A bicycle chain transmits force to the drive wheel creating value!

A bicycle chain transmits force to the drive wheel creating value!

Value Chain Mapping is a representation of how an organization transforms raw materials into a product and then delivers that product to its customers.  Value chains are developed so that the organization can get a full understanding of the process to see how they can generate the greatest possible value for the organization and the customer.  Once you understand the flow, it is far easier to improve it. Value Chain Mapping is a lean technique. Like Kanban, which focuses on the flow of work and which steps add business value, Value Chain Mapping helps to target process improvements.

Historically much of the academic work concerned with Value Chain Mapping can be traced to Michael Porter.  Porter’s framework provides a basis for developing a high-level view of how value is created, augmented and delivered to the organization’s customer.  A value chain identifies all of the direct activities (activities that transform the product), indirect activities (activities that help keep the transformation steps running smoothly) and quality assurance (QA) activities (for example, testing and reviews activities that ensure the product meets standards).

A value chain will follow the flow of work, showing the linkage between the activities that directly add value, provide support and/or enforce standards.  For example, the value chain of a traditionally published book would include:

  • Author – The author is linked to the publisher usually through an agent.  The author sends the publisher a manuscript (as all authors know, this is an iterative process).
  • Publisher – The publisher sends the author changes and then transforms the manuscript into a document that can be printed (the steps include creating a layout and galley for printing and developing a cover).  Marketing would sell or place the printed book with a distributor.
  • Distributor (Various) – The distributor sells or places the book with the retailers.
  • Retailers – Retailer would display the book and sell it to the consumers.
  • Consumers – Consumers would then buy the book.

Read here for a deeper dive into the process of Value Chain Mapping.

The steps above are a high level overview of the actions needed to transform the author’s ideas into a book that a consumer  can read. Each step along the way will have a number of support activities.  For example, the publisher will have an IT department that would create or buy software to support the transformation of the author’s words into a book, to perform accounting and then track inventory. All of these activities are important, however, IT does not transform the product itself, but rather IT provides support to other teams within the publisher. This type of delineation between direct (core business) and indirect (non-core business) activities has been part of the rationale for outsourcing. Another example of a support activity in the process is the author’s agent.  The agent helps the author find a publisher. They do not write or edit the book. The author creates value, and the agent makes the process more efficient. An example of a QA activity would be the proofreader.  The proofreader ensures that the proper language conventions are followed.

The goal of a Value Chain Map is to reflect the steps an organization takes to create value.  It supports process improvement because it helps us see bottlenecks and steps that do not add value to the product.