The Need for Value Chain Analysis

Supply chain costing emphasizes a process view and spans multiple internal functions. This chapter outlines the essential elements of value chain analysis (VCA) and describes why this technique is useful for evaluating the total cost of key supply chain processes. VCA is a cost management process that analyzes costs, such as supply chain costs, across linked enterprises. The growth of lean production processes within the supply chain represents one of the major reasons VCA has become a more important cost planning tool. A VCA should be performed for each of the supply chain processes in which a firm participates. The analysis involves mapping the supply chain process and the activities each firm in the supply chain performs within the process. Cost sharing among value chain members is rare, but some firms attempt to estimate their trading partner's costs. These firms employ sophisticated and highly proprietary cost estimation models to determine a supplier's manufacturing costs.