What is "value chain analysis" used for in procurement?

Value chain analysis in procurement is primarily employed to assess activities that add value within procurement strategies. This concept, introduced by Michael Porter, involves examining the various steps and processes involved in delivering a product or service. By understanding which activities contribute most significantly to the creation of value, procurement professionals can identify opportunities for improvement, optimization, and cost reduction.

In the context of procurement, value chain analysis helps in identifying areas where efficiency can be improved, relationships with suppliers can be strengthened, and processes can be streamlined. For example, by evaluating logistics, sourcing methods, and supplier interactions, a procurement team can enhance its strategies to achieve better quality, lower costs, or faster delivery times. All of these factors contribute to the overall effectiveness and competitiveness of the procurement function within an organization.

This approach differs significantly from evaluating supplier reliability, determining the cost of goods sold, or creating contracts, which focus more on transactional or operational aspects rather than on understanding and refining the overall strategic value that procurement brings to an organization. By focusing on the activities that add true value, organizations can better align their procurement strategies with broader business goals.