The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
Definition : According to John Del Vecchio writing for Fool.com, 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.
The value chain analysis means of increasing customer satisfaction and managing cost more effectively. This is a systematic approach to examining the development of competitive advantage. Value chain analysis is particularly useful tool for looking at competitors, and identifying sources of competitive advantage The value chain categorizes the generic value-adding activities of an organization. The main activities respectively are: inbound logistics, production, outbound logistics, sales and marketing, maintenance. These activities are supported by: administrative infrastructure management, human resources management, R&D, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management though as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs. The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic actors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Capturing the value generated along the chain is the new approach taken by many management strategists. By exploiting the upstream and downstream information flowing along the value chain the firms may try to bypass the intermediaries creating new business models. a) Firm Level
A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity's value. It is important not to mix the concept of the value chain with the costs occurring throughout the activities.
The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity. [pic]
Primary and support activities of a Value Chain Analysis
Primary activities of Value Chains Analysis are directly concerned with the production or delivery of a product of services and consist of: 1. Inbound Logistics – the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required. Refer to activities such as receiving, storing and distributing the inputs to the product or service. E.g. materials handling and stock control 2. Operations – the processes of transforming inputs into finished products and services.Cconversion of the various inputs into final product or services 3. Outbound Logistics – the warehousing and distribution of finished goods.To...