VALUE CHAIN ANALYSIS

Managing Consulting Companies

Prof. Dr. Peter Mattheis

Presented by:
Norma Fernanda Castillo Almeida
BCM SS 2011
Agenda

1. The Value Chain Definition.

2. The Activities of Value Chain.
3. The Value System.
4. The Linkages.
5. Value Chain and Competitive advantage.
6. Analyzing a Value Chain.
7. Conclusion.
8. Biography.
 1.Value Chain Definition.

“When a company competes in any industry, it performs a number of

discrete but interconnected value-creating activities, such as operating a
sales force, fabricating a component, or delivering products, and these
activities have points of connection with the activities of suppliers, channels,
and customers. The value chain is a framework for identifying all these
activities and analyzing how they affect both a company's costs and the
value delivered to buyers.”
Porter 2001
 2.Value Chain Activities.

Primary Activities Support Activities

• May be essential in developing a • Support the primary activities.
competitive advantage.
• No interaction with the customer.
• Related with the creation,
development, manufacture, • Often are viewed as “overhead”
distribution, sales and servicing of
the product.
2.Value Chain Activities

Porter's Value Chain

Margin = Total Value – Total Cost

Fig. 1: Porter's Generic Value Chain

 2.1. Primary Activities.
1. Inbound logistics:

Receiving, storing, materials handling, warehousing, inventory

control, vehicles scheduling and returns to suppliers.
 2.1. Primary Activities.
2. Operations:

Machining, packaging, assembly, equipment maintenance, testing,

printing, facility operations.
 2.1. Primary Activities.
3. Outbound logistics: :

Inventory control, warehousing, order processing, delivery ,etc.

 2.1. Primary Activities.

4. Marketing and sales:

Advertising, promotion, product mix pricing, specifying distribution

channel members, maintaining channel relations, etc.
 2.1. Primary Activities.

5. Services:

Installation, repair, training, parts supply and product adjustment etc.

 2.2.  Support Activities.

1. Firm Infrastructure:

Organizational structure, control systems, company culture, etc.

2. Human Resources:

Employee recruiting, hiring, training, development, and compensation.

3. Technology development :

Concerned with technological innovation, training and knowledge.

 2.2.  Support Activities.

4. Procurement:

Acquirement of resources, such as raw materials, supplies, and other

consumable items and assets .
 3. The Value System.

SUPPLIERS FIRM DISTRIBUTION BUYERS

CHANNELS
VALUE CHAIN VALUE CHAIN VALUE CHAIN
VALUE CHAIN

The development of a competitive advantage relies not

only on the firm unique value chain, but also on the value system that is a part of
• A value system includes the the firm
value chains of a firm's supplier the firm
distribution channels, and the firm's buyers.

• The improvement of a firm’s competitive advantage depends on value

system as well.
 4. The Linkages.
• Value chain activities are interrelated to each other.

• Linkages between activities are essential when creating competitive

advantage.

• Linkages may exist:

• Inside
Linkages a firm,
may with
exist the value
within chains
the firm, of other
with strategic
the value chains of other strategic
• Between
business primary activities.
units, between primary activities and also between primary and support
• Between primary and support activities.
activities, both horizontally and vertically, and outside the firm with suppliers and
customers.
Marketing & Sales function
delivers sales forecasts for
the next period to all other
departments, so procurement
will be able to order the
material on time.
 4.1. Vertical Linkage.
• Buying and selling relationships link firms vertically.
• Vertical linkages allow firms to exchange:
• Knowledge
• Information
• Technical and business services.

• These non-financial transactions are important elements of buyer-seller

relationships and are central to sustained value chain competitiveness.
Linkages may exist within the firm, with the value chains of other strategic
business units,
• Effective between
vertical primary
linkages activitiescharacterized
are generally and also between
by: primary and support
activities, both horizontally
• Mutually and vertically, and outside the firm with suppliers and
beneficial relationships.
• Knowledge transfer customers.
• Quality standards
• Embedded services
• Financial flows. 
 4.2. Horizontal Linkage.

• Reduces transaction costs.

• Creates economies of scale.

• Contributes to the increased efficiency and competitiveness of a

firm. may exist within the firm, with the value chains of other strategic
Linkages
business units, between primary activities and also between primary and support
• Canboth
activities, contribute to shared
horizontally and skills and resources.
vertically, and outside the firm with suppliers and
customers.
• Enhances product quality through common production standards.

• Maintains a balance between cooperation and competence among

firms .
 
 5. Value Chain Analysis and Competitive
Advantage.

Cost Advantage and the Value Chain

Porter identified 10 cost drivers related to value chain activities:

1. Economies of scale
2. Learning
Linkages
3. Capacitymayutilization
exist within the firm, with the value chains of other strategic
business units, between
4. Linkages among primary
activitiesactivities and also between primary and support
activities, both horizontally
5. Interrelationships and vertically,
among businessand outside the firm with suppliers and
units
6. Degree of vertical integration customers.
7. Timing of market entry
8. Firm's policy of cost or differentiation
9. Geographic location
10. Institutional factors (regulation, union activity, taxes, etc.)
 
 5. Value Chain Analysis and Competitive
Advantage.

Differentiation and the Value Chain

Porter identified several drivers of uniqueness:

1. Policies and decisions

2. Linkages among activities
Linkages
3. Timing may exist within the firm, with the value chains of other strategic
business units, between primary activities and also between primary and support
4. Location
activities, both horizontally and vertically, and outside the firm with suppliers and
5. Interrelationships
6. Learning customers.
7. Integration
8. Scale (e.g. better service as a result of large scale)
9. Institutional factors
 
 6. Analyzing a Value Chain.

A typical value chain analysis can be performed in the following steps:

1. Analysis of own value.

2. Analysis of customers value chains.

Linkages may exist within
3. Identification the firm,
of potential with
cost the value chains
advantages of otherwith
in comparison strategic
business units, between primary activities and also between primary and support
competitors.
activities, both horizontally and vertically, and outside the firm with suppliers and
4. Identification of potentialcustomers.
value added for the customer .
 7. Conclusion.

Value chain or Value Chain Analysis is a potent framework or

tool used by managers to find or identify the key activities within
a firm in order to improve or reorganize them to achieve a
competitive advantage that will make the firm superior and
more efficient that the competence.

The ability of a firm within an industry to supply its buyers with a

product or service that meets all the buyer’s requirements
depends on the ability of the value chain to deliver information,
skills, resources and benefits to all participants in the chain.
 Questions??

Linkages may exist within the firm, with the value chains of other strategic
business units, between primary activities and also between primary and support
activities, both horizontally and vertically, and outside the firm with suppliers and
customers.
 8. Biography.

1. Using Value Chain Analysis to Make a Choice of International Marketing

Strategy . Master thesis approved and supervises by Dipl. Kfm. Alfred Merz .

2. Fachhochschule Nürtingen University of Applied Science .

Strategy and the Business Landscape (2nd Edition)  Author : Pankaj E Ghemawa

3. Competitive Advantage: Creating and Sustaining Superior Performance by

Michael E. Porter, Free Press, 1998 (1985).

4. The Value Chain. Retrieved December 2005, from QuickMBA web

site: http://www.quickmba.com/strategy/value-chain

5. The Value Chain. Retrieved December 2005, from NetMBA web

site: http://www.netmba.com/strategy/value-chain/