VALUE CHAIN

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•"What do you think is the process
involved in creating and delivering a
product or service to customers?"
 •How does an organization/business create value?

• How do you change business inputs into business outputs

in such a way that they have a greater value than the
original cost of creating those outputs?
 •it's
a matter of fundamental importance to
companies, because it addresses the economic
logic of why the organization exists in the
first place.
• Manufacturing companies create value by
acquiring raw materials and using them to produce
something useful. Retailers bring together a range
of products and present them in a way that's
convenient to customers, sometimes supported by
services such as fitting rooms or personal shopper
advice.
• The value that's created and captured by a company is
the profit margin:
• Value Created and Captured – Cost of Creating that
Value = Margin

• The more value an organization creates, the more profitable

it is likely to be. And when you provide more value to your
customers, you build competitive advantage.
• Understanding how your company creates value,
and looking for ways to add more value, are critical
elements in developing a competitive strategy.
Michael Porter discussed this in his influential
1985 book "Competitive Advantage," in which he
first introduced the concept of the value chain.
• A value chain is a set of activities that an
organization carries out to create value for its
customers.
• Porter proposed a general-purpose value chain that
companies can use to examine all of their activities, and
see how they're connected. The way in which value
chain activities are performed determines costs and
affects profits, so this tool can help you understand the
sources of value for your organization.
is a concept developed by Michael Porter
to describe the series of activities that a
company undertakes in order to create
and deliver a product or service to its
customers. It is a useful tool for analyzing
a company's competitive advantage and
identifying areas for improvement.
• Rather than looking at departments or accounting cost
types, Porter's Value Chain focuses on systems, and how
inputs are changed into the outputs purchased by
consumers. Using this viewpoint, Porter described a
chain of activities common to all businesses, and he
divided them into PRIMARY and SUPPORT
ACTIVITIES,
 Primary Activities

•Primary activities are directly involved in the

creation and delivery of a product or service.
There are five primary activities in the value
chain:
Inbound Logistics:
This includes activities such as receiving, storing,
and distributing raw materials or inputs for
production.

For example, in the automotive industry, inbound

logistics would involve thetransportation and storage
of steel, rubber, and other materials used in the
manufacturing process.
• Operations: These activities involve transforming inputs
into finished products or services. This can include
manufacturing, assembly, packaging, and quality control.
• Forinstance, in the technology industry, operations
would involve the assembly of computer components to
create a finished product.
Outbound Logistics: This includes activities such as
warehousing, order fulfillment, and distribution of
finished products to customers.
• In the retail industry, outbound logistics would involve
the transportation and delivery of products from a
distribution center to retail stores.
Marketing and Sales: These activities involve
promoting and selling products or services to customers.
This can include advertising, sales promotions, market
research, and customer relationship management.
• Forexample, in the fashion industry, marketing and
sales activities would involve creating advertising
campaigns and managing relationships with retail
partners.
Service: This includes activities that support customers
after the sale of a product or service. It can involve
installation, repair, maintenance, and customer support.
• In
the telecommunications industry, service activities
would include technical support and troubleshooting for
customers.
 Support Activities

Support activities are not directly involved in the production or

delivery of a product or service, but they are essential for the
smooth operation of the primary activities. There are four
support activities in the value chain:
Procurement: This involves sourcing and purchasing the
inputs needed for production. It includes activities such
as supplier selection, negotiation, and contract
management.
• For example, in the food industry, procurement activities
would involve sourcing ingredients from farmers and
suppliers.
• Technology Development: This includes activities related to
research and development, innovation, and technology
infrastructure. It can involve designing new products, improving
manufacturing processes, and implementing information
systems.
• In the pharmaceutical industry, technology development
activities would involve research and development of new drugs.
•
Human Resource Management: These activities involve
recruiting, training, and managing the workforce of a company.
It includes activities such as hiring, performance management,
and employee development.
• For instance, in the hospitality industry, human resource
management activities would involve recruiting and training
hotel staff.
• Firm Infrastructure: This includes activities that
support the overall functioning of a company, such as
finance, accounting, legal, and general management. It
involves activities such as financial planning,
budgeting, and corporate governance.
• In
the banking industry, firm infrastructure activities
would involve managing financial transactions and
ensuring compliance with regulations.
Examples:
•
Toyota: Inbound logistics for Toyota involve
sourcing raw materials for car manufacturing.
Operations include the assembly of cars in
manufacturing plants. Outbound logistics involve
the distribution of cars to dealerships. Marketing
and sales activities include advertising campaigns
and dealer network management. Service
activities include warranty repairs and customer
support.
• Apple Inc.: Inbound logistics for Apple involves
sourcing components from suppliers around the world.
Operations include the assembly of iPhones and
MacBooks in manufacturing facilities. Outbound
logistics involve the distribution of products to Apple
stores and online customers. Marketing and sales
activities include advertising campaigns and retail
partnerships. Service activities include customer
support and repairs.
• Amazon: Inbound logistics for Amazon involve
receiving and storing products in its warehouses.
Operations include order fulfillment and packaging.
Outbound logistics involve the delivery of products to
customers' doorsteps. Marketing and sales activities
include online advertising and personalized
recommendations. Service activities include customer
support and returns processing.