Value Chain

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Analyse activities through which firms can create value. Explanation of the Value Chain Framework of Michael Porter. ('85)


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The Value Chain (VC) framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage.

The activities of the VC

  • Value Chain framework modelPrimary activities (line functions)
    • Inbound Logistics. Includes receiving, storing, inventory control, transportation planning.
    • Operations. Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product.
    • Outbound Logistics. The activities required to get the finished product at the customers: warehousing, order fulfillment, transportation, distribution management.
    • Marketing and Sales. The activities associated with getting buyers to purchase the product, including: channel selection, advertising, promotion, selling, pricing, retail management, etc.
    • Service. The activities that maintain and enhance the product's value, including: customer support, repair services, installation, training, spare parts management, upgrading, etc.
  • Support activities (Staff functions, overhead)
    • Procurement. Procurement of raw materials, servicing, spare parts, buildings, machines, etc.
    • Technology Development. Includes technology development to support the VC activities. Such as: Research and Development, Process automation, design, redesign.
    • Human Resource Management. The activities associated with recruiting, development (education), retention and compensation of employees and managers.
    • Firm Infrastructure. Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc.

Creating a cost advantage based on the VC

A firm may create a cost advantage:

  • by reducing the cost of individual VC activities, or
  • by reconfiguring the VC.

Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. Recently there have been many companies that achieved a cost advantage by the clever use of Information Technology.

Once the VC has been defined, a cost analysis can be performed by assigning costs to the VC activities. Porter identified 10 cost drivers related to value chain activities:

  1. Economies of scale.
  2. Learning.
  3. Capacity utilization.
  4. Linkages among activities.
  5. Interrelationships among business units.
  6. Degree of vertical integration.
  7. Timing of market entry.
  8. Firm's policy of cost or differentiation.
  9. Geographic location.
  10. Institutional factors (regulation, union activity, taxes, etc.).

A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost advantage also can be pursued by "Reconfiguring" the VC. "Reconfiguration" means structural changes such as: a new production process, new distribution channels, or a different sales approach.

Normally, the VC of a company is connected to other Value Chains and is part of a larger VC. Developing a competitive advantage also depends on how efficiently you can analyze and manage the entire VC. This idea is called: Supply Chain Management. Some people argue that network is actually a better word to describe the physical form of Value Chains: Value Networks.

Book: Michael E. Porter - Competitive Advantage -

Value Chain (Porter) Forum (25 topics) Help
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Value Chain (Porter) Special Interest Group

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Expert Tips - Value Chain (Porter) Premium
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The Added-Value Chain Model

3 more Primary and 1 more Supporting Activity Added to Porter's Model

Good Value Chain Questions to Ask

Optimizing your Supply Chain

Process Classification Framework

Alternative to Porter's Value Chain Analysis

Reported Benefits of Value-chain Initiaves

Value Chain Advantages

Implementing Added-Value Chain Model


How to Design a Value Chain?

Supply Chain Design

Online Value Chain

Use of Internet / IT

10 Decision Areas of Operation Management (Heizer)

Operations Management

List of Major Value Chain Obstacles

Pitfalls in Implementing Value Chain Management

Innovating by Reconsidering Value Delivery

Fundamental Innovation

Remember to Focus your Improvement Efforts?

Achieve More With Less, Kaizen, BPR, JIT, Lean, Value Chain

Three Reasons for Dysfunctional Buyer - Supplier Relationships

Supply Chain Management, Purchasing, Alliances, Partnerships, Supply Chain Relations

Value Networks

Value Chain versus Value Network

Resources - Value Chain (Porter) Premium
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Electronic Markets

Search Costs and Boundaries

Connections and Competences in the Governance of the Value Chain

Value Chain Delocalisation

The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage

Value Chain Management, Quality Management, Innovation, Operational Excellence

How Businesses can Use Information Technology (IT) in Strategic Ways

Strategic Management, Information Technology

Introduction to (Sustainable) Value Chain Analysis

Initial Understanding Value Chain Analysis

Location choices across the value chain

How activity and capability influence agglomeration and competition effects

Introduction Into Enterprise Resource Planning (ERP)

Enterprise Resource Planning, Supply Chain Management

Introduction to Supply Chain Management

Supply Chain Management, Supply Chain Design

Value Chain Model Diagram

Value Chain Analysis

Internet-based Distribution of Digital Videos

Economic Impacts of Digitizatization


Value Chain Framework


Value Chain Porter


Value Chain Framework


Value Chain Porter


Value Chain Framework


Value Chain Porter


Value Chain Framework


Value Chain Porter

Compare with: Porter Five Forces  |  Porter Competitive Advantage  |  Porter Diamond Model  |  Parenting Advantage  |  Core Competence  |  BCG Matrix  |  Growth Phases  |  Distinctive Capabilities  |  Organizational Configurations  |  3rd Party Logistics (3PL)  |  Outsourcing  |  Just-in-time  |  Bricks and Clicks  |  Value Stream Mapping  |  Delta Model  |  Vertical Integration  |  Horizontal Integration  |  Vendor Managed Inventory  |  Kraljic Model

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