Each one of these categories is an opportunity for a company to maximize efficiency and create a competitive advantage. The aim of the value chain is to increase profits by creating value at each of the five touchpoints so that total value exceeds the total costs associated with the product. Primary Activities of the Value Chain All five primary activities are essential in adding value and creating a competitive advantage.
Industry-level[ edit ] An industry value-chain is a physical representation of the various processes involved in producing goods and servicesstarting with raw materials and ending with the delivered product also known as the supply chain.
It is based on the notion of value-added at the link read: The sum total of link-level value-added yields total value.
Global value chains[ edit ] Main article: To enhance efficiency and to optimize profits, multinational enterprises locate "research, development, design, assembly, production of parts, marketing and branding" activities in different countries around the globe.
MNEs offshore labour-intensive activities to China and Mexicofor example, where the cost of labor is the lowest. In response, governments have cut Corporate income tax CIT rates or introduced new incentives for research and development to compete in this changing geopolitical landscape.
Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain.
Its aim in doing so was to provide a sustainable means of making ethanol that would increase the incomes of the rural poor, without sacrificing food and fodder security, while protecting the environment.
The simpler concept of value streamsa cross-functional process which was developed over the next decade,  had some success in the early s.
It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent.
Porter terms this larger interconnected system of value chains the "value system".
Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation.
By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business modelsor in other ways create improvements in its value system.
Value chain analysis has also been successfully used in large petrochemical plant maintenance organizations to show how work selection, work planning, work scheduling and finally work execution can when considered as elements of chains help drive lean approaches to maintenance.
The Maintenance Value Chain approach is particularly successful when used as a tool for helping change management as it is seen as more user-friendly than other business process tools.
A value chain approach could also offer a meaningful alternative to evaluate private or public companies when there is a lack of publicly known data from direct competition, where the subject company is compared with, for example, a known downstream industry to have a good feel of its value by building useful correlations with its downstream companies.
Use with other analysis tools[ edit ] This section does not cite any sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed.Value chain analysis focuses on analyzing the internal activities of a business in an effort to understand costs, locate the activities that add the most value, and differentiate from the competition.
Dec 08, · The value chain also known as Porter’s Value Chain Analysis is a business management concept that was developed by Michael Porter. In his book Competitive Advantage (), Michael Porter explains Value Chain Analysis; that a value chain is a collection of activities that are performed by a company to create value for its srmvision.coms: A value chain is a series of activities or processes that aims at creating and adding value to an article (product) at every step during the production process.
The Coca-Cola Company (NYSE: KO) is a total beverage company, offering over brands in more than countries and territories.
A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions. To decide which activities to outsource, managers must understand the firm's strengths and weaknesses in each activity, both in terms of cost and ability to differentiate.
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.
The concept comes through business management and was first described by Michael Porter in his best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.