Value Chain

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The Value Chain (VC) framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage.

The activities of the VC

• Primary activities (line functions)
  • Inbound Logistics. Includes receiving, storing, inventory control, transportation planning.
  • Operations. Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product.
  • Outbound Logistics. The activities required to get the finished product at the customers: warehousing, order fulfillment, transportation, distribution management.
  • Marketing and Sales. The activities associated with getting buyers to purchase the product, including: channel selection, advertising, promotion, selling, pricing, retail management, etc.
  • Service. The activities that maintain and enhance the product's value, including: customer support, repair services, installation, training, spare parts management, upgrading, etc.
• Support activities (Staff functions, overhead)
  • Procurement. Procurement of raw materials, servicing, spare parts, buildings, machines, etc.
  • Technology Development. Includes technology development to support the VC activities. Such as: Research and Development, Process automation, design, redesign.
  • Human Resource Management. The activities associated with recruiting, development (education), retention and compensation of employees and managers.
  • Firm Infrastructure. Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc.

Creating a cost advantage based on the VC

A firm may create a cost advantage:

• by reducing the cost of individual VC activities, or
• by reconfiguring the VC.

Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. Recently there have been many companies that achieved a cost advantage by the clever use of Information Technology.

Once the VC has been defined, a cost analysis can be performed by assigning costs to the VC activities. Porter identified 10 cost drivers related to value chain activities:

1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation.
9. Geographic location.
10. Institutional factors (regulation, union activity, taxes, etc.).

A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost advantage also can be pursued by "Reconfiguring" the VC. "Reconfiguration" means structural changes such as: a new production process, new distribution channels, or a different sales approach.

Normally, the VC of a company is connected to other Value Chains and is part of a larger VC. Developing a competitive advantage also depends on how efficiently you can analyze and manage the entire VC. This idea is called: Supply Chain Management. Some people argue that network is actually a better word to describe the physical form of Value Chains: Value Networks.

Book: Michael E. Porter - Competitive Advantage

Forum Forum discussions about the Value Chain (Porter). Value Chain Management versus Supply Chain Management? What is the relationship between Supply Chain Management and Value Chain Management? How are they interdependent?... 55   6 comments Value Chains ⇨ Value Networks In an article 'Value Creation, Coordination and Positioning in Supply Relationships' in Long Range Planning (Volume 39, Issue 2, April 2006, Pages 133-153), Lars Huemer has reservations as to the usef... 39   1 comments Value Chain for Services Industry I have read somewhere, that this model is not applicable for services industry, is it true? And does anybody know, if possible, a good model for strategic management for services industry? Thank you!... 27   4 comments Value Chain versus Diamond Model Hi, can anyone explain in a few words what is the main difference between Porter's Diamond and Value Chain models?... 20   3 comments How to Deal with Conflicts Between Marketing and Operations Shapiro recognized several reasons for the conflicts between marketing and operations teams: CAPACITY MANAGEMENT AND LONG-TERM SALES PROJECTIONS: Operations teams are constrained in their ability ... 19   14 comments Value Chains and Industries Interestingly, different industries often emphasize different activities in the value chain. For example, retailers traditionally focus on inbound and outbound logistics and procurement, while manufac... 16   6 comments Value Chain in Legal Services How can a value chain be incorporated in law firms? What are the primary and support activities in such legal services?... 10   1 comments Procurement in the Value Chain Approach For long the value chain approach by Michael Porter and as advanced by Peter Hines has placed procurement on the periphery, bundling it with general administration among other things. Today, with th... 9   3 comments Customer Value Chain (CVC) The Customer Value Chain (CVC) is a bit similar or analogous to Michael Porter's Value Chain (the series of activities such as operations, logistics, and marketing that companies execute in order to c... 5   🔥 Disadvantages of Value Chain Analysis Disadvantages of Value Chain Analysis (VCA) are: By focusing too granularly on micro details, the broader strategic view can get lost. It can be time-consuming and complex in terms of data colle... 3   1 comments Order Management in Porters Value Chain? How do I segregate and fit in order management (not order fulfillment ) in Porters list of primary processes? Does it belong in marketing and sales?... 2   1 comments Start a new topic about the Value Chain (Porter) Sign up for free

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Best Practices The best, top-rated topics about the Value Chain (Porter). Here you will find the most valuable ideas and practical suggestions. 🥇 How to apply the value chain? Activities and Linkages The value chain has two types of activities which are the primary activities and the support activities. I can remember all the elements in these two activities. However I have difficulty in applying ... 119   7 comments 🥈 Inventory Replenishement in Value Chain In the context of the value chain, would inventory replenishement be a support value process or a primary value process?... 20   2 comments

Expert Tips Advanced insights about the Value Chain (Porter). Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips The Added-Value Chain Model 3 more Primary and 1 more Supporting Activity Added to Porter's Model The Added-Value Chain model proposes to add an expanded set of activities to the original Value Chain concept by Porter.... Good Value Chain Questions to Ask Optimizing your Supply Chain To more deeply understand your Value Chain, these are a few interesting questions you can ask yourself: - What are the ... Process Classification Framework Alternative to Porter's Value Chain Analysis A company's activities or processes classification is mostly based on subjective criteria, experience and sensitivity of... Reported Benefits of Value-chain Initiaves Value Chain Advantages A survey by G. Taninecz “Forging the Chain” in Industry Week (Dec. 21, 2004) indicated the following major benefits of ... Implementing Added-Value Chain Model Implementation According to Wayne McPhee and David Wheeler in the article “Making the Case for the Added-Value Chain” (Strategy & Leade... How to Design a Value Chain? Supply Chain Design Designing or improving a value chain is not easy. Here are five bullet points to get started: 1. Begin by identifying t... Online Value Chain Use of Internet / IT In Michael Porter's view, traditional firms have a chance to profit from deploying modern IT infrastructure and upgrade ... 10 Decision Areas of Operations Management (Heizer) Operations Management According to Heizer and Render, there are 10 decision areas of Operation Management (each having typical issues): 1. Go... List of Major Value Chain Obstacles Pitfalls in Implementing Value Chain Management Although the Value Chain approach can be effective, there are major obstacles underlying application of SCM, such as: 1... Innovating by Reconsidering Value Delivery Fundamental Innovation When innovating their business model, companies need to reconsider their value proposition from all perspectives. One of... Remember to Focus your Improvement Efforts? Achieve More With Less, Kaizen, BPR, JIT, Lean, Value Chain Very often organizations consider continuous improvement as committing on improvement efforts, and thus creating project... Value Networks Value Chain versus Value Network Today value chains have become value networks. In a lot of industries ranging from software to manufacturing the boundar... Three Reasons for Dysfunctional Buyer - Supplier Relationships Supply Chain Management, Purchasing, Alliances, Partnerships, Supply Chain Relations Roloff, Aßländer and Nayier (2015) did research on the conditions for (un)successful buyer-supplier relationships and fo...

Information Sources Various sources of information regarding the Value Chain (Porter). Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Electronic Markets Search Costs and Boundaries Ramesh Sankaranarayan study how electronic markets that facilitate broader inter-firm transactions affect the vertical s... Connections and Competences in the Governance of the Value Chain Value Chain Delocalisation The aim of this paper by Giuseppe Tattara and Paolo Crestanello is to analyse the governance of value chains operating i... The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage Value Chain Management, Quality Management, Innovation, Operational Excellence This presentation firstly presents the role of functional strategies and the value chain in the achievement of competiti... How Businesses can Use Information Technology (IT) in Strategic Ways Strategic Management, Information Technology This presentation looks at Information Technology from a strategic point of view. In other words, it discusses in what w... Introduction to (Sustainable) Value Chain Analysis Initial Understanding Value Chain Analysis Value Chain Analysis involves analyzing three things to identify improvement areas / projects: 1. Material Flow - The f... Location choices across the value chain How activity and capability influence agglomeration and competition effects There has been a recent revival of interest in the geographic component of firm strategy. Recent research suggests that ... Introduction Into Enterprise Resource Planning (ERP) Enterprise Resource Planning, Supply Chain Management This presentation provides an introduction into Enterprise Resource Planning and includes the following sections: 1. Wh... Introduction to Supply Chain Management Supply Chain Management, Supply Chain Design While Porter’s value chain is a firm-level supply chain, this presentation describes supply chain management in a global... Value Chain Model Diagram Value Chain Analysis Download and edit the 12manage PowerPoint model for limited personal, educational and business use. Republishing in int... Internet-based Distribution of Digital Videos Economic Impacts of Digitizatization Digital technologies and, especially, the Internet are profoundly reshaping the motion picture industry. Video-on-demand...

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Compare with: Porter Five Forces  |  Porter Competitive Advantage  |  Porter Diamond Model  |  Parenting Advantage  |  Core Competence  |  BCG Matrix  |  Growth Phases  |  Distinctive Capabilities  |  Organizational Configurations  |  3rd Party Logistics (3PL)  |  Outsourcing  |  Just-in-time  |  Bricks and Clicks  |  Value Stream Mapping  |  Delta Model  |  Vertical Integration  |  Horizontal Integration  |  Vendor Managed Inventory  |  Kraljic Model

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