The Value Chain

Developed by Michael Porter and used throughout the world for nearly 30 years, the value chain is
a powerful tool for disaggregating a company into its strategically relevant activities in order to focus
on the sources of competitive advantage, that is, the specific activities that result in higher prices or
lower costs. A company’s value chain is typically part of a larger value system that includes
companies either upstream (suppliers) or downstream (distribution channels), or both. This
perspective about how value is created forces managers to consider and see each activity not just
as a cost, but as a step that has to add some increment of value to the finished product or service.
 Porter’s Value Chain Primary Activities
Inbound Logistics
Inbound logistics include the receiving, warehousing, and inventory control of a company's raw
materials. This also covers all relationships with suppliers. For example, for an e-commerce
company, inbound logistics would be the receiving and storing of products from a manufacturer
that it plans to sell.4
Operations
Operations include procedures for converting raw materials into a finished product or service. This
includes changing all inputs to ready them as outputs. In the above e-commerce example, this
would include adding labels or branding or packaging several products as a bundle to add value to
the product.5
Outbound Logistics
All activities to distribute a final product to a consumer are considered outbound logistics. This
includes delivery of the product but also includes storage and distribution systems and can be
external or internal. For the e-commerce company above, this includes storing products for shipping
and the actual shipping of said products.5
Marketing and Sales
Strategies to enhance visibility and target appropriate customers—such as advertising, promotion,
and pricing—are included in marketing and sales. Basically, these is all activities that help convince
a consumer to purchase a company’s product or service. Continuing with the above example, an
e-commerce company may run ads on Instagram or build an email list for email marketing.5
Services
This includes activities to maintain products and enhance consumer experience—customer
service, maintenance, repair, refund, and exchange. For an e-commerce company, this could
include repairs or replacements, or a warranty.5

Porter's Value Chain Secondary Activities

Now, companies can further improve the primary activities of their value chain with secondary
activities. Value chain support activities do just that, they support the primary activities. The support,
or secondary, activity generally plays a role in each primary activity.6 Such as human resource
management, which can play a role in operations, marketing, and sales. Here are the four
supporting activities.
Procurement
Procurement is the acquisition of inputs, or resources, for the firm. This is how a company obtains
raw materials, thus, it includes finding and negotiating prices with suppliers and vendors. This
relates heavily to the inbound logistics primary activity, where an e-commerce company would look
to procure materials or goods for resale.7
Human Resource Management
Hiring and retaining employees who will fulfill business strategy, as well as help design, market,
and sell the product. Overall, managing employees is useful for all primary activities, where
employees and effective hiring are needed for marketing, logistics, and operations, among others.8
Infrastructure
Infrastructure covers a company's support systems and the functions that allow it to maintain
operations. This includes all accounting, legal, and administrative functions. A solid infrastructure
is necessary for all primary functions.9
Technological Development
Technological development is used during research and development and can include designing
and developing manufacturing techniques and automating processes. This includes equipment,
hardware, software, procedures, and technical knowledge. Overall, a business working to reduce
technology costs, such as shifting from a hardware storage system to the cloud, is technological
development.10
The Bottom Line
The primary activities within Michael Porter's value chain are used to provide a company with a
competitive advantage in any one of the five activities so it has an advantage in the industry in
which it operates.11 In general, the analysis was meant for companies that manufacture goods.
But almost any company can use the value chain analysis laid out by Porter even if they don’t have
all the components.