Michael E.

Porter’s
Value Chain Analysis

Mahima Batheja (15088) Pallavi Kundhya (15105)

Megha Sah(15093) Naman Dhanuka (15096)

 Introduction

Value Created and Captured – Cost of Creating that Value = Margin

Understanding how your company creates value,

and looking for ways to increase margin, are critical
elements in developing a competitive strategy.

Value Chain model developed by Michael Porter to

formulate competitive strategies, understand the
sources of competitive advantage
 What is Value Chain?

◉ A value chain is a set of activities that an organization carries

out to create value for its customers
◉ Examines all 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)
Porter’s Generic Value Chain (Fish Bone Diagram)
 Primary Activities

Products pass through a chain of activities in order, and at each activity the
product gains some value. Primary activities are directly concerned with the
creation or delivery of a product or service

Inbound Outbound Marketing

Operations Service
Logistics Logistics & Sales

Each of these primary activities is linked to support activities which help to

improve their effectiveness or efficiency
Inbound Logistics

◉ Concerned with receiving, storing, and

distributing inputs internally
◉ Handling of raw materials (warehousing and
inventory control)
◉ Supplier relationships are a key factor in creating
value here
Operations

◉ It is the stage at which the raw materials are

turned into the final product.

◉ It tasked with ensuring the investments are in line

with the guidelines set forth by the client and the
trades are at the best execution price.
Outbound Logistics

◉ It refers to the warehousing and distribution of the

final product to consumers.

◉ It involves collecting of finished goods, storing

them and transporting them to the customers.
Marketing And Sales

◉ It is identification of customer needs and

generating sales.

◉ It involves advertising, promotions, sales-force

organization, distribution channels, pricing and
managing the final product to ensure it is targeted
to the appropriate consumer groups.
Service

◉ Involves how to maintain the value of the product

after it is purchased

◉ e.g. installation, repair,maintenance and after

sale services
 Starbucks aims at building customer loyalty
EXAMPLE- through its stores' customer service. The retail
objective of Starbucks is, as it says in its annual
report, “to be the leading retailer and brand of coffee
in each of our target markets by selling the finest
quality coffee and related products, and by providing
each customer a unique Starbucks Experience.”
 Support Activities

Support activities assist the primary activities in helping the

organisation achieve its competitive advantage.

Human Procurement Technology

Firm
Resource
Infrastructure
Management
Firm Infrastructure

◉ Firm infrastructure refers to an organization's structure and

its management, planning, accounting, finance, payroll,
legal affairs, public relations and corporate governance.

◉ These activities contribute to the value addition by

supporting and enabling the primary activities
Human Resource Management

◉ HR is responsible for providing methods of hiring, training,

compensation, and motivation for personnel in all areas of
the business
Technology

◉ This area is more than research and development. It

includes uses of technology for overall business support
such as phones and plans, office automation, order
processing methods, and procedures.
Procurement

◉ This activity includes purchasing raw materials and

supplies, as well as vendor qualification, building or
leasing, info system development, and fleet management.
Value chain analysis of of
starbucks
 PRIMARY ACTIVITIES

Inbound logistics- The inbound logistics for Starbucks refers to selecting the finest quality of
coffee beans by the company The company does not outsource its procurement to ensure
high quality standards right from the point of selection of coffee beans.

Operations Inbound logistics- Starbucks operates in 65 countries either in the form of

direct stores operated by the company or as licensed stores. Starbucks has more than
21,000 stores internationally
Outbound Logistics- There is very little or no presence of intermediaries in product selling.
Majority of the products are sold in their own or licensed stores only.
Marketing and Sales service-Starbucks invests in superior quality products and high level
of customer services than aggressive marketing.
Service- One of their main objective is to provide superior levels of customer service.
 SUPPORT ACTIVITIES

Firm Infrastructure

Starbucks well designed and pleasing stores are complemented with good customer service provided
by the dedicated team of employees in green aprons.
Human Resource Management
The company’s committed workforce is considered a key attribute in the company’s success and
growth over the years. Starbucks employees are motivated through generous benefits and incentives.

Technology Development
Starbucks is very well known for use of technology not only for coffee related processes but to connect
to its customers.

Procurement

This involves procuring the raw material for the final product.High quality standards are maintained
with direct involvement of the company right from the base level of selecting the finest raw material
which is coffee beans in case of Starbucks.
Value Chain Analysis
Of Walmart
 Walmart is known to have changed the face of retail in US and
around the world in many more countries. Known for its cost
leadership strategy, Walmart has expanded its international
presence quite fast. It has seen rapid growth and the popularity
of the brand is due to the matchless deals it provides. It’s more
than 11500 units are operational across 28 countries. In 11 of
these countries, its e-commerce websites are operational.
 Value Chain Analysis

◉ Examine the activities of a firm and how they interact with

one another and affect each other’s cost and performance.
◉ Used to identify sources of competitive advantage,
specifically:
○ Opportunities to secure cost advantages
○ Opportunities to create product/service differentiation
◉ Presents opportunities for integration
Linkages between activities

◉ Linkages may exist between primary activities

and also between primary and support activities.

◉ These linkages may have positive or negative

after effects.

◉ E.g.: Consider a change in product design..

Competitive Advantage
Cost Advantage

Cost advantage
can be created in
two ways:
 How to gain cost advantage?

05 Identify opportunities for

reducing cost.
Identify Firm’s primary and
support activities
01 04
Identify links between
activities

Establish the relative

importance of each
activity in the total cost of
02 03
the product Identify cost drivers for
.
each activity
10 cost drivers
Reconfiguring for cost

New Sales
Approach

New New
Production distribution
Process channel
Differentiation advantage

Differentiation
advantage can be
created in two
ways:
 How to gain differentiation
advantage?

03 Identify the best

sustainable differentiation

Identify customers value

creating activities

01 02
Evaluate the differentiation
strategies for improving
customer value
Differentiation drivers
Reconfiguring For
Differentiation

Integration

Distribution Process
Channels technologies
 Business Situations where Value
Chain Analysis is Useful

1 When there are general quality problems or increasing costs

2 When we need to assess a business model – define core

competencies and secondary activities

3 When facing logistic issues, we can use it to analyse all parts

within a supply chain

In case of a business model redesign, conduct a value chain

4 analysis to figure out what steps can be outsourced
Benefits of Using Value Chain
Analysis

Enterprise Resource
Planning

Supply Chain Costumer

Enhancements Relations
Inbound Logistics
Procurement: It includes selecting and
contacting the right suppliers to locally
procure most of the raw materials
Shifting to smaller supplier base to
achieve sustainability goals
Operations
Contract manufacturing: outsourcing
the manufacturing & assembly of
products (Low cost labour in South
America, South-East Asia and China)
In-house design process
Outbound Logistics
The products shipped from the
manufacturers to the Nike Distribution
centre
A chain of regional distribution centers
to cater to the needs of its retail store

Marketing & Sales Service

Direct to customer selling NikeTowns Pre and post sales service
set up (only a few), not a major source
Customisable products
of revenues
Use of IT to enhance customer service
Nike.com: inspirational content, brand abilities
building, athlete profiles (along with
selling)
Collaborates with athletes for popular
ad campaigns

Nike’s Value Chain (Primary Activities)

Firm Infrastructure Human Resource Management

Large and global infrastructure composed of its Uses number of social media platforms/networks
offices, retail stores and distribution and logistics and e-recruitment and automated recruitment
centres systems to market its employment brand

Increasing IT capabilities through data centres Its suppliers also have to follow strict regulations
related to labor and HR management

Technology Procurement
Investments in automation, modernization, Entire procurement team dedicated to this task
sustainability, and innovative new methods of which analyzes and evaluates the eligible
manufacturing suppliers
Reuse & recycle waste generated (sustainability
practices)
Supply chain management softwares

Nike’s Value Chain (Support Activities)

 Strong R&D
(enhanced Supply Chain
performance & Competencies
aesthetic)

Zero Waste
Collaborations
through the
& Strong Low Cost
Closed Loop
Global Brand Manufacturing
Business
Model

Nike’s Competitive Advantage

Thanks!
Any questions ?