What is Value Chain in eCommerce?
What is Value Chain in E-commerce?
1.Definition and components
A value chain is a specialised business model that identifies and lists the series of steps and activities essential for the creation of a certain product or service.
Every forward-looking company which is engaged in either creating a product or delivering a service often has to undergo a value chain analysis. Such analyses are essential at periodic intervals to understand where and how the company is going wrong and what it can do to reduce costs while ensuring profitability. Some other advantages of such an analysis are increased customer loyalty, seamless integration of various aspects of a business, and so on.
Essentially, every different business activity or niche has its own interpretations of a value chain analysis. In E-commerce, they can mean improved superior inbound logistics, integrated operations with minimal wastage, better and more effective marketing and unmatched logistics.
A value chain has several components, divided into ‘primary’ and ‘support’ activities. It was Porter’s model which first made this distinction.
2.Background
To understand the importance of a value chain in eCommerce, it is but natural to understand what the term means. It was coined by the eminent American academic Michael E. Porter during his stint at the Harvard Business School. In his seminal work, ‘Competitive Advantage: Creating and Sustaining Superior Performance’, Porter laid out the basic tenets which together create a value chain.
It is often referred to as ‘Porter’s Value Chain’, although there have been other business and behavioural theorists who have worked on the idea.
3. Primary activities
There are 5 primary activities, all of which are essential in adding competitive advantage to a business. They are of special significance in the E-commerce sector.
They are:
3.1)Inbound logistics: Includes receiving products from several different suppliers often spread out across the world, professional inventory management and choosing from transportation options as the process moves forward.
3.2)Operations: Encompasses several different procedures used by manufacturers to convert raw materials into finished products. For E-commerce businesses, this stage involves order management, completing transactions, and furthering existing infrastructure.
3.3)Outbound logistics: Includes warehousing, transportation and distribution of products to either fulfilment hubs or directly to customers.
3.4)Sales and marketing: Includes long and short-term strategies to improve brand visibility. Competitive pricing, advertising and promotional activities.
3.5)Service: In a value chain, service includes customer support, refund and returns management. Essentially, this stage can make or break customer experiences.
4.Support activities
There are 4 support activities, and their purpose is to add more value to the primary ones. Support activities cannot be overlooked or deemed ‘less important’ vis-a-vis the primary activities. They go a great way in increasing operational efficiency and value addition to a company’s products or solutions.
They include procurement of various resources, technological development including R&D, HR or personnel management, and infrastructure. Of these, the last activity involves everything from general management activities, strategising and contingency planning to quality control, legal affairs and accounting techniques.
5.The value chain work in E-commerce
Both the primary and secondary activities are beneficial in making E-commerce processes run a lot smoother and faster. Each activity is designed to streamline the process and is applicable to all manners of logistics companies.
Sounds complicated? The next segment will shed some light on how necessary a value chain affects an E-commerce business.
6.How does the value chain work?
To understand this, let’s take a brief look at how Starbucks works. The coffee major has a significant online presence globally. To penetrate the gargantuan Indian market, it has formed a JV with Tata Consumer Products and is known as ‘Tata Starbucks’.
How does the value chain model work in this instance? Let’s have a look at the primary activities.
6.1)Inbound logistics: Starbucks procures high-quality coffee beans from South America, Asia and Africa. Starbucks’ licensed roasting technique ensures that the beans retain their distinctive flavour. After roasting and packaging, they are stored in company-owned warehouses. There are no intermediaries at any point.
6.2)Operations: Each cup of coffee ordered online is prepared by company-owned or licensed stores. Starbucks directly operates more than 32,000 stores worldwide. Customers can easily choose how they would like their coffee online.
6.3)Outbound logistics: Starbucks relies on its own fleet of delivery agents as much as possible. In some markets, they have tie-ups with food delivery companies. Their operations are complemented by company-owned distribution centres.
6.4)Sales and Marketing: It might be one of the most recognisable brands worldwide. That does not deter Starbucks from investing significantly in offering more product variety while focusing on customer satisfaction. Starbucks is not known for aggressive marketing. However, they are extremely bullish when entering newer markets.
6.5)Service: Be it in-store or online order fulfilment, Starbucks goes all out to provide what it calls the ‘Starbucks Experience.’ Their baristas are highly trained professionals.
How does Starbucks fare in the secondary activities? Pretty good actually!
6.6)Procurement: Starbucks boasts a robust procurement process spread across hundreds of countries.
6.7)HR management: Starbucks has consistently been rated as one of the best places to work.
6.8)Technological Development: From its popular rewards program to free Wi-Fi in stores. From several new varieties being launched every year to customer-centric technology like Apple’s iBeacon. Starbucks relies heavily on technological wizardry.
6.9)Infrastructure: The company grew from a single store in 1971 to over 30,000 globally. That itself should speak volumes on this front!
7.In Parting
Better implementation of the facets of a value chain is of great import to players who are entering the world of E-commerce. The same holds true for established players as well. Thankfully, Porter’s model is flexible and accommodative enough to be tweaked around a bit without damaging it completely. That itself is a competitive advantage.
ClickPost’s array of logistics tools and software helps businesses reap the maximum benefits from the value chain, which remains constant. That said, understanding the value chain may be a tad difficult for new business owners. But fret not! ClickPost’s value chain management software will simplify the process, allowing you to start with confidence and plan ahead.
