A value chain is the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up all throughout the company. Michael Porter developed this concept in his 1980 book 'Competitive Advantage'. In simple words 'Value Chain' is a high level model of how business receive raw-materials, add value to the raw-materials through various processes and sell as finished products to customers. 'Value Chain' analysis looks at every step of business, from raw-materials to the eventual end users, with one goal to deliver maximum value. Michael Porter introduced the value chain analysis concept in his 1985 book ‘The Competitive Advantage’. Porter suggested that activities within an organisation add value to the service and products that the organisation produces and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently, the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’.

1. Porter’s Value Chain
 Born in 1947
 Harvard professor
 Wrote book,
Competitive Advantage

3. Primary Activities
 Inbound Logistics
 Operations
 Outbound Logistics
 Marketing and Sales
 Service

4. Inbound Logistics
 The receiving and warehousing of raw materials
 Distribution of raw materials to manufacturing and
operations

5. Operations
 Process of transforming inputs into finished goods and
services

6. Outbound Logistics
 Warehousing of finished goods
 Distribution of those finished goods to customers or
retail stores

7. Marketing & Sales
 Identification of customer needs
 Deploying product into marketplace
 Process of selling to customers

8. Service
 Supporting customers after they buy products and
services

9. Support Activities
 Procurement
 Technology Development
 Human Resource Management
 Firm Infrastructure

10. Procurement
 The purchasing of raw materials and inputs needed to
create the product

11. Technology Development
 Technology developments that support value chain
activities

12. Human Resource Management
 Activities associated with recruiting, training, hiring,
and compensation

13. Firm Infrastructure
 Includes general and planning management, legal,
finance, accounting, public affairs, and quality
management
 Ex. A firm’s legal team consisting of lawyers to aid in
lawsuits
 Accounting department to keep track of financial
figures

14. 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

15. Cost Advantage
 Reducing cost of individual value chain activities
 Reconfiguring the value chain

16. 10 Costs Drivers of Each Value
Chain Activity
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.)

17. Reconfiguring Value Chain
 Structural changes to an activity in a value chain to
reduce costs

18. The Bigger Picture
 Firm’s value chain is part of a bigger value chain
 Competitive advantage also depends on the
management of connections with other firms’ value
chains

19. Citations
 http://www.12manage.com/methods_porter_value_ch
ain.html
 http://www.netmba.com/strategy/value-chain/
 http://en.wikipedia.org/wiki/General_Motors_Chapte
r_11_reorganization