VALUE CHAIN

The Value Chain

An analytical tool that describes all activities that make up the economic performance and capabilities of the firm. It is used to analyze and examine activities that create value for a given firm.

Ex. 3-1. The Value Chain

SUPPORT ACTIVITIES
Infrastructure

Human Resource Management

Technology Development

Procurement

PRIMARY ACTIVITIES
Inbound Logistics Operations Outbound Logistics Marketing / Sales Service

Reprinted/Adapted with the permission of The Free Press, a division of Simon & Shuster, Inc., from COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance, by Michael E. Porter. Copyright 1985 by Michael E. Porter.

The Value Chain

Primary Activities Activities which relate directly t
o the actual creation, manufacture, distribution, and sal e of a product or service to the firms customers.

Secondary Activities Economic activities which ass

ist the firms primary activities.

The Value Chain

Upstream Activities Economic activities that occur
close to the firms suppliers but far away from the cust omers.

Downstream Activities Economic activities that occ

ur close to the customer but far away from the firms s uppliers.

Support Activities
Product Development The conception, design, and
commercialization of new products.

Process Development The design and use of new p

rocedures, technologies, techniques, and other steps to improve the value-adding process.

Ex. 3-2. Pizza Restaurant Industry Value Chain

SUPPORT ACTIVITIES

Infrastructure

Obtain funds, carry out accounting and payroll functions, and perform other administrative tasks for each activity
Supervise truck drivers & warehouse personnel Improve truck routing & warehouse methods Buy trucks, lease warehouse space Haul dough, cheese, etc. to restaurants Supervise kitchen personnel Develop new menu items, improve oven design Buy dough, cheese, ovens, and supplies Cook pizzas, make salads, etc. Supervise advertising personnel Discover new promotional materials Buy TV time Supervise waiters

Human Resource Management

Technology Development

Improve restaurant layout Buy tables, chairs, silverware to equip restaurant Serve food to restaurant customers

Procurement

PRIMARY ACTIVITIES

Develop advertising copy

Inbound Logistics

Operations

Outbound Logistics

Marketing / Sales

Service

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 3-3. Automotive Industry Value Chain

Infrastructure

SUPPORT ACTIVITIES

Obtain funds, carry out accounting and payroll functions, and perform other administrative tasks for each activity.
Supervise truck drivers, warehouse personnel Improve truck routing & warehouse methods Buy trucks, lease warehouse space Transport components to assembly facility Supervise assembly workers Improve product design & assembly process Buy components, assembly equipment Assemble components into autos (Same as inbound logistics) (Same as inbound logistics) (Same as inbound logistics) Transport autos to dealers Supervise advertising & sales personnel Improve selling methods Supervise maintenance personnel Improve maintenance procedures

Human Resource Management Technology Development

Procurement

Hire advertising Buy tools for agency, buy maintenance media time personnel Advertise, promote, & sell autos Maintain, repair autos

PRIMARY ACTIVITIES

Inbound Logistics

Operations

Outbound Logistics

Marketing / Sales

Service

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 3-4. Pizza Huts Business System

Infrastructure

SUPPORT ACTIVITIES

Human Resource Management Technology Development

Procurement

PRIMARY ACTIVITIES
Inbound Logistics Operations Outbound Logistics Marketing / Sales Service

Key:

= Extensive activity

= Modest activity

= No activity

Ex. 3-5: GMs Business System

Infrastructure

SUPPORT ACTIVITIES

Human Resource Management Technology Development

Procurement

PRIMARY ACTIVITIES
Inbound Logistics Operations Outbound Logistics Marketing / Sales Service

Key:

= Extensive activity

= Modest activity

= No activity