What Value Chain Really Meansposted by Anna Mar, May 02, 2013
Every product and service you buy is the result of a value chain.
A value chain is a process of adding value one step at a time. For example, a cup of coffee at a your local café has gone through several value added steps.
The farmer, processing facility and café all add value to your morning cup of coffee. That's a value chain.
Example: Automotive Value ChainIn many cases a value chain spans an extended supply chain.
If you manufacture cars, you probably depend on an extended network of suppliers. The value chain of the automotive industry has 4 levels: resources, components, assembly and sales & service.
Example: Investment Bank's Value ChainThe concept of a value chain can be used to model the value that's added by departments in an organization. For example, investment banks tend to divide their firms into front office, middle office and back office. Each level adds value to the firm:
Back office handles a firm's day-to-day operations such as the processing of data, settlement of trades, reporting and call centers.
Middle office handles strategic control functions such as risk management, financial control, compliance and treasury services.
Front office makes the money. They are the client and market facing functions of an investment bank.
Each industry defines its value chain according to its own model.
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