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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  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print

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
  Combining Value Chain Analysis with Benchmarking to Analyze Competitive Advantage
How can value chain analysis and benchmarking be j...
     
 
  10 Decision Areas of Operation Management (Heizer)
Heizer wrote there are 10 decision areas of operat...
     
 
  Procurement in the Value Chain Approach
For long the value chain approach by Michael Porte...
     
 
  Developing Green Value Chains
Developing green business strategies in value chai...
     
 
  Value Chain in Legal Services
How can a value chain be incorporated in law firms...
     
 
  Value Chain versus Diamond Model
Hi, can anyone explain in a few words what is the ...
     
 
  Value Chain Analysis in Textile Industry
I am interested in the value chain analysis in tex...
     
 
  Comparing Value Chain and 7S Model
Hi! I am writing an assignment on a manufacturing ...
     
 
  Value Chain for Services Industry
I have read somewhere, that this model is not appl...
     
 
  Value Chain in Research and Technology
Is there anyone having practice or insight on valu...
     
 
  Order Management in Porters Value Chain?
How do I segregate and fit in order management (no...
     
 
  Value Chain and Competitive Advantage Report
I know that a report on value chain and competitiv...
     
 
  Is Value Chain Analyse Only A Tool??
We study the value chain framework in the marketin...
     
 
  Role of Information Systems in Value Chain
How does Porter's value chain model help a busines...
     
 
  Value Chain Narrow Minded
Porters value chain is very good at explaining how...
     
 
  Value Chain vs. Credit Crunch
In spite of today’s credit crunch crisis, the Valu...
     
 
  Value Chain Analysis is practical
Even after all these years I find the Value Chain ...
     
 

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Best Practices - Value Chain (Porter) Premium
  How to Deal with Conflicts Between Marketing and Operations
Shapiro recognized several reasons for the conf...
     
 
  Value Chains and Industries
Interestingly, different industries often emphasiz...
     
 
  How to apply the value chain? Activities and Linkages
The value chain has two types of activities which ...
     
 
  Value Chain and SCM?
What is the relationship between Supply Chain Mana...
     
 

Expert Tips - Value Chain (Porter) Premium
 

The Added-Value Chain Model

The Added-Value Chain model proposes to add an exp...
Usage (application): 3 more Primary and 1 more Supporting Activity Added to Porter's Model
 
 
 

Good Value Chain Questions to Ask

To more deeply understand your Value Chain,...
Usage (application): Optimizing your Supply Chain
 
 
 

Process Classification Framework

A company's activities or processes classification...
Usage (application): Alternative to Porter's Value Chain Analysis
 
 
 

Reported Benefits of Value-chain Initiaves

A survey by G. Taninecz “Forging the Chain” in Ind...
Usage (application): Value Chain Advantages
 
 
 

Implementing Added-Value Chain Model

According to Wayne McPhee and David Wheeler in the...
Usage (application): Implementation
 
 
 

How to Design a Value Chain?

Designing or improving a value chain is not easy. ...
Usage (application): Supply Chain Design
 
 
 

Online Value Chain

In Michael Porter's view, traditional firms have a...
Usage (application): Use of Internet / IT
 
 
 

10 Decision Areas of Operation Management (Heizer)

According to Heizer and Render, there are 10 decis...
Usage (application): Operations Management
 
 
 

List of Major Value Chain Obstacles

Although the Value Chain approach can be effective...
Usage (application): Pitfalls in Implementing Value Chain Management
 
 
 

Innovating by Reconsidering Value Delivery

When innovating their business model, companies ne...
Usage (application): Fundamental Innovation
 
 
 

Remember to Focus your Improvement Efforts?

Very often organizations consider continuous impro...
Usage (application): Achieve More With Less, Kaizen, BPR, JIT, Lean, Value Chain
 
 
 

Value Networks

Today value chains have become value networks. In ...
Usage (application): Value Chain versus Value Network
 
 
 

Three Reasons for Dysfunctional Buyer - Supplier Relationships

Roloff, Aßländer and Nayier (2015) did research on...
Usage (application): Supply Chain Management, Purchasing, Alliances, Partnerships, Supply Chain Relations
 
 

Resources - Value Chain (Porter) Premium

Electronic Markets

Ramesh Sankaranarayan study how electronic markets...
Usage (application): Search Costs and Boundaries
 

Connections and Competences in the Governance of the Value Chain

The aim of this paper by Giuseppe Tattara and Paol...
Usage (application): Value Chain Delocalisation
 

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

This presentation firstly presents the role of ...
Usage (application): Value Chain Management, Quality Management, Innovation, Operational Excellence
 

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

This presentation looks at Information Technology ...
Usage (application): Strategic Management, Information Technology
 

Introduction to (Sustainable) Value Chain Analysis

Value Chain Analysis involves analyzing three thin...
Usage (application): Initial Understanding Value Chain Analysis
 

Location choices across the value chain

There has been a recent revival of interest in the...
Usage (application): How activity and capability influence agglomeration and competition effects
 

Introduction Into Enterprise Resource Planning (ERP)

This presentation provides an introduction into En...
Usage (application): Enterprise Resource Planning, Supply Chain Management
 

Introduction to Supply Chain Management

While Porter’s value chain is a firm-level supply ...
Usage (application): Supply Chain Management, Supply Chain Design
 

Value Chain Model Diagram

Download and edit the 12manage PowerPoint model fo...
Usage (application): Value Chain Analysis
 

Internet-based Distribution of Digital Videos

Digital technologies and, especially, the Internet...
Usage (application): Economic Impacts of Digitizatization
 
 

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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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