The value chain analysis describes the activities the organization performs and links them to the organization’s competitive position. Value chain analysis describes the activities within and around an organization, and relates them on analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organization’s products or services (Recklies 2001). Value chain analysis can be used to describe the activities within and around the organization, and relate them to the competitive strength of the firm (its ability to provide value for money products and services). Thus, the approach rests upon the need to identify separate organizational activities and assess their value added. The importance of organized activities and systems becomes clear. The various resources (people, machinery, information, etc.) must be deployed into activities, routines and systems that produce the necessary value. The ability to perform particular activities and manage the linkages between activities is the key source of competitive advantage (Lowson 2002). Activities that add value are divided into two categories. These are primary and support.
Primary activities are primarily concerned with the creation or delivery of a product or service. They can be grouped into five main areas:
Inbound logistics (receiving, storing and distributing the inputs to an organization) Operations (transforming inputs into outputs)
Outbound logistics (storing and distribution and delivery of product and service combinations) Marketing and sales (means by which consumers are made aware of an can purchase products and services) Service (activities that enhance the value of a product or service) Support Activities
Each primary activity is linked to support activities, which help to improve their effectiveness or efficiency.