Value Chain Analysis

Value chain analysis

Michael Porter in 1985 introduced in his book ‘ The Competitive Advantage' the concept of the Value Chain. He suggested that activities within the organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities' and ‘support activities'.

Primary activities

Inbound logistics : Refers to goods being obtained from the organisations suppliers ready to be used for producing the end product.

Operations : The raw materials and goods obtained are manufactured into the final product. Value is added to the product at this stage as it moves through the production line.

Outbound logistics : Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers.

Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy, any competitive advantage is clearly communicated to the target group by the use of the promotional mix.

Services: After the product/service has been sold what support services does the organisation have to offer. This may come in the form of after sales training, guarantees and warranties.

With the above activities, any or a combination of them, maybe essential for the firm to develop the competitive advantage which Porter talks about in his book.

Support Activities

The support activities assist the primary activities in helping the organisation achieve its competitive advantage. They include:

Procurement: