VALUE

CHAIN

A value chain is a network of

facilities and processes that
describes the flow of goods,
services, information, and
financial transactions from
suppliers
through
the
facilities and processes that
create goods and services
and deliver them to customer.

Michael E. Porters Competitive Advantage

Value Chain Model

Firm Infrastructure (General Management)

o
st
Cu

SUPPORT
ACTIVITIES

r
me

Human Resource Management

l
Va

gi

ue

ar
M

Technology Development

Va
r

Service and
Support

to

me

Sales &
Marketing

ar
gin

Outbound
Logistics

Operati
ons

Cu
s

Inbound
Logistics

lue

Procurement

PRIMARY ACTIVITIES

Value Chain Elements

Customer value added
Margin orientation
Primary activities

Inbound
logistics
Operations
Outbound
logistics
Sales and
marketing
Service and
support

Support Activities

Human
resources
(general and
admin.)
Technologic
al
developmen
t

Goals of Value Chain

Driven by customer perceptions
customer must perceive value
addition in the products/services
purchased/availed by him.
Increases profit margins
Focus on processes adding values
in products and/or services
Distinctive capabilities
Cost advantages

Some examples
Southwest Airlines

Value Chain Analysis

Document all the activities involved
in the process
Understand the cost and margins at
each step.
Use Activity Based Costing
Map the value chain to the industry
value chain
Look for core competencies
Map the cost structure
Note that external values drive
cost advantages

Value Chain Analysis - Basic Concepts

Value and Value Addition
VALUE
Amount a good or service is worth of in
the market
THREE TYPES OF VALUE
Form Value
associated with the change
of the form of a raw material (production,
processing)
Time Value
- related with availing at
another period of time/produced at a period
of time (storage)
Space Value
- related with availing at
another location/product produced in one
location (transport)

What is a Value Chain?

A value chain entails the addition of value as
the product progresses from input supply to
production to consumption.
Value chains are also the conduits through
which:
finance
(revenues,
credit,
and
working
capital) moves from consumers to producers;
technologies
are
disseminated
among
producers,
traders,
processors
and
transporters;
information on customer demand preferences
are transmitted from consumers to producers
and processors and other service providers.

Stages of a Value Chain

Any operating stage capable of producing a
saleable product or service serving as an input
to the next stage in the chain or for final
consumption or use.
A stage of production in a value chain performs
a function that makes significant contribution
to the effective operation of the value chain.
Typical value chain linkages include input
supply,
production,
assembly,
transport,
storage, processing, wholesaling, retailing, and
utilization, with exportation included as a major
stage for products destined for international
markets.

Business Development Services

Services that play supporting role to enhance the
operation of the different stages in the value
chain and the chain as a whole:
Infrastructural
services
(market
place
development,
roads
and
transportation,
communication, energy supply, water supply);
Production and storage services (input supply,
genetic
and
production
hardware
from
research, farm machinery services and supply,
extension services, weather forecast, storage
infrastructure);
Marketing
and
business
skills
(market
information, market intelligence, technical
and business training, facilitation of linkages
of producers with buyers, organization and
support for collective marketing);
Financial

services

(credit,

saving,

risk

Value Chain & Business Support Services

Trading

Transport

Retailing

Trading

Research
Transportati

Processing
Fi

Consumption

Govt. policy regulations

Communications

Post-harvest

handling
Production input supply
Production
Tech. & business training & assi
Financial services
Input
Suply
Market information and intelligence