After all, over 60% of firms recognize that correctly determining what their customers want is a major challenge in product development. Companies make mistakes in this area and these types of mistakes can be devastating to a company's profitability. Thankfully, today, improved technology makes it easier for businesses to determine what customers want. Firms can actively collect feedback from their clients to determine how they can improve their product catalog. Plus, technology seems to be helping these companies get new products out on the market faster than ever which is also another way of adding value and of pleasing customers.

A second way to add value is through improved procurement strategies. When it costs a company less to purchase the goods and services needed to produce their products, they can charge customers less without affecting their profit margin negatively. Price is, of course, always a major factor in customer satisfaction. However, companies must be careful when making sources based solely on price. Offshoring may be cheaper initially, but the company must also factor in additional transportation costs and tariffs. Also, the greater distance may increase the lead-time for production. Companies must choose their sourcing partners carefully in order to significantly impact the value chain.

Finally, most of today's companies have already made at least one change in order to meet the demands of their customers. Part of the value chain is logistics and that includes the time a customer's order is delivered. Shorter delivery times make customers happier; it's that simple. While almost some organizations three years ago took twenty days or more to deliver their goods, today that number has dropped almost in half. Moreover, the number of companies that are able to deliver their products in less than 5 days has increased from just over a third to almost half. Part of these changes can be attributed to better outsourcing choices and a more collaborative approach to logistics.

Improvements in delivery time, price, and product line-ups can add significant value to a business's offering and can help them find a true niche in even the most crowded markets. Understanding this fact is the key to success.

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