Value Chain Method

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VALUE CHAIN ANALYSIS
Prepared by Akhtar Tarar
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Value Chain

• Tool developed by Dr. Michael Porter
• Born in 1947
• Harvard professor
• Wrote book, Competitive Advantage

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Value chain system

• Series of activities and process involved inputs
  for producing a product or delivering a service.

C U S T O M E R S
Backward channel
Forward channel
Business Organization
Raw materials
Supply Chain
Distribution chain
Value chain system
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Supply Chain

• Involves activities before
• Creation of a product
• Services to be rendered
• Evolves supply process

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Distribution Chain

• Involves moving the products from
• Confines for distribution
• Origin to to final consumption place

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Value Chain

• Process involved for
• Converting raw material to finished product
• Organizing activities to add value.
• Sum total of the supply and distribution chain.
• Two categories
• Primary Activities (operations, distribution,
  sales)
• Support Activities (RD, Human Resources etc)

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Value Chain Types

• Based on the type of organizations.
• Manufacturing based.
• Service based.
• Both manufacturing and service based.

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Value Chain Analysis

• Used to identify sources of competitive advantage
  
• Specifically opportunities to
• Secure cost advantages
• Create product/service differentiation
• Includes the value-creating activities of all
  industry participants

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The Value Chain
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Value-Chain Analysis

• Primary activities
• Contribute to the physical creation of the
  product or service, its sale and transfer to the
  buyer, and its service after the sale.
• Inbound logistics, operations, outbound
  logistics, marketing and sales, and service

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Primary Activity Inbound Logistics

• Associated with
• Input procurement activities covering
• vendor selection
• comparative shopping
• negotiating supply contracts
• just-in-time arrival of goods

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Primary Activity Inbound Logistics

• Receiving, storing and distributing inputs( i.e.
  raw materials) to product
• Location of distribution facilities
• Warehouse layout and designs

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Primary Activity Operations

• Comprised transformation of inputs into the final
  product form
• Efficient plant operations
• Incorporation of appropriate process technology
• Efficient plant layout and workflow design

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Primary Activity Outbound Logistics

• Involved in collecting, storing, and distributing
  the product or service to buyers including
• Effective processing of
• Orders
• Warehousing of finished goods
• provide quick delivery
• Shipping of goods
• Distribution of finished goods

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Primary Activity Marketing and Sales

• Associated with
• Selling of products and services to end users by
• Innovative approaches to promotion and
  advertising
• Proper identification of customer segments and
  needs

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Primary Activity Service

• Provides service to enhance or maintain the value
  of the product
• Quick response to customer needs and emergencies
• Quality of service personnel and ongoing
  training

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Value-Chain Analysis

• Support activities
• Activities of the value chain that either add
  value by themselves or add value through
  important relationships with both primary
  activities and other support activities
• Procurement, technology development, human
  resource management, and general administration.

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Support Activity General Administration

• Includes general and planning management, legal,
  finance, accounting, public affairs, and quality
  management
• Typically supports the entire value chain and not
  individual activities
• Effective planning systems
• Excellent relationships with diverse stakeholder
  groups
• Effective information technology to integrate
  value-creating activities

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Support Activity Human Resource Management

• Activities involves
• Recruiting
• Hiring
• Training
• Development
• Retention
• compensation
• Quality relations with trade unions
• Reward and incentive programs
• to motivate all employees

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Support Activity Technology Development

• Related activities embodied in processes and
  equipment and the product itself
• Effective RD activities for process and product
  initiatives
• Positive collaborative relationships between RD
  and other departments
• Excellent professional qualifications of
  personnel

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Support Activity Procurement

• Used for purchasing inputs for firms value chain
• Procurement of raw material inputs
• Development of collaborative win-win
  relationships with suppliers
• Analysis and selection of alternate sources of
  inputs.

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WALLMARTS VALUE CHAIN
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Value Chains in Service Industries
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Why this matters

• Profits depends on how well firms execute these
  activities in the value chain
• Firms that excel in a value chain activity is
  said to have a competitive advantage
• Competitive advantage is gained through cost
  advantage

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Cost Advantage

• Reducing cost of individual value chain
  activities
• Reconfiguring the value chain

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Interrelationships among Value-Chain Activities
within and across Organizations

• Two levels

• Interrelationships among activities within the
  firm

• Relationships among activities within the firm
  and with other organization.

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