Porter Value Chain Analysis

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The porter’s value chain is a model that helps to analyze specific activities through which firms can create value and competitive advantage. There are two activities in value chain which are:
Primary activity – directly concern with creating and delivering a product.
Support activities – not directly involved in production, may increase effectiveness or efficiency. PRIMARY ACTIVITIES | DESCRIPTION |
Inbound Logistic | * Concerned with receiving and storing externally sourced materials. * Includes receiving, storing, inventory control, transportation scheduling. | Operations | * Manufacture of products and services. * The way that the resource inputs convert to outputs. * Includes machining, packaging, assembly, equipment maintenance | Outbound Logistic | * Required to get the finished goods and services to the customer. * e.g : warehousing, order fulfillment, transportation, distribution, distribution management.| Marketing and Sales | * Associated with getting buyers to purchase the product. * Includes channel selection, advertising, promotion, selling, pricing, retail management, etc. | Services | * Maintain and enhance the product performance after the product has been sold. * Includes customer support, repair services, installation, training, spare parts management, upgrading, etc. |

Procurement | * Concerned how resources are acquired for a business. * Procurement of raw materials, servicing, spare parts, buildings, machines.| Human Resources Management | * Associated with recruiting, development (education), retention and compensation of employees and managers. | Technology Development| * Concerned with managing information processing and the development and protection of knowledge in business. * Includes technology development to support the value chain activities such as research and development, process automation, design and redesign. | Infrastructure | * Concerned with a wide range of support systems and function. * Includes general management, planning management, legal, finance, accounting, public affairs, quality management. |


1) Barriers to Entry
* Large capital requirements or the need to gain economies of scale quickly. * Strong customer loyalty or strong brand preferences.
* Lack of adequate distribution channels or access to raw materials.

2) Power of Suppliers
High when:
* A small number of dominant, highly concentrated suppliers exists. * Few good substitute raw materials or suppliers are available. * The cost of switching raw materials or suppliers is high.

3) Power of Buyers
High when:
* Customers are concentrated, large or buy in volume.
* The products being purchased are standard or undifferentiated making it easy to switch to other suppliers. * Customers’ purchases represent a major portion of the sellers’ total revenue.

4) Substitute products
Competitive strength high when:
* The relative price of substitute products declines.
* Consumers’ switching costs decline.
* Competitors plan to increase market penetration or production capacity.

5) Rivalry among competitors
Intensity increases as:
* The number of competitors increases or they become equal in size. * Demand for the industry’s products declines or industry growth slows. * Fixed costs or barriers to leaving the industry are high.


1) Cost-leadership Strategy
* Do everything to achieve a CA through producing products or services at a lower unit cost (lowering cost structure) charge a lower price. * Increase efficiency and lower costs – the manufacturing and materials management functions are the center of attention * A low- level of product differentiation– it means that...
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