Uncovering Hidden Risks: The Role of Value Chain Assessment in Modern Investing

There has been a steady rise in demand by various stakeholder groups for transparency across products and business activities. Customers, regulatory authorities, employees, and investors seek information that extends beyond the organization’s direct scope of activities into the value chain to ensure ethical and sustainable practices, as well as regulatory compliance.

Investors are well aware of the benefits of a transparent value chain and have taken necessary steps to identify any hidden risks that might have negative implications for any stakeholder group, eventually leading to a poor investment decision. A value chain assessment provides investors with a comprehensive understanding of a business’s activities, from the procurement of raw materials to the delivery of completed goods and services and helps them identify opportunities and risks.

What is Value Chain Assessment?
The term ‘value chain’ describes the entire set of operations needed to develop, produce, market, distribute, and provide after-sale support for a product or service. These include both primary activities, those that are directly responsible for the production of a good or execution of a service (e.g., operations) and secondary activities, which help improve the efficiency of primary activities (e.g., infrastructure development). For a product-based business, the value chain includes every step from the procurement of raw materials to the sale of goods to the end consumer, including after-sales services.

A value chain assessment aims to evaluate each activity in a company’s value chain to identify and examine any weaknesses or inefficiencies that might have a detrimental effect on the performance of the business. This process helps analyze a company’s operations to understand how it creates value and where it might encounter risks that could compromise profitability.