The Value Chain (VC) framework of Michael Porter is a model that helps to analyze
specific activities through which firms can create value and competitive advantage.
The activities of the VC
-
Primary activities (line functions)
- Inbound Logistics. Includes receiving, storing, inventory control,
transportation planning.
- Operations. Includes machining, packaging, assembly, equipment
maintenance, testing and all other value-creating activities that transform
the inputs into the final product.
- Outbound Logistics. The activities required to get the finished
product at the customers: warehousing, order fulfillment, transportation,
distribution management.
- Marketing and Sales. The activities associated with getting
buyers to purchase the product, including: channel selection, advertising,
promotion, selling, pricing, retail management, etc.
- Service. The activities that maintain and enhance the product's
value, including: customer support, repair services, installation, training,
spare parts management, upgrading, etc.
- Support activities (Staff functions, overhead)
- Procurement. Procurement of raw materials, servicing, spare
parts, buildings, machines, etc.
- Technology Development. Includes technology development to
support the VC activities. Such as: Research and Development,
Process automation, design, redesign.
- Human Resource Management. The activities associated with recruiting,
development (education), retention and compensation of employees and managers.
- Firm Infrastructure. Includes general management, planning
management, legal, finance, accounting, public affairs, quality management,
etc.
Creating a cost advantage based on the VC
A firm may create a cost advantage:
- by reducing the cost of individual VC activities, or
- by reconfiguring the VC.
Note that a cost advantage can be created by reducing the costs of the
primary activities, but also by reducing the costs of the support activities.
Recently there have been many companies that achieved a cost advantage by
the clever use of Information Technology.
Once the VC has been defined, a cost analysis can be performed
by assigning costs to the VC activities. Porter identified 10
cost drivers related to value chain activities:
- Economies of scale.
- Learning.
- Capacity utilization.
- Linkages among activities.
- Interrelationships among business units.
- Degree of vertical integration.
- Timing of market entry.
- Firm's policy of cost or differentiation.
- Geographic location.
- Institutional factors (regulation, union activity, taxes, etc.).
A firm develops a cost advantage by controlling these drivers better than
its competitors do. A cost advantage also can be pursued by "Reconfiguring"
the VC. "Reconfiguration" means structural changes such as: a new
production process, new distribution channels, or a different sales approach.
Normally, the VC of a company is connected to other Value Chains
and is part of a larger VC. Developing a competitive advantage also
depends on how efficiently you can analyze and manage the entire VC.
This idea is called: Supply Chain Management. Some people argue that
network is actually a better word to describe the physical form of Value Chains:
Value Networks.
Book: Michael E.
Porter - Competitive Advantage
Forum discussions about the Value Chain (Porter).
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Value Chains ⇨ Value Networks
In an article 'Value Creation, Coordination and Positioning in Supply Relationships' in Long Range Planning (Volume 39, Issue 2, April 2006, Pages 133-153), Lars Huemer has reservations as to the usef...
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Value Chain for Services Industry
I have read somewhere, that this model is not applicable for services industry, is it true? And does anybody know, if possible, a good model for strategic management for services industry? Thank you!...
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Value Chains and Industries
Interestingly, different industries often emphasize different activities in the value chain. For example, retailers traditionally focus on inbound and outbound logistics and procurement, while manufac...
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Procurement in the Value Chain Approach
For long the value chain approach by Michael Porter and as advanced by Peter Hines has placed procurement on the periphery, bundling it with general administration among other things.
Today, with th...
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Customer Value Chain (CVC)
The Customer Value Chain (CVC) is a bit similar or analogous to Michael Porter's Value Chain (the series of activities such as operations, logistics, and marketing that companies execute in order to c...
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Disadvantages of Value Chain Analysis
Disadvantages of Value Chain Analysis (VCA) are:
By focusing too granularly on micro details, the broader strategic view can get lost.
It can be time-consuming and complex in terms of data colle...
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Courses about the Value Chain (Porter).
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The Added-Value Chain Model 3 more Primary and 1 more Supporting Activity Added to Porter's Model The Added-Value Chain model proposes to add an expanded set of activities to the original Value Chain concept by Porter....
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Good Value Chain Questions to Ask Optimizing your Supply Chain To more deeply understand your Value Chain, these are a few interesting questions you can ask yourself:
- What are the ...
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Process Classification Framework Alternative to Porter's Value Chain Analysis A company's activities or processes classification is mostly based on subjective criteria, experience and sensitivity of...
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Reported Benefits of Value-chain Initiaves Value Chain Advantages A survey by G. Taninecz “Forging the Chain” in Industry Week (Dec. 21, 2004) indicated the following major benefits of ...
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Implementing Added-Value Chain Model Implementation According to Wayne McPhee and David Wheeler in the article “Making the Case for the Added-Value Chain” (Strategy & Leade...
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How to Design a Value Chain? Supply Chain Design Designing or improving a value chain is not easy. Here are five bullet points to get started:
1. Begin by identifying t...
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Online Value Chain Use of Internet / IT In Michael Porter's view, traditional firms have a chance to profit from deploying modern IT infrastructure and upgrade ...
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10 Decision Areas of Operations Management (Heizer) Operations Management According to Heizer and Render, there are 10 decision areas of Operation Management (each having typical issues):
1. Go...
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List of Major Value Chain Obstacles Pitfalls in Implementing Value Chain Management Although the Value Chain approach can be effective, there are major obstacles underlying application of SCM, such as:
1...
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Innovating by Reconsidering Value Delivery Fundamental Innovation When innovating their business model, companies need to reconsider their value proposition from all perspectives. One of...
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Remember to Focus your Improvement Efforts? Achieve More With Less, Kaizen, BPR, JIT, Lean, Value Chain Very often organizations consider continuous improvement as committing on improvement efforts, and thus creating project...
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Value Networks Value Chain versus Value Network Today value chains have become value networks. In a lot of industries ranging from software to manufacturing the boundar...
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Three Reasons for Dysfunctional Buyer - Supplier Relationships Supply Chain Management, Purchasing, Alliances, Partnerships, Supply Chain Relations Roloff, Aßländer and Nayier (2015) did research on the conditions for (un)successful buyer-supplier relationships and fo...
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Various sources of information regarding the Value Chain (Porter). Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.
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Electronic Markets Search Costs and Boundaries Ramesh Sankaranarayan study how electronic markets that facilitate broader inter-firm transactions affect the vertical s...
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Connections and Competences in the Governance of the Value Chain Value Chain Delocalisation The aim of this paper by Giuseppe Tattara and Paolo Crestanello is to analyse the governance of value chains operating i...
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The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage Value Chain Management, Quality Management, Innovation, Operational Excellence This presentation firstly presents the role of functional strategies and the value chain in the achievement of competiti...
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How Businesses can Use Information Technology (IT) in Strategic Ways Strategic Management, Information Technology This presentation looks at Information Technology from a strategic point of view. In other words, it discusses in what w...
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Introduction to (Sustainable) Value Chain Analysis Initial Understanding Value Chain Analysis Value Chain Analysis involves analyzing three things to identify improvement areas / projects:
1. Material Flow - The f...
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Location choices across the value chain How activity and capability influence agglomeration and competition effects There has been a recent revival of interest in the geographic component of firm strategy. Recent research suggests that ...
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Introduction Into Enterprise Resource Planning (ERP) Enterprise Resource Planning, Supply Chain Management This presentation provides an introduction into Enterprise Resource Planning and includes the following sections:
1. Wh...
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Introduction to Supply Chain Management Supply Chain Management, Supply Chain Design While Porter’s value chain is a firm-level supply chain, this presentation describes supply chain management in a global...
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Value Chain Model Diagram Value Chain Analysis Download and edit the 12manage PowerPoint model for limited personal, educational and business use.
Republishing in int...
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Internet-based Distribution of Digital Videos Economic Impacts of Digitizatization Digital technologies and, especially, the Internet are profoundly reshaping the motion picture industry. Video-on-demand...
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Useful tools regarding the Value Chain (Porter).
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Compare with: Porter Five Forces
| Porter Competitive
Advantage | Porter
Diamond Model |
Parenting Advantage |
Core Competence |
BCG Matrix |
Growth Phases |
Distinctive Capabilities |
Organizational Configurations
| 3rd Party Logistics (3PL)
| Outsourcing |
Just-in-time |
Bricks and Clicks |
Value Stream Mapping
| Delta Model
| Vertical Integration
| Horizontal Integration
| Vendor Managed Inventory
| Kraljic Model
Return to Management Hub: Change & Organization | Finance & Investing | Human Resources
| Knowledge & Intangibles
| Marketing & Sales |
Program & Project Management
| Strategy & Innovation |
Supply Chain & Quality
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