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Chapter 2: The value chain

The production of goods and services is the result

of the efforts of many organisations a complex
web of contracts and co-operation known as the
supply chain or the value system.

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The supply chain

Manufacturing Inputs:
Components (e.g. wheels, seats, etc.)
Sub-assemblies (e.g. engine, gearbox, etc.)

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Sales and Distribution:

Wholesale (e.g. import agent)
Retail (e.g. local main dealer)

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Logistics chains
Transport
Storage
Paperwork (Orders, Invoices, etc)

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Each supply chain transaction adds cost without

adding intrinsic value.
e-Commerce can be applied to the supply chain to
reduce costs or improve service.

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Porters value chain model

support activities

Firm Infrastructure

Human Resource Management

Technology Development
Procurement
Inbound Operations Outbound Marketing
Logistics
Logistics & Sales
primary activities

Primary Activities:
Inbound Logistics
Operations (Production)
Outbound Logistics
Marketing and Sales
Service

Margin

Service

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Porters value chain model

support activities

Firm Infrastructure

Human Resource Management

Technology Development
Procurement
Inbound Operations Outbound Marketing
Logistics
Logistics & Sales

Margin

Service

primary activities

Support Activities:
Procurement
Technology Development
Human Resources Management
Firm Infrastructure

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Linked value chains

Outbound
Logistics

Inbound Operations Outbound

Logistics
Logistics

Inbound
Logistics

Inbound Logistics

from Suppliers

Outbound Logistics

from Customers

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Porters value system

(Inter-organisational value chain)

Supplier
Value
Chains

Firm
Value
Chains

Channel
Value
Chains

Buyers
Value
Chains

Overall organisational competitive advantage:

efficiency of the company
quality of its products
plus
efficiency and quality of suppliers
efficiency of wholesalers (Channel)
efficiency of retailers

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Automotive assembly value system

Internal
Supplies

Component

Suppliers

Vehicle
Assembler

Dealer
Network

Inbound Logistics:
Large number of suppliers
electronic
Vast number of components
commerce
Process:

strategy
Just-in-time (JIT) manufacture
technologies
Outbound Logistics:
and
applications
Limited number of Main Dealers

Consumer

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Food supermarkets value system

Regional
Whse

Food
Processors

Supermarket

Inbound Logistics:
Large number of suppliers
electronic
Vast number of products
commerce
Process:

strategy
Retail
technologies
Outbound Logistics:
and
applications
Vast number of Consumers

Consumer

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Insurance value system

Agents

Insurance
Company

Consumer

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Insurance
Broker

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Insurance value system

Inbound Logistics:
No significant suppliers
(financial / re-insurance partners)
Process:
Administrative
Outbound Logistics:
Sales through agents
Sales through brokers
Direct sales

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e-Commerce in the value chain

Electronic Value Chain:
Reduced time frame
Changed cost structures
Re-engineered Value Chain:
Just-in-time manufacture
Quick response supply
Efficient document processing
Competitive advantage

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Chapter 2 Exercise 1

Consider the value system of the insurance

industry, for sales to the public, and comment on
the advantages and disadvantages of the three
sales channels that are outlined.

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Chapter 2 Exercise 2

Outline the value system of an organisation you

know. Identify linkages where e-Commerce might
be usefully applied.