Value Chain

What’s the value chain?

The value chain is the key to identify the organization’s main capability and classify those activities performed to create, manufacture, market, sell, and distribute the product or service that contribute to competitive advantage by delivering value to customers. It is a set of value added activities in which products pass through the activities gaining value at each stage. The cost of such value activities are indicators if the best value products or services are developed. The attention is on identifying the activities and processes that create value for customers.

The significance of a value chain analysis is that it can assist in assessing costs in the chain that may be decreased or influenced by a change in one of the chain's processes. By comparing the value chain to the competitors, areas or links of the chain maybe identified where the competitors may be more efficient than the organization which directs the organization to improve.

Michael Porter’s strength was to compact this activity based cost analysis into a system consisting of five primary activities and four support activities listed:

Primary Activities:

Inbound logistics: purchase of supplies and materials handling, warehousing, inventory control, transportation;

Manufacturing and Operations: machine operating, assembly, packaging, testing and maintenance;

Outbound Shipping and logistics: order processing, warehousing, transportation and distribution;

Marketing and sales and customer service: advertising, promotion, selling, pricing, channel management;

Service: installation, servicing, spare part management;

Support Activities:

Firm infrastructure: general management, planning, accounting and finance, legal, investor relations;

Human resource management: recruitment, education, promotion, and reward systems;

Systems support and technology development: research & development, IT, product and process development;

Procurement: purchasing raw materials, lease...