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20 views5 pages

SCM - 4

Uploaded by

Rizi Rizwan
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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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VALUE CHAIN DEFINITIONS

• Value Chain - The activities that take place within a company in order to
deliver a valuable product or service to their market.
• Value Chain Analysis – A tool for analyzing activities to find those that are
most valuable.
• Porter’s Value Chain – A framework, created by Michael Porter, that helps
identify specific activities that contribute value and create competitive
advantage.
• Value Chain Management – The process of identifying and organizing the
activities that add value in the production of goods and services in an
effort to increase collaboration, increase competitive advantage, and
improve customer satisfaction.
The difference between a value chain and a supply chain is that
a supply chain is the process of all parties involved in fulfilling a
customer request, while a value chain is a set of interrelated
activities a company uses to create a competitive advantage.
PORTER’S VALUE CHAIN MODEL
• Porter's value chain model presents nine elements (five primary activities and four
support activities). It provides a useful tool to analyze the relationship of cost to
build versus the price a consumer is willing to pay. Because the value chain
examines what activities are most beneficial, it is also used to find opportunities,
innovations, or practices that set the firm's offering apart from its competition.
The value that's created and captured by a company is the profit margin:

Value Created and Captured – Cost of Creating that Value = Margin

There are five functional areas identified as "primary activities“. These functions are
shown in a logically sequenced horizontal line .

• Inbound Logistics: These are the activities that receive, store, and handle
materials. They include warehousing, inventory, scheduling, and vendor returns.
• Operations: This area represents all the activities to build or develop the end
product including assembly, testing, labeling, packaging, and overall facility
operations.
• Outbound Logistics: Once developed, it’s time to distribute the product. Identify
activities such as order processing, scheduling, warehousing finished goods, and
delivery.
• Marketing and Sales: Activities include branding, advertising, promotion, sales
force management, pricing, and quoting.
• Service: Maintenance of the product, installation, repair, and training are all part
of this function.
There are also four “support activity” centers that support these five primary functions.
They are found on the model in a vertical "umbrella" over the primary functions because
these operations get distributed throughout the entire enterprise.

• Firm Infrastructure: These are the activities that are interwoven throughout the entire
business structure including finance, legal, quality, government affairs, general
management, and accounting.

• Human Resources Management: HR is responsible for providing methods of hiring,


training, compensation, and motivation for personnel in all areas of the business.

• Technology Development: This area is more than research and development. It


includes uses of technology for overall business support such as phones and plans,
office automation, order processing methods, and procedures.

• Procurement: This activity includes purchasing raw materials and supplies, as well as
vendor qualification, building or leasing, info system development, and fleet
management.
BENEFITS OF VALUE CHAINS
The goal of a value chain strategy is to maintain or achieve a competitive advantage. This
can be accomplished through a purposefully structured process; however, that bring real
results in cost reduction, increased customer value, and market dominance.

An effective value chain analysis will help you:


• Identify activities that are useful vs. activities that waste time.
• Improve brand reputation.
• Respond to weaknesses, opportunities, and threats quickly.
• Reduce costs.
• Increase productivity.
• Improve customer satisfaction.
• Streamline service/product delivery.
• Differentiate from the competition and achieve competitive advantage.
• Identify your profit margin. (Identify the value that you deliver to the customer and
then subtract the costs associated with creating that value to get your profit margin.)

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