Michael Porter is a current Professor at Harvard University and he wrote the well known Competitive Advantage which defines the strategic advantage one business has over its business rivals.
Here we have the Porters Generic Value chain which describes a chain of activities. He divided these activities into support activities and primary activities.
The Primary Activities are :
Inbound logistics include the processes like receiving, storing, inventory control, transportation planning. The relationship between suppliers are very important here because they play a major role in the distribution of raw materials.
In Operations the processes that occur are machining, packaging, assembly, equipment maintenance, and testing. Here is where the transformation starts and products come to life and are then sold to customers.
In outbound logistics some of the Processes include: warehousing, order fulfillment, transportation, and distribution management. The products are then sent to Apple for sale
In Marketing and sales theProcessesinclude:advertising, promotion, selling, and retail management
Examples: customer support, repair services, training, and installation
Examples: R&D, process automation, design, redesignSAP is an enterprise resource program that supports various business functions in the value chain. It has financial support features to support accounting in the firm’s infrastructure, human capital management support to help HR management, and operations support to aid in the firm’s operations and procurement.Walmart’s Retail Link system helps keep inventories costs low and procurement costs down
For example: Toyota’s factory in San Antonio having on-site suppliers to better coordinate value chains to supplement their JIT inventory management
Porter's Value Chain Presentation 1
Porter’s Value Chain Born in 1947 Harvard professor Wrote book, Competitive Advantage
Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Service
Inbound Logistics The receiving and warehousing of raw materials Distribution of raw materials to manufacturing and operations
Operations Process of transforming inputs into finished goods and services
Outbound Logistics Warehousing of finished goods Distribution of those finished goods to customers or retail stores
Marketing & Sales Identification of customer needs Deploying product into marketplace Process of selling to customers
Service Supporting customers after they buy products and services
Support Activities Procurement Technology Development Human Resource Management Firm Infrastructure
Procurement The purchasing of raw materials and inputs needed to create the product
Technology Development Technology developments that support value chain activities
Human Resource Management Activities associated with recruiting, training, hiring, and compensation
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
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
Cost Advantage Reducing cost of individual value chain activities Reconfiguring the value chain
10 Costs Drivers of Each ValueChain Activity1. Economies of Scale2. Learning3. Capacity Utilization4. Linkages among activities5. Interrelationships among business units6. Degree of vertical integration7. Timing of market entry8. Firm’s policy of cost or differentiation9. Geographic location10. Institutional Factors (regulation, union activity, taxes etc.)
Reconfiguring Value Chain Structural changes to an activity in a value chain to reduce costs
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