PORTER'S VALUE CHAIN ANALYSIS
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
| * Concerned with receiving and storing externally sourced materials. * Includes receiving, storing, inventory control, transportation scheduling.
| * 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.
| * Maintain and enhance the product performance after the product has been sold. * Includes customer support, repair services, installation, training, spare parts management, upgrading, etc.
| * 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.
| * Concerned with a wide range of support systems and function. * Includes general management, planning management, legal, finance, accounting, public affairs, quality management.
PORTER’S FIVE FORCES
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
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.
Power of Buyers
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.
Competitive strength high when:
The relative price of substitute products declines.
Consumers’ switching costs decline.
Competitors plan to increase market penetration or production capacity.
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.
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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