Value Chain Analysis
Michael Porter introduced the value chain analysis concept in his 1985 book ‘ The Competitive Advantage’ . Porter suggested that activities within an organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’
The diagram below divides activities into primary and support activities as suggested by Porter's Value Chain Analysis
- Inbound logistics : Refers to goods being obtained from the organisation's suppliers and to be used for producing the end product.
- Operations : Raw materials and goods are manufactured into the final product. Value is added to the product at this stage as it moves through the production line.
- Outbound logistics : Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers. Distribution of finished goods is known as outbound logistics.
- Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy, any competitive advantage is clearly communicated to the target group through the promotional mix.
- Services: After the product/service has been sold what support services does the organisation offer customers?. This may come in the form of after sales training, guarantees and warranties.
With the above activities, any or a combination of them are essential if the firm are to develop the "competitive advantage" which Porter talks about in his book.