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Value Chain Analysis

Value Chain Analysis

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Published by Sohong Chakraborty

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Published by: Sohong Chakraborty on Feb 27, 2011
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05/08/2011

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Value Chain Analysis
Presented toProf. Sitangshu Khatua
ByManish Jaiswal (JSB-01-007)Sohong Chakravorty(JSB-01-012)Sanchita Debnath (JSB-01-011)
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Concept of Value chain approaches
Introduction:
 Thevalue chainapproach was developed by Michael Porter in the 1980sin his book “Competitive Advantage: Creating and Sustaining SuperiorPerformance” (Porter, 1985). The concept of value added, in the form of the value chain, can be utilized to develop an organization’s sustainablecompetitive advantagein the business arena of the 21st Century. Allorganizations consist of activities that link together to develop the valueof the business, and together these activities form the organization’svalue  chain.  Such  activities  may  include  purchasing  activities,manufacturing the products, distribution and marketing of the company’sproducts and activities (Lynch, 2003). The value chain framework hasbeen used as a powerful analysis tool for the strategic planning of anorganization  for  nearly  two  decades.  The  aim  of  the  value  chainframework is to maximize value creation while minimizing costs. 
Main aspects of Value Chain Analysis
Value chain analysisis a powerful tool for managers to identify the keyactivities  within  the  firm  which  form  the  value  chain  for  thatorganization,  and  have  the  potential  of  a  sustainable  competitiveadvantage  for  a  company.  Therein,  competitive  advantage  of  anorganization lies in its ability to perform crucial activities along the valuechain  better  than  its  competitors.The value chain framework of Porter (1990) is “an interdependent systemor network of activities, connected by linkages”. When the system ismanaged carefully, the linkages can be a vital source of competitiveadvantage (Pathania-Jain, 2001). The value chain analysis essentiallyentails the linkage of two areas. Firstly, the value chain links the value of the organization’s activities with its main functional parts. Then theassessment of the contribution of each part in the overall added value of the business is made (Lynch, 2003). In order to conduct the value chainanalysis, the company is split into primary and support activities (Figure1). Primary activities are those that are related with production, whilesupport activities are those that provide the background necessary forthe effectiveness and efficiency of the firm, such ashuman resource management. The primary and secondary activities of the firm arediscussed  in  detail  below.
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Primary activities
The  primary  activities  (Porter,  1985)  of  the  company  include  thefollowing:
• Inbound logistics
These are the activities concerned with receiving the materials fromsuppliers, storing these externally sourced materials, and handling themwithin the firm. 
 These are the activities related to the production of products andservices. This  area can  be split  into  more  departments  in  certaincompanies. For example, the operations in case of a hotel would includereception,  room  service  etc.
Outboundlogistics
 These are all the activities concerned with distributing the final productand/or service to the customers. For example, in case of a hotel thisactivity would entail the ways of bringing customers to the hotel.
• Marketing and sales:
 This  functional  area  essentially  analyses  the  needs  and  wants  of customers and is responsible for creating awareness among the targetaudience  of  the  company  about  the  firm’s  products  and  services.Companies make use of marketing communicationstools likeadvertising, sales  promotionsetc.  to  attract  customers  to  their  products.
Service
There is often a need to provide services like pre-installation or after-sales service before or after the sale of the product or service.
Support activities
The  support  activities  of  a  company  include  the  following:
Procurement 
This  function  is  responsible  for  purchasing  the  materials  that  arenecessary  for  the  company’s  operations.  An  efficient  procurementdepartment should be able to obtain the highest quality goods at thelowest prices.
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