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Limitations of Value Chain Analysis

Value Chain Analysis is not free from criticism and may have several limitations as:

1. Non-availability of data : Internal data on costs, revenues and assets used for value chain analysis are derived from financial information of a single period. For long term strategic decision making, changes in cost structures, market prices and capital investments etc. may not be readily available.

2. Identification of stages: Identifying stages in an industry’s value chain is limited by the ability to locate atleast one firm that participates in a specific stage. breaking a value stage into two or more stages when an outside firm does not complete in these stages is strictly judgment.

3. Ascertainment of cost, revenues and assets:
Finding the costs revenues and assets for each value chain activity poses/gives rise to serious difficulties. There is no scientific approach and much depends upon trial and error and experimentation methods.

4. Identification of cost drivers: Isolating cost drivers for each value-creating activity, identifying value chain linkages across activities and computing supplier and customer profit margins present serious challenges.

5. Resistance from employees: Value chain analysis is not easily understandable to all employees and hence may face resistance from employees as well as managers.

6. Science vs. Art: Value chain analysis is not exact science. It is more “art” than preparing precise accounting reports. Certain judgments and factors of analysis are purely subjective and differ from person to person.
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