VALUE CHAIN ANALYSIS :

VALUE
 THE VALUE IS THE TOTAL AMOUNT (i.e. TOTAL
REVENUE) THAT BUYERS ARE WILLING TO PAY
FOR A FIRM’S PRODUCTS.
 THE DIFFERENCE BETWEEN THE TOTAL VALUE
(OR REVENUE) AND THE TOTAL COST OF
PERFORMING ALL OF THE FIRM’S ACTIVITIES
PROVIDES THE MARGIN .
 THE VALUE CHAIN IS A TOOL DEVELOPED BY DR.
MICHAEL PORTER(HARVARD BUSINESS SCHOOL)
 What is the value chain?
 Porter’s definition includes all activities to
design, produce, market, deliver, and support the
product/service.
 The value chain is concentrating on the activities
starting with raw materials till the conversion into
final goods or services.
 Two categories:
 Primary Activities (operations, distribution, sales)
 Support Activities (R&D, Human Resources)
 What is value chain analysis?
• Used to identify sources of competitive advantage
• Specifically:
– Opportunities to secure cost advantages
– Opportunities to create product/service
differentiation
• Includes the value-creating activities of all industry
participants
 Value Chain Model
(FISH BONE DIAGRAM)

SUPPORT Firm Infrastructure (General Management)

ACTIVITIES
Human Resource Management

Technology Development

Procurement

Inbound Ops. Outbound Sales & Service and

Logistics Logistics Marketing Support

PRIMARY ACTIVITIES
 TYPES OF FIRM ACTIVITIES
• Primary activities:
Those that are involved in the
creation, sale and transfer of
products (including after-sales
service)
 Inbound logistics
 Operations
 Outbound logistics
 Sales and marketing
 Service and support
• Support Activities:
Those that merely support the
primary activities
 Human resources
(general and admin.)
 Tech. development
 Procurement
PRIMARY ACTIVITIES
 PRIMARY ACTIVITIES
1. INBOUND LOGISTICS
- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (e.g.
HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY
CONTROL)

2. OPERATIONS
- COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL
PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING)

3. OUTBOUND LOGISTICS
-INVOLVE THE COLLECTING, STORING, AND DISTRIBUTING THE PRODUCT
TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF
FINISHED GOODS, AND DELIVERY)
 PRIMARY ACTIVITIES
4. MARKETING AND SALES
-Identification of customer needs and generation of sales.
(e.g. ADVERTISING, PROMOTION, DISTRIBUTION)

5. SERVICE
-INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT
AFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,
MAINTENANCE, AND TRAINING)
SUPPORT ACTIVITIES
 Value Chain Model
from Michael E. Porter’s Competitive Advantage

SUPPORT
ACTIVITIES
Firm Infrastructure (General Management)

Human Resource Management

Technology Development

Procurem ent

Inbound Ops. Outbound Sales & Service and

Logistics Logistics Marketing Support

PRIMARY ACTIVITIES
 SUPPORT ACTIVITIES
1. FIRM INFRASTRUCTURE
The activities such as Organization structure, control system, company
culture are categorized under firm infrastructure.
2. HUMAN RESOURCE MANAGEMENT
Involved in recruiting, hiring, training, development and compensation.
3. TECHNOLOGY DEVELOPMENT
These activities are intended to improve the product and the process, can
occur in many parts of the firm.
4. PROCUREMENT
Concerned with the tasks of purchasing inputs such as raw
materials, equipment, and even labor.
USES OF VALUE CHAIN ANALYSIS:

• The sources of the competitive advantage of a firm can be seen from its
discrete activities and how they interact with one one another.
• The value chain is a tool for systematically examining the activities of a firm
and how they interact with one another and affect each other’s cost and
performance.
• A firm gains a competitive advantage by performing these activities better
or at lower cost than competitors.
• Helps you to stay out of the “No Profit Zone”
• Presents opportunities for integration
• Aligns spending with value processes
APPLYING THE VALUE CHAIN TO AN INDUSTRY

• THE VALUE CHAINS OF THE DIFFERENT FIRMS

WITHIN AN INDUSTRY VARY FROM ONE
ANOTHER.
• IN FACT, THE DIFFERENCES IN THE VALUE
CHAINS AMONG THE DIFFERENT INDUSTRY
PLAYERS PROVIDE THE SOURCE OF
COMPETITIVE ADVANTAGES BETWEEN THESE
PLAYERS.
 TATA MOTORS
(A Manufacturing Based Company)
Value Chain & Value System of TATA motors
Transporters, Convoy Drivers Dealer Network,Marketing
Association Research Firms, Vehicle
Financing

SAP , VCM

Inbound Outbound
Operations Marketing Service

Logistics Logistics

SAP , CRM - DMS

Suppliers , Contractors
Regional Warehouses, Dealer
Workshops, Distributors, TASS

Strategic Alliances
PRIMARY ACTIVITIES
Inbound Logistics
Long term contract with service provider’s – transporters and
agents.
 Personnel at regional offices for over seeing the smooth transit
of goods.
Transparency and monitoring through deployment of IT – all
transactions through SAP.
 DTL (daily transport logistics) supplies for critical high value
items.
 Efficient storage facilities – easy storage and retrieval.
Operations
Capital Equipment Manufacturing division – tooling development capabilities
of global standard.
 Apprentice Trainee Course – ensuring stable source of skilled manpower.
Kaizen & TPM(total productive management) team – continuous drive to
improve efficiencies.
 Automated manufacturing processes.
Distributed manufacturing – Assembly units at South
Africa, Thailand, Bangladesh, Brazil etc.
 Maintenance – technical competence.
 Capacity Utilization – Mercedes Benz cars make use of Tata Motors paint shop
facilities.
Outbound Logistics
 Stockyards, all across the country.

Long term contracts with transporter’s – higher volume of

business to transporters ensures competitive price.
Regional Sales Office and Vehicle Dispatch Section linked through
SAP.
 Efficient security system for prevention of any kind of pilferage.
Marketing & Sales
 Structured approach to understanding the requirements of individual customers
– QFD’s conducted at regular intervals.
Clear identification of product requirements, leading to development of
innovative products – Tata 207 DI, Tata Ace
 Pan India presence and global footprint.
Independent teams for addressing the requirements of institutional customers –
Defense, State Transport Units
 Helping to augment the scarce resources – Fiat selling vehicles through Tata
dealerships, in return Tata has access to Fiat’s technology and unutilized capacity.
Quick assessment of the changing market dynamics and consumer preferences –
Tata 407 LCV
 Large network of dealers – use of technology (CRM-DMS).
Service
 Easy availability of spare parts.
Efficient collection of data from field and communication to the
respective plants.
 Pan India presence, as well as global presence.
 Large network of workshops – Dealer workshops and TASS.
 Training facilities – for dealer end and TASS personnel.
SUPPORT ACTIVITIES
Procurement
 E procurement initiative.
Global Sourcing Team – China , a key destination for sourcing
essential items like tires, power steering units etc., Steel procured
from Belarus
 Long term relationships with a stable and loyal pool of suppliers.
 Technology driven procurement – SAP
 Group resources – Tata Steel and Tata International .
 Localized supplier base at mfg. locations – low inventory levels.
Technology Development
Approximately 2% of the annual profits of the company invested
in research and development.
Knowledge portal – helps employees keep abreast with the latest
technologies.
 Extensive prototype building and testing facilities.
 Strategic partnerships – a three-year strategic partnership agreement for
supply of Commercial Vehicle Oils to Tata Motors globally with Castrol

 Formal benchmarking process.

 “Technology Day” organized across all plant locations.
Human Resource
 Vast pool of technically competent engineers and managers.
Focus on development of technical capabilities – Technical
Training Center’s, Alliance with technical Institutes
 Focus on development of managerial capabilities – executive
training programs at premier business schools
 Career advancement schemes – ESS Employee self-service
provides employees access to their personal records and
details.
Firm Infrastructure
 Multi – Location facilities
 Strong leadership – under the aegis of Tata Sons
Tata Sons Private Limited is the holding
company of the Tata Group and holds the bulk
of shareholding in the Tata group of companies
including their land holdings across India, tea
estates and steel plants.
 Best in class prototype building facilities
 Technology – SAP
 Large product portfolio