A chain of activities that a business running in a particular industry executes to produce a valuable product (goods or services) for the market is known as Value Chain. The Value Chain also called Porter’s Value Chain Analysis is a concept under business management introduced by Michael Porter.
Michael Porter released a book called Competitive Advantage in 1985, where he described Value Chain as a collection of activities that a business carries out to create value for its customers. It builds additional value. This gives the business a competitive advantage. Eventually, this added value brings the business higher profit.
Porter’s Value Chain
In Porter’s Value Chain there are two main activities – Primary and Secondary
1. Primary activities
Primary activities immediately impact sales, support, production, and maintenance of the products or services which will be supplied. These actions are made up of 5 elements:
This deals with organizing the inbound movement of parts, materials, and/or finished inventory that come from suppliers. These are delivered to retail stores, warehouses, and assembly or manufacturing plants.
– Tyre manufacturers have their manufacturing plants in Thailand due to rubber plantations
– Starbucks + 300,000 farmers
This deals with the management of the process that turns inputs into outputs. Energy, labor, and raw materials are inputs. The outputs are services and/or goods.
– TESLA manufacturing electric cars
– Apple gets phone assembled in India and China
It is the method of storing and moving the final product along with related information. It moves these from the production line’s end to the user.
– Amazon delivery options
– Amazon Prime Air
Marketing and Sales:
This involves product sales and various processes. These processes involve exchanging, delivering, communicating and creating offerings.
These offerings add value to partners, clients, customers, and society in general.
– Red bull
– Go Pro
– Burger King
This involves the processes that come in after a product is sold and delivered. They are needed to keep a product working soundly. Businesses can gain a competitive advantage at either one of the five value chain activities.
– Tesla owns showrooms for a good experience for customers.
2. Support Activities
Primary activities can be more efficient with the use of support activities. An increase in any one of the four support activities aids at least one primary activity to work more productively.
This involves processes like assurance, quality, public relations, control, finance, legal, accounting, and strategic/general management.
It involves everything that is used to turn inputs into outputs by the business. It comprises of technical knowledge, procedures, software, hardware and equipment.
The inputs are raw materials, and the outputs are the finished products.
– Tesla developing battery in-house
– Amazon Go cashier-less
Human Resources Management:
This is made up of many activities, such as compensating, developing, training, hiring, and recruiting. If needed, it involves laying off or dismissing employees.
– Ritz empowering staff
– Apple perks for employees
Acquisition of goods, services, and works from an exterior source is Procurement. Decisions pertaining to purchases are also made under this field.
– McDonald’s procures from McLane
– Tesla procures battery from ??
– Facebook profited Giphy for Insta.
The dotted lines show that human resource management, technology development, and procurement can be correlated with specific primary activities. The activities can also support the entire value chain.