The value chain is a concept introduced by Michael Porter that describes a series of activities within a company that add value to its products or services. It represents the full range of activities that are required to bring a product or service from its conception to delivery to the end customer.
The primary activities of the value chain include:
- Inbound Logistics: This involves receiving, storing, and distributing raw materials or inputs needed for production.
- Operations: This encompasses the processes of transforming the raw materials into finished products or services. It includes activities such as manufacturing, assembly, packaging, and quality control.
- Outbound Logistics: This involves the distribution and delivery of the finished products to customers or the intermediaries who will further distribute them.
- Marketing and Sales: This includes activities related to promoting and selling the products or services to customers. It involves market research, advertising, pricing, sales, and customer relationship management.
- Service: This includes activities aimed at providing support and assistance to customers after the sale. It may involve installation, repairs, maintenance, warranties, and customer service.
In addition to the primary activities, there are support activities that facilitate the effectiveness and efficiency of the primary activities. These support activities include:
- Procurement: This involves sourcing and purchasing the necessary materials, supplies, and services required for the business’s operations.
- Technology Development: This includes activities related to research and development, innovation, and technological advancements to improve products, processes, or services.
- Human Resource Management: This encompasses activities such as recruitment, training, performance management, and employee development to ensure the right workforce is in place.
- Firm Infrastructure: This covers the general management and support functions necessary for the smooth operation of the business. It includes areas such as planning, finance, accounting, legal, and government affairs.
By analyzing and optimizing each of these activities, companies can identify opportunities to create value, increase efficiency, reduce costs, and ultimately gain a competitive advantage in the market.
Also, from another source:
A value chain is a series of activities that a company performs to create, deliver, and sell a product or service. It is a way of understanding how a company creates value for its customers and how it can improve its efficiency and profitability.
The value chain is divided into two main categories: primary activities and support activities.
Primary activities are the activities that directly relate to the creation of the product or service. They include:
- Inbound logistics: This is the process of bringing in raw materials and other inputs into the company.
- Operations: This is the process of transforming raw materials into finished products.
- Outbound logistics: This is the process of shipping finished products to customers.
- Marketing and sales: This is the process of promoting and selling products to customers.
- Service: This is the process of providing support to customers after they have purchased a product.
Support activities are the activities that support the primary activities. They include:
- Procurement: This is the process of acquiring the inputs that the company needs to produce its products or services.
- Technology development: This is the process of developing new products and processes.
- Human resource management: This is the process of hiring, training, and managing employees.
- Firm infrastructure: This is the overhead costs of running the company, such as general management, planning, finance, accounting, legal, and government affairs.
The value chain can be used to analyze a company’s strengths and weaknesses, and to identify opportunities for improvement. It can also be used to compare companies within the same industry, to see how they create value differently.
The value chain is a valuable tool for businesses of all sizes. By understanding their value chain, companies can improve their efficiency, profitability, and competitive advantage.