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Value chain: Introduction

Kirjoittanut: Hassan Chakir - tiimistä SYNTRE.

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The concept of a value chain was first conceptualized by Harvard Business School professor Michael E. Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance. “One cannot comprehend competitive advantage by examining a firm in its entirety,” the author stated. It results from the several distinct tasks a company completes when creating, manufacturing, promoting, shipping, and providing support for its product.”

A value Chain is a chain of sequential actions that lead to the process of manufacturing of a finished product, from it ideating to its delivery to the customer or even giving support after sale. The chain describes each step in the value-added process, including the sourcing, manufacturing, and marketing stages of its production. (Porter, 1985)

The value chain of a company is usually part of a larger value system that comprises entities upstream (suppliers) or downstream (distribution channels), or both. This perspective on how value is created pushes managers to evaluate and regard each activity as a phase that must add some increment of value to the finished product or service, rather than just as a cost.

In the face of fierce competition for amazing prices, superior products, and devoted customers, businesses need to constantly assess the value they add to maintain a competitive edge. A value chain can assist a corporation in identifying inefficient parts of its operations and then putting measures in place to optimize those processes for optimal productivity and profitability. (Tardi, 2023)

Businesses must not only make sure that manufacturing processes run smoothly and efficiently, but also that their customers feel comfortable and confident enough to stick around. Value-chain analysis is also helpful in this regard. (Tardi, 2023)

Porter divides a company’s operations into two categories, “primary” and “support,” which we present as typical activities in his concept of a value chain. Depending on the industry, certain actions within each category will change.

The following are examples of primary activities that are directly involved in the production of a good or the provision of a service:

  • Activities associated with receiving, storing, and managing inventories of components and source materials are referred to as inbound logistics.
  • Operations: The processes involved in transforming components and raw materials into a final good or service
  • Activities associated with distribution, such as packaging, sorting, and shipping, are referred to as outbound logistics.
  • Promotion, advertising, and pricing strategy are just a few of the activities that go into promoting and selling a good or service.
  • After-sales services: Tasks performed following the completion of a transaction, such as installation, training, quality control, maintenance, and customer support.

Then comes the secondary or the supporting activities. The purpose of support activities is to increase the effectiveness of the main activities. At least one of the five primary activities benefits when the efficiency of any one of the four support activities is increased. Typically, these support functions are shown as overhead expenses on an organization’s financial statement:

  • Purchasing is the process by which a business acquires raw materials.
  • At a company’s research and development (R&D) stage, technological advancement is used for tasks including creating and developing manufacturing procedures and automating operations.
  • Hiring and keeping staff members who will carry out the company’s business plan and assist in product design, marketing, and sales is the responsibility of human resources (HR) management.
  • Infrastructure comprises the management team’s makeup and the organization’s procedures, which include quality control, accounting, planning, and finance.

In conclusion, a value chain is a helpful tool for examining the value that a company generates for its stakeholders and clients. There are two categories of activities in its primary and support. Support activities improve the efficacy and efficiency of the primary activities, whereas primary activities are directly linked to the creation and provision of an item or service. A company can discover its advantages and disadvantages, enhance its workflow, and obtain a competitive edge in the market by implementing the value chain idea.

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