value chain analysis


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value chain analysis

A conceptual framework which examines how the particular activities undertaken in a firm creates VALUE either through their impact on cost or through the benefits they provide customers (see VALUE CREATED MODEL for details).

Fig. 86 presents Michael Porter's schematic model of the value chain. Value activities can be divided into two broad types, ‘primary activities’ and ‘support activities’. Primary activities are those activities which involve the production of a good or service and its sale and movement to the buyer as well as after-sales facilities, whilst support activities provide purchased inputs, technology, human resources and various firm-wide information functions which support the primary activities.

There are five broad categories of primary activities:


The Porter value chainclick for a larger image
Fig. 86 The Porter value chain.

value chain analysis

Inbound logistics activities which involve receiving, storing and disseminating inputs to the product manufacturing process (e.g. materials handling, warehousing, stock control etc).

Operations activities involving the transformation of inputs into products (e.g. machining, assembly, packaging etc).

Outbound logistics activities associated with storing and distributing the product (e.g. finished goods warehousing, order processing, delivery etc).

Marketing and sales activities associated with generating customer demand for the firm's products such as advertising and sales promotion etc.

Service activities such as installation, repairs and parts supply etc. which help maintain the value of the product.

Due attention to primary activities is important in the context of establishing and maintaining COMPETITIVE ADVANTAGE (lower costs, superior products etc) over rival suppliers. Differences in the value chains of major competitors reflect the emphasis each firm places upon particular activities as its major competitive strength, so that, for example, one firm in a market may rely primarily upon the efficiency of its production operations, whilst another may emphasize marketing expertise.

In addition, the scope of an individual firm's value chain has to be considered in the context of the industry VALUE-ADDED CHAIN. Some firm's value chains may encompass only one stage of the industry chain, whilst other firms value chains may embrace several industry stages (see VERTICAL INTEGRATION). See RESOURCE BASED THEORY OF THE FIRM, VALUE ADDED ANALYSIS, CRITICAL OR KEY SUCCESS FACTORS.

Value chain analysisclick for a larger image
Fig. 193 Value chain analysis. The Porter value chain.

value chain analysis

a conceptual framework that examines how the particular activities undertaken in a firm create VALUE, either through their impact on cost or through the benefits they provide to customers (see VALUE-CREATED MODEL for details). Fig. 193 presents Michael Porter's schematic model of the value chain. Value activities can be divided into two broad types, ‘primary activities’ and ‘support activities’. Primary activities are those activities that involve the production of a good or service and its sale and movement to the buyer as well as after-sales facilities, while support activities provide purchased inputs, technology, human resources and various firm-wide information functions that support the primary activities.

There are five broad categories of primary activities:

  1. inbound logistics, activities that involve receiving, storing and disseminating inputs to the product manufacturing process (e.g. materials handling, warehousing, stock control, etc.;
  2. operations, activities involving the transformation of inputs into products (e.g. machining, assembly, packaging, etc.;
  3. outbound logistics, activities that are associated with storing and distributing the product (e.g. finished goods warehousing, order processing, delivery, etc.);
  4. marketing and sales, activities associated with generating customer demand for the firm's products, such as advertising and sales promotion, etc.;
  5. service, activities such as installation, repairs and parts supply, etc., that help maintain the value of the product.

Due attention to primary activities is important in the context of establishing and maintaining COMPETITIVE ADVANTAGE (lower costs, superior products, etc.) over rival suppliers. Differences in the value chains of major competitors reflect the emphasis each firm places upon particular activities as its major competitive strength, so, for example, one firm in a market may rely primarily upon the efficiency of its production operations, while another may emphasize marketing expertise.

In addition, the scope of an individual firm‘s value chain has to be considered in the context of the industry VALUE-ADDED CHAIN. Some firms’ value chains may encompass only one stage of the industry chain, while other firms’ value chains embrace several industry stages (see VERTICAL INTEGRATION). See RESOURCE-BASED THEORY OF THE FIRM.

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