Value Chain Analysis

Posted in Operations and Supply Chain Terms, Total Reads: 262

Definition: Value Chain Analysis

The concept of Value Chain Analysis originates from business management. It was first defined and propagated by Michael Porter in his 1985 best-seller called ‘Competitive Advantage: Creating and Sustaining Superior Performance’. A value chain is a set of activities that a firm working in a specific industry performs so as to deliver a valuable product or service to the market.


The idea of value chains as decision support tools, was added on the competitive schemes paradigm established by Porter as early as 1979.

In Michael Porter's value chains the following are categorized as primary activities:

• Inbound Logistics

• Operations

• Outbound Logistics

• Marketing and Sales

• Services.

Secondary activities include:

• Procurement

• Human Resource management

• Technological Development

• Infrastructure

The value chain idea has been broadened past individual firms. It can apply to entire supply chains and distribution systems. The delivery of a blend of items and services to the end client will mobilize diverse economic factors, each dealing with its own value chain. The business wide synchronized interactions of those nearby value chains make an extended value chain, sometimes even global. Porter terms this bigger interconnected arrangement of value chains the "value system". A value system incorporates the value chains of a company's supplier (and their suppliers), the firm itself, the firm distribution channels, and the firm's purchasers (and probably reached out to the purchasers of their items, etc.)

Capturing the value produced along the chain is the new approach taken by numerous management strategists.



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