LYCEUM-NORTHWESTERN UNIVERSITY

OFFICE OF THE INSTITUTE OF GRADUATE AND PROFESSIONAL STUDIES

Dagupan City

Report
For
Business Policy

Submitted to the
Institute of Graduate and Professional Studies

SUBMITTED TO:

DR. Marietta Sorio

SUBMITTED BY:

Laguardia, Diana Marie D.

2ND Semester S.Y. 2019 – 2020

ACTIVITY 3
Porter's Supply Chain Model
Instructions: Read the summary of the model below. Michael Porter's supply
chain model helps in analyzing the activities related to competitive advantage.
This helps in monitoring the company's logistics and provides the company
some form of control over its operations. Research on the competitive
advantage created by applying this supply chain model using the 10 cost drivers.
Identify each cost driver and relate to the primary and secondary activities.
The primary activities are the following:
• Inbound Logistics include receiving, storage, inventory control, and
transportation planning.
• Operations include machining, equipment maintenance, and other activities.
• Outbound Logistics include warehousing, transportation, and distribution.
• Marketing and Sales include channel selection, advertising, promotion, selling,
among others.
• Service includes support, repair services, installation, among others. The
secondary activities are the following:
• Procurement of raw materials, spare parts, machines, etc.
• Technology Development includes research and development, design and
process automation.
• Human Resource Management includes recruiting, development,
compensation, among others.
• Firm Infrastructure includes legal, finance, accounting, quality management,
etc.

What Is a Value Chain?

A value chain is a combination of the systems a company or organization
uses to make money. That is, a value chain is made up of various
subsystems that are used to create products or services. This includes the
process from start to finish. 1
Michael Porter's Value Chain
Given the importance of the value chain, Michael Porter developed a
strategic management tool for analyzing a company’s value chain.2 Porter,
known for Porter’s five forces,3

laid out his method of analyzing value chains in his 1985 book Competitive
Advantage.4 Porter sought to define a company’s competitive advantage
noting that it stems from a company’s processes, such as marketing and
supporting activities.

Porter breaks value chain analysis into five primary activities. Then, he
further breaks those down into four activities that help support primary
activities. The primary activities of Michael Porter's value chain are inbound
logistics, operations, outbound logistics, marketing and sales, and service.
The goal of the five sets of activities is to create value that exceeds the cost
of conducting that activity, therefore generating a higher profit.5 Here are
the five key primary activities.

Porter’s Value Chain Primary Activities

Inbound Logistics
Inbound logistics include the receiving, warehousing and inventory control
of a company's raw materials. This also covers all relationships with
suppliers. For example, for an e-commerce company, inbound logistics
would be the receiving and storing products from a manufacturer that it
plans to sell.6

Operations
Operations include procedures for converting raw materials into a finished
product or service. This includes changing all inputs to ready them as
outputs. In the above e-commerce example, this would include adding
labels or branding or packaging several products as a bundle to add value to
the product.7

Outbound Logistics
All activities to distribute a final product to a consumer are considered
outbound logistics. This includes delivery of the product but also includes
storage and distribution systems and can be external or internal. For the e-
commerce company above, this includes storing products for shipping and
the actual shipping of said products.7

Marketing and Sales

Strategies to enhance visibility and target appropriate customers—such as
advertising, promotion, and pricing—are included in marketing and sales.
Basically, this is all activities that help convince a consumer to purchase a
company’s product or service. Continuing with the above example, an e-
commerce company may run ads on Instagram or build an email list for
email marketing.7

Services
This includes activities to maintain products and enhance consumer
experience—customer service, maintenance, repair, refund, and exchange.
For an e-commerce company, this could include repairs or replacements, or
warranty.7

Porter's Value Chain Secondary Activities

Now, companies can further improve the primary activities of their value
chain with secondary activities. Value chain support activities do just that,
they support the primary activities. The support, or secondary, activity
generally plays a role in each primary activity.8 Such as human resource
management, which can play a role in operations and marketing and sales.
Here are the four supporting activities.

Procurement
Procurement is the acquisition of inputs, or resources, for the firm. This is
how a company obtains raw materials, thus, it includes finding and
negotiating prices with suppliers and vendors. This relates heavily to the
inbound logistics primary activity, where an e-commerce company would
look to procure materials or goods for resale.9

Human Resource Management

Hiring and retaining employees who will fulfill business strategy, as well as
help design, market, and sell the product. Overall, managing employees is
useful for all primary activities, where employees and effective hiring are
needed for marketing, logistics, and operations, among others.10

Infrastructure
Infrastructure covers a company's support systems and the functions that
allow it to maintain operations. This includes all accounting, legal, and
administrative functions. A solid infrastructure is necessary for all primary
functions.11

Technological Development
Technological development is used during research and development and
can include designing and developing manufacturing techniques and
automating processes. This includes equipment, hardware, software,
procedures, and technical knowledge. Overall, a business working to reduce
technology costs, such as shifting from a hardware storage system to the
cloud, is technological development.12

Bottom Line
The primary activities within Michael Porter's value chain are used to
provide a company with a competitive advantage in any one of the five
activities so it has an advantage in the industry in which it operates.13 In
general, the analysis was meant for companies that manufacture goods.
But almost any company can use the value chain analysis laid out by Porter
even if they don’t have all the components.

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