Porter's Value Chain - Meaning, Importance & Components

Published by MBA Skool Team, Last Updated: October 10, 2021

What is Porter's Value Chain?

Porter's Value Chain is a management framework which looks at business & manufacturing as a group activities which help create value and margins for a company collectively. Porter's Value Chain looks at a business from start of manufacturing to product creation to marketing promotion and after sales servicing, and how each activity generates value or money for the company.

Importance of Porter's Value Chain

The value chain created by Michael Porter looks at a business holistically, and how each activity contributes to value or revenue generation at every level. It is important to look at every business at activity level to ensure high competitive advantage and higher margins. The Porter's value chain framework is bifurcated into primary activities and supporting & auxiliary activities.


Components of Porter's Value Chain

The key elements of Porter's Value Chain include primary activities like manufacturing, marketing, servicing etc. and supporting activities like procurement, human resource management, technology, finance etc. These can be defined as follows:

Primary Activities

The main activities involved in manufacturing and selling the products are called as primary activities.

1. Inbound logistics - efficiency in raw materials procurement, quality control, schedule planning are essential elements to derive more value

2. Operations - A streamlined value chain manufacturing process, good packaging, quality control etc. are helpful in getting more value

3. Outbound logistics - once goods are produced, their distribution, invoicing, order management are activities which can generate value if managed properly

4. Marketing & Sales - Activities like market research, product promotion, customer management, sales performance analysis are important factors of Porter's Value Chain

5. Servicing - after sales service, maintenance, training etc. all help generate more value.


Supporting Activities

These activities are indirectly useful in product creation and for generating value for the company.

1. Procurement - Supplier relationships, procurement quality & processes are essential activities which indirectly add value to a business

2. Technology - A better technology, better R&D and constant innovation can help a company gain more competitive advantage

3. HRM - A good, efficient and well-trained workforce can ensure all activities are driven well to generate more revenue

4. Finance & Administration - Financial planning, business forecasting, fund management etc. are critical elements for generating value for a business.

Hence, this concludes the definition of Porter's Value Chain along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

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