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Value Chain – Concept
The value chain of an organization describes the sequence of activities or processes involved in creating and delivering a product or service to the customers.
It's composed of two main categories of activities – primary and support activities.
Primary Activities are the fundamental processes in creating and delivering the product or service.
These include inbound logistics, operations, outbound logistics, marketing and sales, and after-sales service.
Support Activities offer crucial support to primary activities.
These include infrastructure, human resources management, technology development, and procurement.
Analyzing each activity within the value chain enables a company to identify opportunities for creating value, reducing costs, enhancing efficiency, and gaining a competitive advantage.
Activities outside the core business can be outsourced, allowing the company to concentrate on its core competencies.
For instance, Uber connects drivers with passengers, focusing on marketing its service and technology while outsourcing vehicle ownership and operation. This strategy enhances Uber's strengths, giving it a competitive advantage.
Value Chain – Concept
The value chain concept, by Michael Porter, illustrates a company's interlinked activities to design, produce, market, deliver, and support its product or service. It consists of primary and support activities.
Primary activities directly contribute to creating and delivering the product.
These include
- • Inbound Logistics: It involves efficiently acquiring, storing, and distributing raw materials for cost-effectiveness and production continuity.
- • Operations: This step involves efficiently transforming raw materials into finished products.
- • Outbound Logistics: Involves storing and distributing finished products, managing warehouses, order fulfillment, and transportation.
- • Marketing and Sales: Encompasses market research, advertising, sales, and establishing customer relationships.
- • After-sales Service: Involves customer support, warranties, maintenance, and services to enhance customer satisfaction and loyalty.
Support activities provide the necessary infrastructure and support to the primary functions.
These include:
- • Infrastructure: Supports the organization through administrative functions, planning, finance, and quality control.
- • Human Resource Management: Involves recruiting, training, and managing the workforce.
- • Technology Development: Encompasses R&D and innovation for product and process improvement.
- • Procurement: Manages sourcing and purchasing resources by finding suppliers, negotiating contracts, and ensuring quality and timely delivery.
Analyzing each value chain allows businesses to focus on core competencies and potentially outsource non-core activities, directing resources for maximum competitive advantage.