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Value Chain - Overview
Value Chain - Overview
CAN BE USED TO EXAMINE THE VARIOUS ACTIVITIES OF THE FIRM AND HOW THEY INTERACT IN ORDER TO PROVIDE A SOURCE OF COMPETITIVE ADVANTAGE BY:
- PERFORMING THESE ACTIVITIES BETTER OR - AT A LOWER COST THAN THE COMPETITORS
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
1. PRIMARY - THOSE THAT ARE INVOLVED IN THE CREATION, SALE AND TRANSFER OF PRODUCTS (INCLUDING AFTERSALES SERVICE)
FIRM INFRASTRUCTURE
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
PRIMARY ACTIVITIES
1. INBOUND LOGISTICS
- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (e.g. HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY CONTROL)
PRIMARY ACTIVITIES
2. OPERATIONS - COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING)
PRIMARY ACTIVITIES
3. OUTBOUND LOGISTICS
- INVOLVE THE COLLECTING, STORING, AND DISTRI BUTING THE PRODUCT TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF FINISHED GOODS, AND DELIVERY)
PRIMARY ACTIVITIES
4. MARKETING AND SALES - HOW BUYERS CAN BE CONVINCED TO PURCHASE THE PRODUCT (e.g. ADVERTISING, PROMOTION, DISTRIBUTION)
PRIMARY ACTIVITIES
5. SERVICE
INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT AFTER IT IS PURCHASED (e.g. INSTALLATION, REPAIR, MAINTENANCE, AND TRAINING)
FIRM INFRASTRUCTURE
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
SUPPORT ACTIVITIES
1. PROCUREMENT -CONCERNED WITH THE TASKS OF PURCHASING INPUTS SUCH AS RAW MATERIALS, EQUIPMENT, AND EVEN LABOR
SUPPORT ACTIVITIES
2. TECHNOLOGY DEVELOPMENT
THESE ACTIVITIES ARE INTENDED TO IMPROVE THE PRODUCT AND THE PROCESS, CAN OCCUR IN MANY PARTS OF THE FIRM
SUPPORT ACTIVITIES
3. HUMAN RESOURCE MANAGEMENT INVOLVED IN RECRUITING, HIRING, TRAINING, DEVELOPMENT AND COMPENSATION
SUPPORT ACTIVITIES
4. FIRM INFRASTRUCTURE
- THE ACTIVITIES WHICH ARE NOT SPECIFIC TO ANY ACTIVITY AREA SUCH AS GENERAL MANAGEMENT, PLANNING, FINANCE, AND ACCOUNTING ARE CATEGORIZED UNDER FIRM INFRASTRUCTURE.
FIRM INFRASTRUCTURE
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
THE SOURCES OF THE COMPETITIVE ADVANTAGE OF A FIRM CAN BE SEEN FROM ITS DISCRETE ACTIVITIES AND HOW THEY INTERACT WITH ONE ANOTHER.
THE VALUE CHAIN IS A TOOL FOR SYSTEMATICALLY EXAMINING THE AND AFFECT EACH OTHERS COST AND PERFORMANCE.
A FIRM GAINS A COMPETITIVE ADVANTAGE BY PERFORMING THESE ACTIVITIES BETTER OR AT LOWER COST THAN COMPETITORS.
VALUE
THE VALUE IS THE TOTAL AMOUNT (i.e. TOTAL REVENUE) THAT BUYERS ARE WILLING TO PAY FOR A FIRMS PRODUCTS. THE DIFFERENCE BETWEEN THE TOTAL VALUE (OR REVENUE) AND THE TOTAL COST OF PERFORMING ALL OF THE FIRMS ACTIVITIES PROVIDES THE MARGIN
FIRM INFRASTRUCTURE
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
VALUE ACTIVITIES
THOSE ACTIVITIES THAT ARE DISTINCT BOTH PHYSICALLY AND TECHNOLOGICALLY
VALUE ACTIVITIES
SOME ACTIVITIES ARE MORE VITAL THAN OTHERS DEPENDING UPON THE INDUSTRY.
FOR INSTANCE, MARKETING ACTIVITIES WOULD BE MORE VITAL IN A VERY COMPETITIVE CONSUMER GOODS INDUSTRY THAN IN A TELEPHONE MONOPOLY.
VALUE ACTIVITIES
SOME ACTIVITIES ARE DIRECT IN THE SENSE THAT THEY ARE DIRECTLY INVOLVED IN CREATING VALUE FOR THE BUYER.
VALUE ACTIVITIES
SOME ACTIVITIES ARE INDIRECT AND ARE INVOLVED ONLY IN MAKING IT POSSIBLE TO PERFORM THE DIRECT ACTIVITIES ON A CONTINUING BASIS
(e.g. MAINTENANCE, SCHEDULING, OPERATION OF FACILITIES, RECORD KEEPING).
VALUE ACTIVITIES
SOME ACTIVITIES ARE PRIMARILY INVOLVED IN QUALITY ASSURANCE AND ARE INVOLVED MAINLY IN ENSURING THE QUALITY OF OTHER ACTIVITIES
(e.g. MONITORING, INSPECTING, TESTING, ETC.)
VALUE ACTIVITIES
EVERY ACTIVITY THAT IS DONE BY A FIRM NEEDS TO BE CAPTURED IN A PRIMARY OR SUPPORT ACTIVITY.
VALUE ACTIVITIES
VALUE ACTIVITIES
THE VALUE LABELS ARE ARBITRARY AND THEY SHOULD BE CHOSEN IN ORDER TO PROVIDE THE BEST INSIGHT INTO THE BUSINESS.
IT IS ADVISABLE TO ASSIGN THE VALUE ACTIVITIES TO CATEGORIES THAT BEST REPRESENT THEIR CONTRIBUTION TO A FIRMS COMPETITIVE ADVANTAGE.
VALUE ACTIVITIES
AN ACTIVITY CAN BE SEPARATED FROM OTHER ACTIVITIES IF IT HAS ANY OF THE FOLLOWING CHARACTERISTICS; A) HAS A DIFFERENT ECONOMICS COMPARED TO THE OTHERS B) HAS A HIGH POTENTIAL IMPACT OF DIFFERENTIATION AND, C) REPRESENTS A SIGNIFICANT OR GROWING PROPORTION OF THE COST OF PRODUCTION OR OPERATION.
VALUE ACTIVITIES
SOME ACTIVITIES SHOULD BE COMBINED IF THEY ARE NOT IMPORTANT TO COMPETITIVE ADVANTAGE OF THE FIRM OR IF THEIR ECONOMICS ARE SIMILAR TO THE OTHER ACTIVITIES.
NOT JUST A COMPILATION OF ACTIVITIES THAT ARE INDEPENDENT OF EACH OTHER; INSTEAD, IT IS A SYSTEM OF ACTIVITIES THAT ARE INTERDEPENDENT BECAUSE THEY ARE RELATED BY THEIR LINKAGES. THROUGH THE LINKAGES, THE PERFORMANCE OF ONE ACTIVITY AFFECTS THE COST OR PERFORMANCE OF ANOTHER.
THESE LINKAGES BETWEEN THE ACTIVITIES SUGGEST THAT THE COST ADVANTAGE OR THE DIFFERENTIATION OF A FIRM WOULD DEPEND NOT JUST ON THE COST REDUCTION OR PERFORMANCE IMPROVEMENT OF AN INDIVIDUAL ACTIVITY. DO NOT JUST LOOK AT EACH ACTIVITY INDEPENDENTLY
THE LINKAGES BETWEEN THE ACTIVITIES CAN BE IDENTIFIED BY SEARCHING FOR WAYS IN WHICH EACH VALUE ACTIVITY AFFECTS OR IS AFFECTED BY OTHERS.
OPTIMIZATION AND COORDINATION BETWEEN THE VARIOUS ACTIVITIES OF THE FIRM CAN BE ACHIEVED BY EXPLOITING THESE LINKAGES.
FIRM INFRASTRUCTURE
SUPPORT
ACTIVITIES
INBOUND LOGISTICS
OPERATIONS
SERVICE
MARGIN
PRIMARY ACTIVITIES
VERTICAL LINKAGES
LINKAGES CAN ALSO EXIST OUTSIDE THE FIRM; FOR INSTANCE THERE IS A LINKAGE BETWEEN A FIRMS CHAIN AND THE VALUE CHAIN OF ITS SUPPLIERS AND CHANNELS.
e.g. THE ACTIVITIES OF THE RAW MATERIALS SUPPLIERS AFFECT THE ACTIVITIES OF THE FIRM. SIMILARLY, THE ACTIVITIES OF THE DISTRIBUTOR ALSO AFFECT THE FIRM.
SUPPLIER
FIRM
VERTICAL LINKAGES
THESE LINKAGES CAN PROVIDE OPPORTUNITIES FOR THE FIRM TO ENHANCE ITS COMPETITIVE ADVANTAGE.
VERTICAL LINKAGES
THE VALUE CHAIN OF A FIRM IS A PART OF THE VALUE SYSTEM, WHICH IS THE LARGER STREAM OF ACTIVITIES FROM SUPPLIERS TO BUYERS.
VERTICAL LINKAGES
BECAUSE OF THE INTERACTIONS BETWEEN THEM, THE SUPPLIERS AND EVEN THE CHANNELS AFFECT A COMPANYS VALUE CHAIN.
VERTICAL LINKAGES
THE PRODUCT OF A FIRM REPRESENTS A PURCHASED INPUT TO THE BUYERS CHAIN. DIFFERENTIATION CAN RESULT FROM HOW A FIRMS VALUE CHAIN RELATES TO THE VALUE CHAIN OF ITS BUYER
VERTICAL LINKAGES
VALUE IS CREATED WHEN A FIRM CREATES COMPETITIVE ADVANTAGE FOR ITS BUYER.
VERTICAL LINKAGES
A FIRM CAN ALSO ENTER INTO COALITIONS WITH INDEPENDENT FIRMS TO ACHIEVE BENEFITS FROM THE LINKAGES AMONG THEIR VARIOUS VALUE CHAINS.
DEFINE THE BUSINESS UNIT IN WHICH THE VALUE CHAIN WOULD BE OPTIMAL FOR THE FIRM
e.g. EXPORT SALES DIVISION vs. LOCAL SALES DIVISION
THE VALUE CHAINS OF THE DIFFERENT FIRMS WITHIN AN INDUSTRY VARY FROM ONE ANOTHER IN FACT, THE DIFFERENCES IN THE VALUE CHAINS AMONG THE DIFFERENT INDUSTRY PLAYERS PROVIDE THE SOURCE OF COMPETITIVE ADVANTAGES BETWEEN THESE PLAYERS.
SINCE THE APPLICATION OF THE VALUE CHAIN ANALYSIS TO AN INDUSTRY WILL LIKELY BLUR OR HIDE THESE SOURCES OF COMPETITIVE ADVANTAGE, DR. PORTER THEREFORE SUGGESTS THAT: THE BUSINESS UNIT IS THE CORRECT LEVEL TO CONSTRUCT A VALUE CHAIN AND THE APPLICATION TO AN ENTIRE SECTOR OR INDUSTRY IS NOT RECOMMENDED.
NEVERTHELESS, VALUE CHAIN ANALYSIS ON AN INDUSTRY LEVEL HAS BEEN PERFORMED IN NUMEROUS INDUSTRY STUDIES ALL OVER THE WORLD.
THE PEARL 2 PROJECT HAS, THEREFORE, DECIDED TO UTILIZE THE VALUE CHAIN ANALYSIS IN THE VARIOUS STATE-OF-THE SECTOR REPORTS