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Value Chain Approach

The value chain is a concept that analyzes the activities within and surrounding a firm that create value for customers. Michael Porter first introduced the value chain model in 1985 to help companies identify sources of competitive advantage. The value chain consists of primary activities like operations, marketing, and support activities like procurement and technology development. It analyzes how value is created at each step from raw materials to the final product.

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128 views11 pages

Value Chain Approach

The value chain is a concept that analyzes the activities within and surrounding a firm that create value for customers. Michael Porter first introduced the value chain model in 1985 to help companies identify sources of competitive advantage. The value chain consists of primary activities like operations, marketing, and support activities like procurement and technology development. It analyzes how value is created at each step from raw materials to the final product.

Uploaded by

vinay saini
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Corporate and

Strategic Analysis
Value Chain Approach

 The value chain or value chain analysis is concept from business management that
was first described and popularized by Michal Porter in 1985.
 Is a chain of actions used by companies to operate in a particular market industry.
It is logical approach which helps companies to find out the ways of achieving
competitive advantage. In value chain analysis, each product should pass through
the series of activities and get some value on completion of each activity.
Michael Porter’s Value Chain

 Michael Porter’s Value chain analysis is a methodical way of inspecting the


sequence of activities a firm performs to provide a product to its customers. Every
factory can be watched as a collection of value events that are executed to
produce, design, market, and deliver its activities. The value chain of a firm
consists of the firm’s primary and support activities. A firm’s value chain
identities the primary activities that create value for customers and the related
support activities that enhance primary activities’ performance. In a
manufacturing firm, the chain of value-creating activities starts with the
procurement of raw materials. It continues through manufacturing, assembly,
wholesale distribution, and retailing to the ultimate end-users of the product or
service.
Porter’s Generic Value Chain

 Porter’s definition includes all activities to design, produce, market, deliver, and
support the product/service.
 The value chain is concentrating on the activities starting with raw materials till
the conversion into final goods or services.
 Two categories: Primary Activities (operations, distribution, sales)& Support
Activities (R&D, Human Resources)
TYPES OF VALUE CHAIN

 Value Chain is categorized into types based on the type of organizations.


 Manufacturing based.
 Service based.
 Both manufacturing and service based.
What is value chain analysis?

 Used to identify sources of competitive advantage


 Specifically:
– Opportunities to secure cost advantages
– Opportunities to create product/service differentiation
 Includes the value-creating activities of all industry participants
Primary Activities in Value Chain
Analysis
 The value chain analysis’s primary activities are involved in the physical creation of a product, its distribution
and marketing, and the after-sales service related to the product. The primary activities are inbound logistics,
operations/production, outbound logistics, marketing, and services.
 Inbound logistics are those that are associated with receiving, storing, and handling inputs to the production
process. These include material handling, storing products in the warehouse, scheduling vehicles for the
transport of materials/products, and returns to suppliers.
 Operations comprise packaging, machining, testing, equipment maintenance, assembly, and other activities
associated with transforming inputs into the ultimate products. This is the physical process of making, testing,
and packaging the product.
 Outbound logistics are those performed to collect, store, and physically distribute products to customers.
Material handling, delivery vehicles, order processing, and scheduling are included in outbound logistics.
Primary Activities in Value Chain
Analysis
 Marketing is an element of primary activities in value chain analysis. It is
concerned with providing the buyer with information, inducement, and
opportunities to buy the product. It includes promotional activities such as
advertising, sales promotion, public relations, personal selling, sales force,
selection of distribution channel, pricing of products, and other activities related
to providing a means by which customers can buy the products.
 Service concerns itself with activities associated with enhancing and maintaining
the products’ value to customers, such as repair of machines, installation of
machinery, training to customer’s supply of parts, prompt response to customer’s
query, etc. All these primary activities are present in varying degrees in each firm
and, therefore, deserve attention in the firm’s internal analysis.
Supportive Activities in Value Chain
Analysis
 The support activities in the value chain analysis are necessary for supporting the
primary activities to take place. The support activities in the value chain analysis
have indicators. Such as:-
 Firm’s infrastructure
 Human resource management
 Technological development
 Procurement of resources, finance, inventory, etc.
 Collectively, all these support activities and primary activities create the value
chain. The chain comprises an earnings margin because a markup over the cost of
perming value-creating activities is customarily part of the price borne by buyers.
Support Activities
 Firm Infrastructure: This activity includes and is driven by corporate or strategic planning. It
includes the MIS and other mechanisms for planning and controlling such as the financial &
accounting department, production department,marketing department,etc.
 HRM: Employees are costly but essential resource of organisation. In HRM process the
organisations manage the recruitment and selection, training and development and rewards and
remuneration activities. The Mission and objectives of the organisation is the main force behind
the HRM Strategy.
 Procurement:Concerned with the tasks of purchasing inputs such as raw materials, equipment,
and even labor.
 Technology Development: These activities are intended to improve the product and the process,
can occur in many parts of the firm.

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