Strategic Management Lesson

Number: 8

Value Chains,
Concepts
and Supply
Chain

Presented by: Group 1

 INTRODUCTION
VALUE Value chain analysis (VCA)
• a fair return in goods, services, or money for • is a process where a firm identifies its primary
something exchanged and support activities that add value to its
VALUE CHAIN
• A value chain is a set of activities that a firm final product and then analyze these activities
operating in a specific industry performs in order to reduce costs or increase differentiation.
to deliver a valuable product for the marketing • A company conducts a value-chain analysis
activities.
• The by evaluating the detailed procedures
value chain is concentrating on
involved in each step of its business.
activities starting with raw materials till the
conversion into final goods or services. The the • The purpose of a value-chain analysis is to
value chain is a tool developed by Dr. Michael increase production efficiency so that a
Porter.
company can deliver maximum value for the
least possible cost.
 Concept of value chain
-Michael Porter (1995) introduced the notion of Value chain in his book "Competitive
Advantage: Creating and Sustaining Superior Performance". The concept of value-added, in
the form of the value chain, can be utilized to develop an organization’s sustainable
competitive advantage in the business field of the 21st Century.
Competitive advantage
-refers to factors that allow a company to produce goods or services better or more cheaply
than its rivals. These factors allow the productive entity to generate more sales or superior
margins compared to its market rivals.
-Competitive advantages are attributed to a variety of factors including cost structure,
branding, the quality of product offerings, the distribution network, intellectual property, and
customer service.

There are two main types of competitive advantages:

• Comparative advantage
• Differential advantage
The value chain framework is made up of five primary activities and four
secondary/support activities.

Primary Activities
• Inbound operations
• Operations
• Outbound logistics
• Marketing and sales
• Service

Support Activities
• Procurement
• Human resource management
• Technological development
• Company infrastructure
The primary activities of Michael
Porter's value chain
Porter's value chain are inbound logistics, Inbound Logistics Outbound Logistics
operations, outbound logistics, marketing and involve relationships These include all the
sales, and service. The goal of the five sets with suppliers and activities required to
of activities is to create value that exceeds include all the activities collect, store, and
required to receive, distribute the output.
the cost of conducting that activity, therefore store, and disseminate
generating a higher profit. inputs.
The primary activities of Michael
Porter's value chain
Operations

• These are all the activities required to transform inputs into outputs (products and
services).

Marketing and Sales

• Activities inform buyers about products and services, induce buyers to purchase them,
and facilitate their purchase.

Service 
• Includes all the activities required to keep the product or service working effectively for
the buyer after it is sold and delivered.
 The support activities of
Michael  Porter's value chain
Procurement
• Is the acquisition of inputs, or resources, for the firm.
Human Resource Management
• This consists of all activities involved in recruiting, hiring, training, developing,
compensating, and (if necessary) dismissing or laying off personnel.
Technological Development
• It pertains to the equipment, hardware, software, procedures, and technical
knowledge brought to bear in the firm's transformation of inputs into outputs.
Company Infrastructure
• This serves the company's needs and ties its various parts together, it
consists of functions or departments such as accounting, legal, finance,
planning, public affairs, government relations, quality assurance, and general
management.
PORTER'S
VALUE CHAIN
Value chain analysis
is a practice that yields value enhancement.
There are two components of value chain:
1. The industry value chain
2. Company's internal value chain

Value chain analysis

is a strategy tool used to analyze internal
firm activities. Its goal is to recognize, which
activities are the most valuable (i.e. are the
source of cost or differentiation advantage)
to the firm and which ones could be
improved to provide competitive advantage
Implementation of Value Chain
Analysis
There is a three-stage process to perform value chain
analysis. It delivers value to customers and reviews all
processes to maximize product value.
1. Activity Analysis: Ascertain the activities that contribute
to
the processing of the product or service.
2. Value Analysis: Identify the items and/or services that
customers value in the way one conducts each activity, and
then calculate the changes based on relevant structural
and/or execution cost drivers.
3. Evaluation and Planning: Decide what changes to make and
determine how to conduct the plan.
The value chain approach for assessing competitive
advantage. Most corporations describe their mission as
one of creating products or services. The way that the
value chain approach supports organizations evaluate
competitive advantage is through numerous analysis :
1. Internal cost analysis: To determine the sources of profitability
and the relative cost positions of internal value-creating
processes.
2. Internal differentiation analysis: To understand the sources of
differentiation (including the cost) within internal value-creating
processes.
3. Vertical linkage analysis: To understand the relationships and
associated costs among external suppliers and customers to
maximize the value delivered to customers and to minimize cost.
EXAMPLES OF VALUE CHAIN
ANALYSIS BY INDUSTRY
Food and Beverage
• Selecting and sourcing high-quality coffee
beans, developing loyalty through excellent
customer service, and aggressively
marketing their brand were key elements in
Starbucks’ creation of a unique identity and a
robust competitive edge. Rather than
focusing on premium pricing, Pizza Hut
outpaced the competition by offering fast
delivery of a less expensive product.
Delivery Service
• To market share and brand loyalty,
FedEx's
increase value chain emphasizes and invests in
employee development through excellent human
resources initiatives and infrastructure
improvements.
Retail
• Walmart is constantly performing value chain analysis in
order to keep costs low for their customers. From
regularly evaluating suppliers and integrating in-store
and online shopping experiences to remaining innovative
in order to differentiate, Walmart is driven by their
commitment to helping people save money.
Benefits of
Value Chain
Analysis
The value chain links up a series of value-creating
activities from supplier to customer.
The value chain process integrates external and internal
data, applies appropriate cost drivers for all major value-
creating processes, exploits linkages throughout the value
chain, and offers continuous monitoring of a company's
strategic competitive advantage.
The main objective is to conduct value chain activities
more efficiently, and ultimately surpass industrial
competitors. Value chain analysis can support companies
to determine which type of competitive advantage to
follow, and how to pursue it.
Advantages of Value Chain
Analysis
• The advantages of value chain
analysis can be seen by breaking
product and service activities
into smaller pieces in an effort to
fully understand the associated
costs and areas of
differentiation.
• Analyzing activities also gives
insights into elements that bring
greater value to the end user.
• It is common practice for
organizations of all sizes and in all
industry verticals to outsource to
strategic partners.
Drawbacks of Value Chain
Analysis
1. Availability of data
2. Ascertainment of revenues, costs, and assets
3. Identification of cost drivers
4. Identification of stages
5. Opposition from employees

The use of value chain analysis facilitates the strategic management

of an organization. Michael Porter's influential work in strategic
management elucidates the fundamentals of how organizations
compete.
Generalization:

A value chain is a step-by-step business model for

transforming a product or service from idea to reality.
The value chain help increases a business’s efficiency so
the business can deliver the most value for the least
possible cost.
The end goal of a value chain is to create a competitive
advantage for a company by increasing productivity while
keeping costs reasonable.
The value-chain theory analyses a firm’s five primary
activities and four support activities.