value-added chain

Value-added statementclick for a larger image
Fig. 85 Value-added statement. Value-added statement of Y Co for year ending 31 December 20xx.
Value-added chainclick for a larger image
Fig. 84 Value-added chain.

value-added chain

a chain of vertically linked activities which each add value (see VALUE ADDED) in producing and distributing a product. Depending on the nature of the product the value-added chain may involve a large number of vertically linked activities or only a few. Fig 84 overleaf, for example, shows one particular value-added chain in the petrochemical industry. Here the value-added chain involves converting a raw material (oil) into intermediate materials (ethylene and PVC), then into a finished product (plastic kitchenware), then packaging and physically distributing this kitchenware to consumers.

Strategically, where a firm ‘positions’ itself in the value-added chain for an industry can have an important bearing on its profitability since different activities within the chain may (because of technical and competitive considerations) generate different levels of profitability. For example, supplying unprocessed basic raw materials may yield low levels of profit compared to more skill-intensive later stage processing activities or the supply of high-technology ‘speciality’ inputs.

In many cases, firms will choose to embrace a number of ‘stages’ in the value-added chain as part of a vertically integrated operation in order to reduce costs or secure ‘tied’ input supplies or market outlets. See VALUE CREATED MODEL, VALUE CHAIN ANALYSIS, VERTICAL INTEGRATION.

Value-added chainclick for a larger image
Fig. 192 Value-added chain.

value-added chain

a chain of vertically linked activities that each adds value (see VALUE ADDED) in producing and distributing a product. Depending on the nature of the product, the value-added chain may involve a large number of vertically linked activities or only a few. Fig. 192, for example, shows one particular value-added chain in the petrochemical industry Here, the value-added chain involves converting a raw material (oil) into intermediate materials (ethylene and PVC), then into a finished product (plastic kitchenware), then packaging and physically distributing this kitchenware to consumers.

Strategically, where a firm ‘positions’ itself in the value-added chain for an industry can have an important bearing on its profitability since different activities within the chain may (because of technical and competitive considerations) generate different levels of profitability For example, supplying unprocessed basic raw materials may yield low levels of profit compared to more skill-intensive later-stage processing activities or the supply of high-technology ‘speciality’ inputs.

In many cases, firms will choose to embrace a number of‘stages’ in the value-added chain as part of a vertically integrated operation in order to reduce costs or secure ‘tied’ input supplies or market outlets. See VERTICAL INTEGRATION, VALUE-ADDED TAX.