A value chain is the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up all throughout the company. Michael Porter developed this concept in his 1980 book 'Competitive Advantage'. In simple words
'Value Chain'
is a high level model of how business receive raw-materials, add value to the raw-materials through various processes and sell as finished products to customers. 'Value Chain' analysis looks at every step of business, from raw-materials to the eventual end users, with one goal to deliver maximum value.
Michael Porter introduced the value chain analysis concept in his 1985 book ‘The Competitive Advantage’.
Porter suggested that activities within an organisation add value to the service and products that the organisation produces and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently, the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is
split into ‘primary activities’ and ‘support activities’.
13. Firm Infrastructure
Includes general and planning management, legal,
finance, accounting, public affairs, and quality
management
Ex. A firm’s legal team consisting of lawyers to aid in
lawsuits
Accounting department to keep track of financial
figures
14. Why this matters
Profits depends on how well firms execute these
activities in the value chain
Firms that excel in a value chain activity is said to have
a competitive advantage
Competitive advantage is gained through cost
advantage
16. 10 Costs Drivers of Each Value
Chain Activity
1. Economies of Scale
2. Learning
3. Capacity Utilization
4. Linkages among activities
5. Interrelationships among business units
6. Degree of vertical integration
7. Timing of market entry
8. Firm’s policy of cost or differentiation
9. Geographic location
10. Institutional Factors (regulation, union activity, taxes
etc.)
18. The Bigger Picture
Firm’s value chain is part of a bigger value chain
Competitive advantage also depends on the
management of connections with other firms’ value
chains
Michael Porter is a current Professor at Harvard University and he wrote the well known Competitive Advantage which defines the strategic advantage one business has over its business rivals.
Here we have the Porters Generic Value chain which describes a chain of activities. He divided these activities into support activities and primary activities.
The Primary Activities are :
Inbound logistics include the processes like receiving, storing, inventory control, transportation planning. The relationship between suppliers are very important here because they play a major role in the distribution of raw materials.
In Operations the processes that occur are machining, packaging, assembly, equipment maintenance, and testing. Here is where the transformation starts and products come to life and are then sold to customers.
In outbound logistics some of the Processes include: warehousing, order fulfillment, transportation, and distribution management. The products are then sent to Apple for sale
In Marketing and sales the Processes include:advertising, promotion, selling, and retail management
Examples: customer support, repair services, training, and installation
Examples: R&D, process automation, design, redesign
SAP is an enterprise resource program that supports various business functions in the value chain. It has financial support features to support accounting in the firm’s infrastructure, human capital management support to help HR management, and operations support to aid in the firm’s operations and procurement.
Walmart’s Retail Link system helps keep inventories costs low and procurement costs down
For example: Toyota’s factory in San Antonio having on-site suppliers to better coordinate value chains to supplement their JIT inventory management
