VALUE CHAIN MODEL

 Value chain model views a firm as a series or “chain”, of basic

activities that add value to its products and services and thus
add a “margin” of value to the firm. In value chain concept
there are two types of activities

 Primary activities
 Support activities

The goal of these activities is to offer the customer a level of

value that exceeds the cost of the activities thereby resulting in
a profit margin.
VALUE CHAIN MODEL
PRIMARY ACTIVITIES
 Inbound Logistics : the receiving and
warehousing of raw material and their
distribution to manufacturing as they are
required.
 Operations: the process of transforming inputs
into finished products and services.
 Outbound Logistics: the warehousing and
distribution of finished goods.
 Marketing & sales : the identification of
customers needs and the generation of the sales.
 Service: the support of customers after the
products and services are sold to them.
VALUE CHAIN SYSTEM
 The firm’s value chain is linked to the value chain of
upstream suppliers and downstream buyers. The result is
larger stream of activities known as the value chain
system
LINKAGES
 Activities in a value chain are collection of
interdependent activities connected by linkages within
the value chain. Linkages are the relationships between
activities. To reduce cost and improve performance an
organization must not focus on each value activity
independently; the analysis must include both related
activities and linkages between activities.
TYPES OF LINKAGES
 Internal Linkages
Linkages may exist between activities in the same
category or between categories (i.e., primary activities
and support activities) within an organization (e.g., the
quality of purchased goods affect the cost of production,
the quality of a product affects the cost of maintenance).
TYPES OF LINKAGES
 Vertical Linkages
Linkages exist not only within an organization's
value chain but also cross organizational
boundaries (e.g., suppliers and intermediaries).
These linkages are comparable to an
organization's internal linkages and affect the
cost or performance of the organization's
activities (and vice versa)
(e.g. inventory management).
TYPES OF LINKAGES
 Customer Value Chain
An organization's product and/or service is an input to its
customer's value chain. To be successful an organization
must create competitive advantage for its customer
through its influence on the customer's value chain (i.e.,
must have a positive affect on its customer's costs and/or
performance).