Value = Amount customer is ready to pay.
Chain Analysis = Series of activities that a firm performs in order to deliver the product.
Value chain analysis is identifying the activities which are creating value towards competitive advantage.
Concept is given by Michael Porter.
Its objective is to stay ahead of competitors
Ways to achieve objectives as per Porter:
1. Cost leadership
2. Differentiation
It involves five ‘primary’ and four ‘support’ activities and then we have to see if each of them is giving cost advantage or differentiation quality advantage.
Table of Activities:
Porter’s Value Chain:
Primary Activities:
1. Inbound Logistics
2. Operations
3. Outbound logistics
4. Marketing and sales
5. Service
Support Activities:
1. Human resource
2. Technology
3. Procurement
4. Infrastructure
Primary and Support Activities | Low cost, low selling price | High end (differentiation) |
Inbound logistics | Standardised components and materials with little customisation | Premium materials |
Operations | Bulk production | Facilitation of customisation |
Outbound logistics | Bulk delivery and careful management of delivery loads | Flexible (possibly free) delivery |
Marketing and sales | Minimal levels of marketing | High levels of promotion |
Service | Very little service | Extensive service |
Human resource | Use low skilled staff | Use higher skilled staff |
Technology | Use e-procurement to reduce costs procurement | Less use of technology in operations |
Procurement | Seek out cheapest and most efficient supplies | Seek premium suppliers |
Infrastructure | Produce in cheapest locations | National independence |
In an exam situation you might use Porter’s value chain analysis to decide how individual activities might be changed to reduce cost of operation or to improve value of organisation.