Introduction to Value-Chain
The Value-Chain was conceptualized and popularized by Porter in 1985 through his book, a best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. The main thrust of “the value-chain” is to categorize the generic “value-adding activities” of an organization. The value-chain management tool recognizes two value-adding activities in an organization, the “primary activity” and the “support activity”. The primary activities includes the following, inbound logistics, production, outbound logistics, sales and marketing, and maintenance. Support activities include administrative infrastructure management, human resources management, research and development team and procurement (2003). According to (1985) a firm's value chain is embedded in a larger stream of activities that he termed the value system. Suppliers have value chains (upstream value) that create and deliver the purchased inputs used in a firm's chain. Suppliers not only deliver a product but also can influence a firm's performance in many other ways. In addition, many products pass through the value chains of channels (channels value) on their way to the buyer. Channels perform additional activities that affect the buyer, as well as influence the firm's own activities. A firm's product eventually becomes part of the buyer's value chain. The ultimate basis for differentiation is a firm and its product's role in the buyer's value chain, which determines buyer's needs. Gaining and sustaining competitive advantage depends on understanding not only a firm's value chain but how the firm fits in the overall value system ( 2003).
Simply, the value chain is a model that describes a series of value-adding activities connecting a company's supply side (raw materials, inbound logistics, and production processes) with its demand side (outbound logistics, marketing, and sales). By analyzing the stages of a value chain, managers have been able to redesign their internal and external processes to improve efficiency and effectiveness (1996).
Porter’s Generic Value Chain [pic]
The paramount aim of every organization is to achieve optimization of each element of the value chain. In analyzing various elements, for example, inbound logistics (material handling, inspection, just-in-time delivery), outbound logistics (order processes, transport), marketing and sales (product development, pricing, promotion, distribution), service (on-site and off-site service, spare parts, customer care), organizations ought to gain insight not only into their own potentialities but also of their competitors' capabilities and competencies.
The costs and value drivers of an organization are distinguished for each value activity. The value chain framework quickly made its way to the cutting edge of management zeitgeist as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs.
The Primary Value-Chain Activities
• Inbound logistics: the receiving and warehousing of raw materials, and theirs distribution to manufacturing as they are required. • Operations: the processes of transforming inputs into finished products and services. • Outbound logistics: the warehousing and distribution of finished products. • Marketing and sales: the identification of customer needs and the generation of sales. • Service: the support of customers after the products and services are sold to them.
These primary activities are supported by:
• The infrastructure of the firm: organizational structure, corporate culture, control systems, etc. • Human resource management: employee recruiting, hiring, training, development and compensation. • Technology and...