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Value Chain Analysis

The document discusses Michael Porter's value chain analysis framework. It describes the value chain as identifying a firm's primary and supporting activities to understand sources of competitive advantage. These activities span procurement, inbound logistics, operations, outbound logistics, marketing and sales, service, technology development, human resources, and firm infrastructure. Linkages within and across value chains of a firm, its suppliers and buyers can also provide opportunities for competitive advantage.

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179 views18 pages

Value Chain Analysis

The document discusses Michael Porter's value chain analysis framework. It describes the value chain as identifying a firm's primary and supporting activities to understand sources of competitive advantage. These activities span procurement, inbound logistics, operations, outbound logistics, marketing and sales, service, technology development, human resources, and firm infrastructure. Linkages within and across value chains of a firm, its suppliers and buyers can also provide opportunities for competitive advantage.

Uploaded by

jainsona
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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VALUE CHAIN ANALYSIS

Concept of Value Chain


Developed By: Michael Porter A Technique for describing all activities performed by an organization (from purchase of raw material to final delivery of product) Relate all activities to an assessment of competitive strength of an organization.

The Value Chain


A framework for identifying core competencies
Inside the firm In the supply chain

Can be used to
Identify strengths and weaknesses Identify sources of competitive advantage Identify market opportunities

The Value Chain


Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Operations Logistics

Outbound Marketing Service Logistics & Sales

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

Value Chain

Value Chain= Value Activity + Margin

Primary Activities in the Value Chain


Inbound Logistics
Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product Fertilizer and chemical storage, delivery of inputs, application of inputs

Operations
Take inputs from inbound logistics and convert to final products Plowing, planting, spraying, harvesting, feeding, medicating, weighing,etc.

Outbound Logistics
Collecting, Storing, and physical distribution of the final product. Crop storage, finished hog handling, Processing and determining delivery dates, delivery to the packer or elevator etc.
Procurement Technology Firm Infrastructure Human Resource management Service Inbound Logistics Operations Outbound Logistics Marketing and Sales

Primary Activities in the Value Chain


Marketing and Sales
Provide means through which customers can purchase products and to induce them to do so Advertising, communicating with buyers, developing customer relationships, pricing products (futures, hedging, forward contracting, etc.), delivery scheduling

Service
Activities designed to enhance or maintain a products value Timely delivery, identity preservation, ISO9000, certifying as organic, etc.
Procurement Human Resource management Human Resources Firm Infrastructure

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service

Supporting Activities in the Value Chain


Procurement
Inbound Logistics

Procurement Technological Development Human Resources Firm Infrastructure

Service Operations Outbound Logistics Marketing and Sales

Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing parts and tools, setting up buying groups, etc.

Technological Development
Activities that improve the firms products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specific production tasks more efficient, etc.

Human Resources

Recruiting, hiring, training, developing, and compensating al personnel

Supporting Activities in the Value Chain


Inbound Logistics

Human Resource management Procurement

Technology Firm Infrastructure

Service Operations Outbound Logistics Marketing and Sales

Firm Infrastructure
General Management, planning, finance, accounting, legal support, governmental relations, etc. Establishment of accounting practices, management information systems, compliance with environmental regulations, tracking and reporting for government programs, etc. Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies

The Result of the Value Chain


Margins
Capture the value from performing value-creating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon. The size of the individual activity boxes represents the cost of performing those particular activities. Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm.

The Value Chain Grains Farm


Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Operations Logistics

Outbound Marketing Service Logistics & Sales

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

Primary Activities for a Grain Farm


Service Outbound Marketing On-time delLogistics ivery Inbound Operations & Sales Forward Logistics contract Grain
transport Fwd. contracts to elevator Futures or buyer Options IP grain Grain Value added transport grain to storage IP Storage Tracing QA

Tillage Planning Fertilizer and Fertilizing chemical storage, Spraying custom Cultivate application Harvest of inputs

Relationship with Suppliers Relationship with Buyers

Supporting Activities for a Grain Farm


Infrastructure: management, planning, finance,
accounting, government compliance, quality control Human Resource: motivation tools, compensation,
training, and directing farm employees, including family, management, and laborers

Technological Development: research and adoption practices


for things like GPS, VRT, GMOs, No-Till, the Internet, IP storage facilities

Procurement: Purchasing inputs: seed, fertilizer, chemicals,


fuel, land, Machinery, storage equipment, office supplies, parts, tools, insurance etc. with focus on negotiating capabilities

Value Chain Analysis


A firms value chain must be compared to competitors value chains to determine where competitive advantages exist. To be a source of competitive advantage a resource or capability must allow a firm to:
Perform an activity in a manner that is superior to competitors performances Perform a value-creating activity that competitors cannot complete

Linkages within the Value Chain


Optimization and coordination of activities in the value chain Linkages exist between support activities and primary activities and between separate primary activities Generic causes for linkages
Same function can be performed in different ways Efforts in indirect activities Activities performed inside the firm reduce the need for activities in the field Quality Assurance can be performed in different ways

Value Chain Linkages in the Supply Chain


Buyer Chain Supplier Chain Firm Chain Buyer Chain

Supplier Chain
Buyer Chain

Linkages with Supplier Value Chain


Linkages between suppliers value chains and a firms chain provide opportunities for the firm to enhance competitive advantage. Division of benefits between firm and its suppliers is a function of suppliers bargaining power and reflecting in suppliers margins. Both coordination with suppliers and hard bargaining are important to competitive advantage.

The Buyers Value Chain


A firms differentiation stems from how its value chain relates to its buyers chain. Differentiation derives fundamentally from creating value for the buyer through a firms impact on the buyers value chain. Value is created when a firm creates a competitive advantage for its buyer. The buyer must perceive the value to pay a premium price.

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