These advancements spur the creation of goods and services that ease everyday life. The steps involved in the creation of these goods and services right from the ideation stage to final product sale or service provision is the value chain.
Value chain examples abound in the diverse business organizations that are in existence today. This is because each of these businesses produces goods, renders services, or does both intending to solve a particular problem for individuals or organizations.
Before we discuss the various value chain examples, let us define a value chain.
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What is value chain?
The value chain of any business refers to all the activities carried out by the business in the process of transforming raw materials into finished products. It is also applicable to the processes involved in creating and rendering a valuable service.
The concept of a value chain was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. This involved identifying all the activities that add value to an idea or raw material and transforming them into a valuable end product that is useful to consumers.
The value chain of a brand is divided into two main parts:
- Primary activities comprise inbound logistics, operations, outbound logistics, marketing and sales, and service.
- Secondary or support activities comprise procurement, technological development, human resources management, and infrastructure.
These value chain activities are the core of every business, hence, most businesses intermittently analyze their primary and secondary value chain activities to identify areas that need improvement.
The process of identifying and maximizing all the operations that are carried out within the value chain of a company is referred to as value chain analysis.
When a company carries out a value chain analysis, it aids it to better understand the nitty-gritty of its operations and also pursues either reducing the cost of its production (cost reduction advantage) or differentiating its products (differentiation advantage) when compared to similar products in the market.
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Value chain diagram
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Porter’s value chain activities
- Secondary or support
Each of these value chain activities as identified by Michael Porter is further divided into several other components. Let us discuss each of the parts that make up the activities of the value chain.
The primary activities in a brand’s value chain usually have the most direct influence on the products or services the brand offers as well as consumer perception of the brand. This means that most of the competitive advantage a company derives can be traced to how well it manages its primary activities.
This is usually the first activity in the value chain of any company and involves the movement of materials and components from suppliers to the assembly plant or factory of a company. It includes vehicle scheduling, material handling, inventory control, warehousing, and returns to suppliers.
Inbound logistics comprise all activities concerned with the collection, storage, and dissemination of materials and components which will be subsequently converted into finished goods.
This stage of the value chain includes activities such as processing, printing, assembling, machining, packaging, testing, equipment maintenance, and facility operations.
Operations are concerned with assembling parts into a product or the processing and conversion of raw materials into finished products.
The activities in outbound logistics include finished goods warehousing, scheduling, material handling, order processing, and delivery vehicle operation.
This aspect of the value chain activity deals with collecting, storing, and distributing the finished product from where it has been manufactured to places such as stores, distribution centers, warehouses, or depots where consumers can get it.
Marketing and sales
Marketing and sales is that aspect of the value chain that deals with all the tactics implemented by a company to inform people about its products and encourage them to make inquiries about them.
It also includes providing a means of purchasing the product as well as ensuring that all the brand’s target consumers are compelled to make a purchase.
Common marketing and sales activities include advertisement, channel selection, promotion, sales force, pricing strategy selection, quoting, channel relation, and all other product marketing strategies.
Service activities include parts supply, installation, product adjustment, training, repair, and customer service. This is usually the last part of a company’s primary value chain activities.
Thus, it includes all the activities that occur after the purchase of a good or service by a consumer. The activities are therefore focused on enhancing or maintaining the value of the purchased product service.
Secondary or support activities
- Technological development
- Human resources (HR) management
The secondary or support activities of the value chain enable companies to maintain and maximize their competitive advantages in the market. These activities are closely related to the primary activities and make them more efficient.
Procurement is closely related to inbound logistics. It includes all activities that deal with the purchase of raw materials, equipment, parts, and all tangible assets needed for the production of goods or service provision.
Searching for and signing up suppliers, negotiating supply prices, and maintaining supplier relationships are some of the activities under procurement.
Technological development is one of the major secondary activities in most organizations, especially with the current digitization of several processes in the value chain. The level and extent of technological development varies from one industry to the other with some industries needing more technological development than others.
For example, manufacturers of electronic gadgets such as Samsung usually require a higher level of technology for their product development than fast-food companies such as Chick-fil-A.
The technology needed can be directly concerned with production such as the use of robots in assembling products or it can be for optimizing processes within the organization such as the use of technology for recording sales and stock-keeping.
Common value chain activities under technological development include product design, process automation, and market research.
Human resources (HR) management
Despite the recent high level of automation in most industries, employees are still a valuable part of the day-to-day operation and smooth functioning of companies. Thus, human resource management is the glue that holds all aspects of the value chain together.
The effective use of HR management ensures that all activities such as finding new talents, hiring, onboarding, staff development, worker retention, and employee compensation are carried out efficiently.
A company’s infrastructure pinpoints the brand’s organizational framework; detailing how activities are carried out, how management relates to the employees, how departments interrelate, and how relations with other organizations and outsiders are carried out.
Hence, aside from the chain of command, infrastructure also includes quality assurance, business management and financing, company overhead, and public relations.
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Value chain analysis examples
- Retail industry: Amazon
- Quick service restaurant industry: McDonald’s
- Drink industry: Coca-Cola
- Fashion retail: Zara
Value chain analysis of Amazon
Amazon is one of the top retailers and marketplaces in the world. Based on the company’s revenue of $554.03 billion and market share of 37.6% for the 2023 fiscal year, it is the world’s leading internet company and smart speaker provider. It also provides live streaming and cloud computing services.
The company which started in 1994 as an online marketplace for books has since expanded its operations beyond e-commerce to include online advertising, artificial intelligence, digital streaming, and cloud computing. Let us have a look at the primary and support value chain activities of this multinational American company which was started by Jeff Bezos.
The primary value chain activities of Amazon
Amazon is majorly a retailer, this means that its raw materials are the merchandise obtained from product vendors who use the brand’s platform to sell their goods. It also includes data center resources that aid the existence of Amazon Web Services (AWS) cloud offerings.
Vendors who sell on the brand’s marketplace use the Fulfilment by Amazon (FBA) service whose efficient logistics infrastructure ensures that products are smoothly transported from the vendors to Amazon fulfillment centers.
Although the use of FBA is optional, vendors that use it benefit by having their products eligible for several benefits such as free shipping and Amazon Prime free two-day shipping.
Amazon has used its large-scale operations in inbound logistics to achieve a cost-reduction advantage for products. This has earned it a first place as the lowest-priced retailer in 2023 according to Profitero.
Operations deal with the transformation of raw materials into finished products. For Amazon, it includes its core service, which is the marketplace, and the additional web service.
The marketplace offers a secure meeting point for retailers and consumers making it easy to transact. It is divided into the North American and international wing which caters to consumers within North America and other territories such as Germany, India, Japan, Sweden, and Australia. These marketplaces are the top revenue contributors for the brand.
Another aspect of the company’s operations is Amazon Web Services (AWS). This service creates and maintains the brand’s cloud servers, storage, and other data center resources. Due to the efficiency of this operation, the brand has streamlined and offered the service to other organizations as the bedrock for hosting their applications and other databases.
AWS offers pay-as-you-go cloud storage, compute resources, networking, and computing services to a lot of businesses including Airbnb, General Electric (GE), Pinterest, and Qantas.
The optimization of Amazon’s operations has further led to shorter shipping times for its products due to the differentiation of marketplaces based on geographical location. Its web services on the other hand provide an additional income source for the brand. Thus, this step of Amazon’s value chain adds to its competitive advantage of being outstanding in the retail industry.
Before Amazon implemented forward vertical integration which enables it to handle its outbound logistics in-house, the company depended solely on third-party logistics providers such as FedEx and UPS. But by vertically integrating, they now handle some parts of their outbound logistics.
Amazon’s outbound logistics currently include diverse order fulfillment options such as stores, digital channels, Amazon fulfillment centers, co-sourcing, and outsourcing agreements. The diversity of options provides several competitive advantages for Amazon.
For instance, physical stores provide a direct purchase channel for consumers while digital channels are utilized for online sales of products and software. Additionally, the company’s use of robotics in its fulfillment centers reduces its overhead costs and increases efficiency. Drone delivery has been another cost-saving alternative to traditional product delivery.
Marketing and sales
Amazon’s marketing efforts cover various media including television, web ads, demographic marketing, public relations, sales promotions, social media marketing, print, events, etc. This diversity of marketing methods and channels ensures that the brand reaches a wider population to achieve global impact.
According to the brand’s 2022 annual report, a total of $20.6 billion was spent by the company on marketing its products and services. Amazon has always believed in marketing as a means of increasing sales. Its marketing efforts include those for specific products as well as for the whole brand.
Amazon also leverages its prime services, fast delivery rate, and low product prices to attract new customers while retaining old ones. Its global brand recognition also enhances the effectiveness of its marketing efforts.
All the above contribute to the large volume of sales recorded annually by the company. Its 2023 annual sales have been pegged at $554.03 billion so far. This includes revenue from the sale of products as well as the provision of services.
Service is the last primary value chain activity and just like previous activities, Amazon has an exceptional customer-centric service. This has contributed to the company’s ranking among the top five in the retail industry when it comes to customer satisfaction in the past twenty years. Currently, in 2023, Amazon ranked No. 2 in the American Customer Satisfaction Index Internet Retail Category.
Amazon provides several beneficial services for both vendors and consumers. For vendors, the brand provides various programs, tools, and tutorials that serve as guides in sales enhancement. They also provide support services for consumers such as product returns which have been digitized to provide ease of return for consumers and speed up the process.
Amazon’s secondary value chain activities
The infrastructure of Amazon consists of its management and organizational activities. The company is a retail giant hence, it has a robust infrastructure that ensures all aspects of the business function effectively and seamlessly.
The brand has invested time, resources, and effort in its infrastructure such as cloud computing, web services, and other physical assets which has enabled it to build a reliable and scalable business model. The various departments that make up the different businesses the brand is involved in also contribute to the business’s success.
Hence, Amazon has ranked among the top 8 best-managed companies for six consecutive years since 2016 according to Drucker Institute & Wall Street Journal (WSJ).
Human resource management
The sheer size of Amazon’s workforce requires a seamless human resource management department to adequately oversee all matters relating to its permanent local and international employees, contractors, part-time workers, and management staff.
The HR department ensures that employees are adequately compensated for their work through prompt payment of salaries, promotions, and bonuses. This has fostered cooperation between the company and its employees, it has also significantly reduced the rate of employee turnover.
In 2022, Amazon ranked as No. 4 and No.10 United States Most Attractive Employers for Computer Science and Business Students respectively.
The technological development in Amazon’s business operations is one of its competitive advantages. The advancement made by to company to ensure that its online marketplace works seamlessly has led to the development of robust technological infrastructure such as cloud computing and storage.
The brand also uses technology to ensure that the available inventory in its warehouses corresponds with what is available in its online marketplace. The robustness of these tools and their effectiveness have led to their adoption by several other companies as the basis for their technological development.
Amazon has used technology extensively in its business and even created additional segments such as artificial intelligence and video streaming services which contribute to the brand’s profitability.
Amazon’s business segment that deals with procurement is referred to as Sales and Operations (S&OP). The S&OP forecasts sales for each product available in its distribution center, in this way, inventory is managed in real-time to ensure just-in-time delivery of inventory to or from the distribution centers.
Once the inventory levels for a product are down to a specific amount, the company places a purchase order with suppliers. By ordering ahead, the company ensures it never runs out of any product. This in turn ensures that consumers can get their orders delivered in good time thereby increasing order fulfillment rates as well as consumer satisfaction.
Value chain of McDonald’s
McDonald’s is the world’s largest fast-food restaurant chain serving over 69 million customers daily in over 100 countries including Finland, China, the United Kingdom, India, Canada, the United States, New Zealand, and France.
This global fast-food chain was established by Richard and Maurice McDonald in 1940 in San Bernardino, California, United States. Aside from being a top contender in the quick service restaurant (QSR) industry, the brand is also into real estate due to its ownership of about 75% of its restaurant buildings and 45% of the underlying land that it leases to its franchisees.
In its 2022 annual report, the company reported having over 150,000 employees working in its cooperate headquarters in Chicago as well as its over 40,275 restaurants scattered across the globe.
McDonald’s primary value chain activities
The inbound logistics of McDonald’s value chain involves the sourcing, purchasing, and storing of the diverse food ingredients, packaging, and other items needed in the brand’s restaurants.
McDonald’s has a network of producers and suppliers that they have worked with for years. These suppliers provide the company with different ingredients and items. The brand has also employed backward vertical integration which has enabled it to handle some aspects of its supply chain such as processing the meat used in making beef patties at its outlets.
This combination of vertical integration and long-term supplier relationships enables McDonald’s to maximize this step of its value chain by cutting down the cost of ingredients and items.
McDonald’s operations include over 40,000 company-owned and franchised restaurants as of the end of September 2023. Approximately 95% of these restaurants are owned and operated by independent local business owners.
The operations are broadly divided into three segments which comprise the United States, internationally operated markets, and international developmental licensed markets and corporate.
McDonald’s franchised restaurants are operated based on either of these formats:
- Developmental license where the licensee makes all the needed monetary investments to ensure the restaurant becomes operational. The licensee then pays the brand royalties which is normally a specified percentage of sales.
- Conventional franchising indicates when McDonald’s owns the land and building where the franchise is located or secures a long-term lease for it. The franchisee, in this case, is expected to pay for equipment, decor, seating, and equipment. The franchisee also makes a payment of initial fees when opening a new restaurant.
- Foreign affiliates are a franchising model used for a few foreign affiliated markets such as New Zealand.
All these formats pay a certain percentage of their sales as royalties to McDonald’s along with the payment of an initial fee when opening a new restaurant.
Additionally, the setup and menu of restaurants in McDonald’s value chain are mostly similar. This makes it easier for restaurants to replicate menu items as well as maintain brand recognition throughout the world.
For outbound logistics, McDonald’s has maximized its value chain by adopting several methods that ease the way consumers access the brand’s menu. This includes having regular sit-down restaurants, drive-thrus, self-service kiosks, and home/office delivery.
Consumers can also easily access the nutritional information of any menu item they want to order, this makes it easier for individuals to choose their meal based not only on preference but nutritional needs as well.
The integration of several consumer-beneficial options in McDonald’s outbound logistics adds to its competitive advantage as it promotes consumer satisfaction and loyalty to the brand.
Marketing and sales
McDonald’s position as a world leader in the restaurant chain industry has been largely made possible by the company’s efficacious use of the marketing mix. The company has carefully chosen its products, place, price, and promotion strategies in such a way that appeals to its target market.
For instance, the brand’s low pricing of meals such as the availability of $1 meals has made the brand stand out as an extremely affordable option for good-tasting and nutritious food.
The brand has also been associated with adopting some local menu items into its menu offerings to further appeal to locals in the territories where it operates. One such example is the brand’s offering of prawn (Ebi) burgers in Japan and Singapore.
McDonald’s equally utilizes various marketing options including billboards, television, radio, print, online ads, and social media marketing to reach more consumers. The brand also uses the sponsoring of sporting events and athletes as another means of marketing and increasing sales.
One of McDonald’s competitive advantages is its high-quality and consistent customer service which has been made possible due to the standardization of its operations and menu.
The brand trains its employees to ensure that they keep up with the company’s accepted code of behavior when attending to consumers. This has in turn affected consumer perception of the company.
Support value chain activities of McDonald’s
Company infrastructure is one of the support value chains of any company. McDonald’s infrastructure comprises its chain of command which is vertically structured with the board of directors at the apex. Different officials and managers also exist for different segments of the organization.
The well-organized infrastructure of McDonald’s enables its restaurants to operate excellently, with its employees working tirelessly and productively with a brand that is focused on upping the efficiency of its infrastructure.
Human resource management
The brand employs over 150,000 individuals as of 2022. These employees are managed by McDonald’s human resource department which is in charge of matters of recruitment, training, promotion, and compensation of staff.
To ease the hiring process, the brand maintains a career page on its website where interested individuals can easily seek out vacancies and apply for jobs. Most of the job requirements are also basic because the company provides on-the-job training for its staff. McDonald’s also has various programs that support staff growth.
An example is the company’s Archways to Opportunity program through which the brand has awarded more than $20 million in tuition assistance and access to education for more than 10,000 employees.
The brand additionally introduced the Allyship through Accountability program through which the company’s top management members are held accountable for engaging in inclusive behaviors that support talent development, and build a strong, diverse succession pipeline.
All the aforementioned have been achieved by McDonald’s in 2022 alone. This shows that the HR management of the company adds value to its primary value chain activities.
The technological development at McDonald’s has been highly deployed in replenishing supplies to restaurants, online ordering by consumers, and self-service kiosks.
The brand invested in touch kiosks to facilitate ordering and increase operational efficiency. Online ordering makes it convenient for its customers to order their favorite meal from any location in the world. Technologically monitoring the supply of ingredients and items to restaurants lessens the time spent on taking inventory of items remaining before a new order is placed.
The ability of McDonald’s to procure a large percentage of the ingredients and other items needed in its restaurants has been attributed to McDonald’s supply chain processes and its use of Jaggaer, a digital procurement firm, to establish relationships with key suppliers across various regions of the world.
This online system is super efficient and provides restaurants and procurement managers with a convenient and speedy way to place orders from the brand’s distribution centers. The aggregation of suppliers on the platform also makes it easier to reach more suppliers in a very short period.
Value chain analysis of Coca Cola
The Coca-Cola Company has its roots when the Coca-Cola drink was invented in July 1886 by an American pharmacist, John Stith Pemberton. The company itself was founded two years later in 1889 when American businessman and pharmacist, Asa Griggs Candler purchased the Coca-Cola formula and brand. It was however in 1892 that he incorporated the company.
Asa was able to scale the business and rose sales from 9,000 gallons of syrup in 1890 to 370,877 gallons in 1900. He also established syrup-making plants in Philadelphia, Los Angeles, and Dallas. The product soon became a popular brand in Canada and the United States. Currently, in 2023, the brand sells its products in over 200 countries including the United Kingdom, Hong Kong, Nigeria, Mexico, Chile, Indonesia, and Japan.
Apart from the Coca-Cola drink, the brand produces, sells, and markets citrus beverages and other soft drinks such as Limca, Fanta, Sprite, and Schweppes. They also manufacture alcoholic beverages and non-alcoholic beverage syrups and concentrates. These concentrates are then sold to various bottlers who hold exclusive territories.
Primary value chain activities of the Coca-Cola company
Inbound logistics in the Coca-Cola value chain comprise receiving, storing, and distributing the inputs required for its products. Different drinks require different ingredients. Hence the company works with a diverse network of ingredient suppliers to meet its large-scale demand.
For example, one of the ingredients used in the production of Coca-Cola is high fructose corn syrup (HFCS) which is usually purchased from US-based suppliers and delivered via trucks to the company’s plants. Another key ingredient is orange juice concentrate which is the base ingredient for orange juice. The concentrate is mostly sourced from Brazil and Florida.
Coca-cola’s inbound logistics are facilitated using a combination of ships, and trucks that handle local, regional, and international movement of ingredients. The brand expects its suppliers to keep up with industry standards when aggregating ingredients and ensuring farmers within their supply chain are not exploited.
Being a drink industry, water is one of the main components of Coca-Cola products hence the company has been an active part in encouraging water conservation through its sustainable use.
Although the Coca-Cola company has a board of directors that oversees and coordinates corporate issues, the brand’s global presence has made it adopt a decentralized management system with different regions and localities having their unique operational setup in line with applicable laws and regulations.
The brand’s operating segments have been divided into seven different categories which include:
- Asia Pacific
- Bottling Investments
- Global ventures
- Europe, Middle East, and Africa
- Latin America
- North America.
The company has employed a specialized level of differentiation of duties to meet its target of serving and controlling a significant portion of the market. Coca-Cola manufactures and sells its beverage bases, concentrates, and syrups to its bottling partners while the bottling partners handle the manufacturing, packaging, merchandising, and distribution of the final product to customers and vending partners.
This model of franchised product distribution has become the basis of operation for a lot of companies in the drink industry. It has also proven to be a sustainable and beneficial template for both Coca-Cola and its bottling partners.
The distribution channels utilized by Coca-Cola comprise operations operated or controlled by the company, independent bottling partners, distributors, wholesalers, and retailers.
By effectively maximizing its outbound logistics, Coca-Cola ensures that this aspect of its value chain functions without hitches so that its product retailers that operate in the over 200 countries where Coca-Cola products are sold never run out of stock.
This has been achieved through secure transportation, and timely and secure delivery of products to industrial clients, wholesalers, and retailers of its products.
The ability of Coca-Cola to work smoothly with third-party logistics providers and its in-house logistics to meet consumer demand in the market has led to the establishment of long-term and exceptional retailer relationships and continued customer loyalty.
Marketing and sales
Marketing and sales in Coca-Cola’s value chain have been significantly beneficial to the brand. The company has gained global recognition through its use of an integrated marketing strategy that encompasses sales promotions, advertising, public relations, events, and experiences.
Using various marketing methods, the company presents its products and the brand to the world. The brand has used radio, television, newspapers, magazines, SMS marketing, social media, web-based media, email marketing, and direct marketing to increase its recognition and consumer perception.
The brand’s sponsorship of several events including community engagements and sporting events has also served as a means of marketing. Its partnership with other businesses such as Tim Hortons, Target, McDonald’s, and Starbucks to sell its products further serves as a marketing channel.
Additionally, the use of branded delivery trucks serves as a means of mobile advertising. The use of branded vending machines, refrigerators, and coolers has also increased the brand’s recognition.
Coca-Cola’s marketing message is centered around enjoying life, being happy, and leading an active lifestyle. Between January to September 2023, Coca-Cola reportedly spent $3,810 on marketing. It is therefore not a surprise that the company’s logo is one of the most recognized and popular logo’s in the world.
Coca-Cola is well known for its outstanding customer service which it provides through its dedicated call centers, official website, and social media pages. The customer care channels have been designed to cater to customers by providing answers to their queries and providing solutions to their complaints.
These customer service channels are operational 24/7, thereby making them accessible to all individuals irrespective of their geographical location. The efficiency of Coca-Cola’s pre-sale and post-sale customer service and its global availability is one of the contributors to consumer satisfaction and increased loyalty to the brand.
Coca-Cola’s secondary value chain activities
Due to the vastness of Coca-Cola’s business, it has an equally vast firm infrastructure in its value chain. This defines the level of employee productivity, critical planning, work efficiency, and all other aspects that are necessary for the proper functioning of the brand.
The infrastructural activities of the company include legal matters, planning and strategic management, finance, quality assurance, and accounting. All these combine to ensure continued business growth and success.
Human resource management
Human resource management is a key support value chain activity that ensures the continuous existence of Coca-Cola. The management of human resources in the company is delegated based on geographical areas; this approach ensures that the brand effectively manages its workers in a way that maximizes benefits to both parties.
For instance, the brand uses Employee Stock Options (ESOs) and restricted shares as part of the reward packages that employees can benefit from due to their outstanding work and contribution to the brand.
The company also hires and trains top talents in the industry and provides them with an enabling environment that fosters career advancement in a discrimination-free workspace.
Being the world’s leading soft drink maker, Coca-Cola focuses on research and technology development to improve its product standards and provide better services. The company also operates six research and development centers worldwide that work for the technology development, production, and distribution of the company’s products.
As a leading company in the drink industry, Coca-Cola has a robust investment in research and development as a means of improving its products. The brand operates six research and development centers which are located in China, Japan, the United States, Singapore, Belgium, and Brazil.
These centers work in collaboration with external partners, university researchers, and tech startups to improve their array of products, manufacturing processes, equipment, packaging, and marketing strategies. This contributes to the distinctive taste and packaging of Coca-Cola products which has served as a major competitive advantage for the brand over the years.
Coca-Cola procures the ingredients and other items needed for production from thousands of suppliers and farmers. Thus, it ensures that these farmers and supplies are familiar with the quality requirements and that whatever they supply meets these standards. This is done to ensure that the final product is also of high quality.
The brand also maintains long-term relationships with the farmers and suppliers that it does business with, this serves as a means of curtailing disruptions that could arise from having unreliable suppliers. Despite the wide network of suppliers involved in Coca-Cola’s procurement, the brand has been able to manage them well and ensure a continual flow of materials to ensure the steady production of concentrates, syrups, and beverage bases.
Value chain analysis of Zara
Zara is a Spanish multi-national retail clothing company that was established by Amancio Ortega in 1975 in Galicia, Spain. At its inception, the store sold low-priced lookalike products of popular, high-end clothing brands.
Currently, the brand sells accessories, beauty products, shoes, perfumes, and clothing. Fast fashion is the major forte of the company and once products have been designed, it takes between ten to fifteen days for the products to be processed by inspecting, sorting, and tagging before they are finally shipped to retail stores.
Zara reportedly produces over 450 million items yearly and employs over 165,000 people. The brand operates in over 2,300 stores in over 96 countries including Spain, the United Kingdom, Netherlands, Bangladesh, Portugal, Turkey, and Morocco.
Zara’s primary value chain activities
The inbound logistics of Zara is handled both in-house and by third-party partners. This is because the company has vertically integrated backward into the designing and manufacturing of clothes. Thus reducing its dependence on cloth suppliers.
The brand sources its fabrics from diverse suppliers after which designs are made and clothes produced in any of its production facilities located in Spain, Portugal, Turkey, Morocco, Bangladesh, and Armenia or by third-party partners in Asia.
After production, all products are aggregated in the company’s distribution centers before being transported to stores based on the store’s order.
Zara’s headquarters are located in Spain and it is from here that major decisions affecting production and company operations are made. The company’s operational model is centered on quickly responding and adapting to consumer behavior by making products that are in demand.
Thus, the three segments of the business viz: men, women, and children each function by monitoring market trends and reacting to them as quickly as possible.
For example, the design department liaises with the procurement department to ensure that all materials needed for the production of any type of cloth are readily available in order to keep up with changing market realities.
Therefore, all departments in the company work side by side to achieve the company’s goals of speedily meeting people’s clothing needs.
Zara’s outbound logistics is that aspect of its value chain activities that pertain to the distribution of finished products from the manufacturing factories to distribution centers and onward to stores.
Product distribution is usually done to tally with seasons such as spring, summer, fall, and winter. This is because each of these seasons has a different weather pattern and the clothing requirements of most consumers change based on the season. After all, clothes used in one season may not be useful in another season.
For example, winter is usually very cold and chilly so most individuals shop for thick clothes that will keep them warm. Summer is usually hot and most individuals shop for flimsy and skimpy wear that helps them stay cool. It is therefore impossible to wear summer clothes in winter and vice-versa.
To meet exact consumer demands, store managers often rely on data detailing previous sales records and possible projections of future consumer behavior. As a means of accelerating its inbound logistics, Zara works with efficient distribution partners such as Clipper Logistics to ensure that deliveries within Spain are made within 24 hours while international deliveries are made within 40 hours.
This maximization of Zara’s inbound logistics that speeds up delivery time serves as a competitive advantage for the brand as it can more readily respond to market changes while meeting consumer demand within the shortest possible time.
Marketing and sales
Unlike most clothing brands that spend millions of dollars in marketing their brands and products, Zara does not have a marketing budget which means it does not actively advertise its products. Instead, the company uses other strategies in marketing its products.
One such strategy is its active use of social media to engage its customers, respond to their queries, and inform them of new products. The super short time between the production and getting to shop for the brand’s products also serves as a unique selling point that attracts individuals who are eager to explore the latest designs.
Customer service is one aspect of Zara’s primary value chain that has been well-optimized to minimize consumer complaints and maximize their satisfaction. To achieve this, the brand ensures that there are no long queues at its stores and that waiting time is limited.
In addition, Zara products are made from high-quality materials and per industry standards. This is done to avoid product recalls and bad product reviews by customers. Furthermore, since a large percentage of the brand’s customers are people aged between 16 to 35 years, the brand deploys technology to ensure that the shopping and payment process is fast and seamless.
The company’s prompt response to customer complaints or inquiries on its social media pages also serves as a means of boosting consumer satisfaction.
Secondary value chain activities of Zara
Zara’s infrastructure is hierarchical with the brand’s Chief Executive Officer (CEO) at the helm of affairs. He is closely followed by the vice presidents, regional and country managers, store managers, and store staff.
Zara’s main direction is determined by the CEO. The CEO keeps a close connection with headquarters, which is responsible for real estate, brand management, logistics, HR management, and information technology.
Below the headquarters is a group of commercials, which analyze sales, market trends, and strategies designed as guidelines for country and store managers and HR directors.
Country and store managers are responsible for having inventories constantly replenished, keeping the store’s image and branding, and maintaining a sense of exclusiveness for consumers.
Store assistants are at the bottom of the pyramid. They deal directly with customers, assisting them with their purchases, clothes fitting, etc.
Although the brand has a hierarchical structure, in a bid to ease production and meet consumer demands’ there is a high level of flexibility that allows all departments and individuals in the organization to work together towards meeting consumer needs promptly.
Human resource management
This secondary value chain activity is very important for maintaining the normal functioning of the brand. It entails managing all employees, ensuring that they are adequately compensated for their work, and handling all other employee-related matters that may arise. This is usually carried out by the human resource director.
Employees are trained upon their hiring to teach them the basics about the brand, their duties, and the benefits they are entitled to on the job. All employees must constantly perform their duties with precision to ensure the smooth running of the brand.
For example, individuals who are part of the product development department need to be up to date with changes in fashion trends and consumer preferences. This is necessary so that they can produce relevant products that consumers are interested in buying.
Information technology is at the core of Zara’s operations; it supports several aspects of the brand’s value chain making it easier for team members to handle matters pertaining to production, distribution, and inventory management.
It ensures that all the value chain activities are intertwined in such a way that derives the best value for both the brand and its customer base. Zara has also leveraged technology to gather relevant data on consumer behavior which aids the brand to more accurately predict consumer behavior and purchasing patterns.
Inditex Group acquires raw materials through regional departments and offices in the United Kingdom, China, Holland, and other branch offices in Europe, Asia, and Australia. They also buy inputs and some amount of finished products from outside suppliers which usually move in low-cost input markets.
They own several fabrics within Spain and have a big factory in La Coruna, where they transform those inputs to produce their own designed products as fast as possible to keep a constant flow of goods to be sold, in agreement with their business model.
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The value chain of a business informs us of how a brand brings value to its consumers. Its analysis is a necessary tool that informs brands about areas in their value chain that need improvement. One of the reasons why value chain analysis is done, is to improve operational efficiency, however, its major goal is to establish an advantage over competitors.
The value chain examples we have looked at are leaders in their various industries, hence, they all have a robust value chain that has been highly optimized to enhance their business success while meeting consumer needs and giving them a competitive advantage in the industry where they operate.Last Updated on December 7, 2023 by Blessing Peter Titus
Blessing's experience lies in business, finance, literature, and marketing. She enjoys writing or editing in these fields, reflecting her experiences and expertise in all the content that she writes.