Value chain analysis
Michael Porter is a well-known economist and business strategist who is known for his work on competitive strategy and the analysis of industries and competitors. One of Porter’s most famous concepts is the value chain analysis model, which is a framework for analyzing the activities that a firm performs in order to create value for its customers.
According to Porter, value chain activities can be divided into two categories: primary activities and support activities. Primary activities are directly involved in the creation, distribution, and promotion of a firm’s products or services. These activities include:
- Inbound logistics: Receiving and storing raw materials and components
- Operations: Manufacturing or assembling the final product
- Outbound logistics: Storing and distributing the finished product
- Marketing and sales: Promoting and selling the product to customers
- Service: Providing after-sales support to customers
Support activities are activities that support the primary activities and are not directly involved in the creation of the product or service. These activities include:
- Procurement: Purchasing raw materials and components
- Human resource management: Recruiting, hiring, and training employees
- Technology development: Developing new technologies or improving existing technologies
- Firm infrastructure: Managing the overall operations of the firm, including finance, legal, and administration
By analyzing the value chain activities of a firm, managers can identify areas where they can create a competitive advantage by reducing costs or improving the quality or efficiency of their operations.
Here are a few examples of how the value chain analysis model can be applied to different industries:
- In the automobile industry, inbound logistics might involve receiving and storing raw materials such as steel and plastic, operations might involve assembling the various parts of the car, and outbound logistics might involve distributing the finished cars to dealerships. Marketing and sales might involve advertising campaigns and working with dealers to sell the cars to customers, and service might involve providing maintenance and repair services to customers. Support activities might include procuring raw materials from suppliers, managing the human resources of the firm, and developing new technologies for future models.
- In the retail industry, inbound logistics might involve receiving and storing inventory, operations might involve processing orders and preparing products for shipment, and outbound logistics might involve shipping the products to customers. Marketing and sales might involve advertising campaigns and in-store promotions to attract customers, and service might involve providing returns and exchanges to customers. Support activities might include procuring inventory from suppliers, managing the human resources of the store, and developing new technologies for online sales.