The document discusses the value chain concept, including its history, definitions, benefits, advantages, and disadvantages. A value chain is a model that views a business as a series of activities that collectively create and deliver a product or service. It analyzes the activities a company engages in to create value for its customers. Managing the value chain effectively can help companies create competitive advantages through cost leadership or differentiation. However, some find the concept difficult to apply in practice due to the complexity of modern business operations and lack of structured data.

1. Chapter Two:
{ VALUE CHAIN }

2. Content
 History
 Definitions
 Benefits
 Advantages
 Disadvantages
 Managing The Value Chain

3. History
 Supply Chain - For a company, the supply chain is normally a
big and wide concept that describes the means by which the
company produces products or services to meet its customers’
needs.
 A value system includes the value chains of a firm's supplier
(and their suppliers all the way back), the firm itself, the firm
distribution channels, and the firm's buyers (and presumably
extended to the buyers of their products, and so on).
 The concept has been extended beyond individual
organizations. It can apply to whole supply chains and
distribution networks

4. Definitions
 Kotelnikov (2001), A high-level model of how businesses
receive raw materials as input, add value to the raw materials
through various processes, and sell finished products to
customers.
 John Del Vecchio, a value chain is "a string of companies
working together to satisfy market demands." The value chain
typically consists of one or a few primary value (product or
service) suppliers and many other suppliers that add on to the
value that is ultimately presented to the buying public.

5. Benefits
 Creating a Profit
 Cooperation
 Return on Investment
 Increasing Competition and the Primacy of Strategy
 Evolving Governance Models for the Extended Enterprise
 Globalization of Supply and Production
 Many Benefits Already wrung out of Manufacturing and the
Supply Chain
 Trends in Management Discourse
 Improved Customer Service
 Cost Savings and Accelerated Delivery Times

6. Advantages
 A big advantage is that the value chain is a very flexible
strategy tool for looking at your business, your competitors and
the respective places in the industry’s value system.
 The value chain can be used to diagnose and create competitive
advantages on both cost and differentiation.
 It helps in understanding the organization issues involved with
the promise of making customer value commitments and
promises because it focuses attention on the activities needed to
deliver the value proposition.
 It can be adapted for any type of business –
manufacturing, retail or service, big or small.

7. Disadvantages
 Many people are familiar with the value chain but few are experts in
its use.
 Michael Porter’s book is excellent but it is a tough read. It’s also dated
in its examples which can make some of the ideas more difficult to
relate to and understand how things fit together in the Internet age.
 The value chain idea has been adopted by supply chain and
operations experts and therefore its strategic impact for
understanding, analysing and creating competitive advantage has
been reduced.
 Business information systems are often not structured in a way to
make it easy to get information for value chain analysis.

8. Managing The Value Chain
 How does your organization 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?
 The value that's created and captured by a company is the
profit margin:
Value Created and Captured – Cost of Creating that Value =
Margin

9. THANK YOU