Use the value chain to increase your profits

Before a product reaches the shelves of a store it has gone through a multitude of different stages of development/production.  Typically, it will have followed this sort of path:

  1. Research and development
  2. Raw materials purchase
  3. Manufacturing
  4. Sales & marketing
  5. Finished product delivery
  6. Wholesale provider
  7. Retail sale
  8. Delivery
  9. Installation
  10. After sales & support
  11. Administration

So what, I hear you say.  Well, running a small business is a continuous process of evolution and you can use this value chain to help improve yours.  How?  By increasing your ‘reach’ up and down the chain.  Every stage of the production process adds value to the product and someone takes a percentage of the overall profit.  It stand to reason that the more stages you can cover in house then the more profit you can make.

Let’s look at an example.  I have a client who applies powder coating finished to small pieces of metal used in manufacture of bigger machines.  These ‘widgets’ are small and varied in number and for the last 20 years that’s pretty much all he has done – taken the bare metal widget in, coated it and sent it out.  However, recently we have expanded his influence up and down the chain.

The first thing we did was bring in a machinist and bought some basic machining equipment.  This allows him to now manufacture simple widgets (which is what most of them are).  This has saved a huge amount of time  and stress.  In the past he had to rely on outsourcing to other companies and then be at their mercy for delivery times, quality control etc.  Now that it’s all done in house it not only makes his job easier but he also keeps the profit from that part of the chain.

The second thing we did was to start doing sub-assembly of the finished parts.  Instead of just packing them all up and sending them on he now put them together for the customer.  The customer sees this as a bonus and again my client is able to increase his level of profit – a double win.

A side benefit from all this has been in advertising the business.  He is now able to advertise himself as a ‘one stop’ shop and has attracted more business as a result.

The cost of increasing the influence up and down the value chain has been minimal but the outcomes have been huge.  Having started down this road we are now seeing many more opportunities where we can expand and this is proving to be great for his business and his customers – a win win situation.

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