Definition: Porter’s value chain or VCA (Value Chain Analysis) refers to the analysis and planning of a series of business activities (primary and secondary). These activities should be executed in such a manner that it adds value or utility to the customer experience from their purchase of products or services. Show
A known American Economist, Michael Eugene Porter first stated the Value Chain concept in the year 1985, in his book ‘ Competitive Advantage’. Content: Porter’s Value Chain
What is a Value Chain?Value chain refers to a set of activities which are carried out
systematically, to add utility to the final products or services offered for sale. Value creation is a significant part of all business transactions today. Porter’s value chain analysis is a dynamic management tool which classifies hundreds of business activities into nine major categories. To understand the idea more cleary, go through the following Porter’s value chain model: Value Chain ActivitiesValue
chain analysis comprises of nine major activities, out of which there are five primary activities, while four are the support activities. Let us now go through each of these activities in detail below: Primary ActivitiesThe activities which are carried out for the manufacturing of goods or services are termed as primary activities. These can be categorized as follows: Inbound Logistics These processes include the availability of raw material, its warehousing and distribution to the various internal units. To create value, the organization should ensure a healthy supplier relationship. Operations The production activities are carried out for transforming the raw material into finished or semi-finished products. Thus, value creation derives from efficient management of the operational systems, here. Outbound Logistics The activities which initiate the delivery of final goods or services to the customers are called outbound logistics. It starts right from the warehousing of the products to its transportation and distribution to final customers. Marketing and Sales It includes all those activities which contribute to the placing or positioning of the products or services in the consumer market and building strong public relations. Service The activities related to customer service creates the highest value for the buyers and therefore, leads to organizational success. Support or Secondary ActivitiesSecondary operations or activities back all the primary activities or processes. These support activities include: Firm Infrastructure These activities relate to the various administrative, quality assurance, accounting, finance, general management, planning, government regulations and legal operations. Technology Development Technological advancement is the key to new product development and product differentiation. Human Resource Management The activities, like placing the right person in the correct position, ensures optimal human resource utilization and value creation. Procurement The purchase activities related to acquiring raw material or fixed assets, including vendor selection, price negotiation, etc. are responsible for value creation from such transactions. Using the Value Chain Analysis ToolThe value chain has been adopted by the organizations to acquire a competitive edge over its business rivals. There are two types of objectives which a company can aim through value chain analysis. These are as follows: Use of Value Chain Analysis for Cost AdvantageCost advantage refers to influencing consumers on the grounds of value for money. The process of applying a value chain model for cost advantage are as follows:
Use of Value Chain Analysis for Differentiation AdvantageWhen the company aims at differentiation advantage over its competitors, it seeks for developing unique product features, customization, better service, gifts, etc. Given below is the step by step process of adding value for attaining differentiation advantage:
Importance of VCAThe value chain analysis is one of the essential functions of all the business entities. Since the fulfilment of utility is not the only requirement of the consumers in today’s competitive era. Instead, every customer looks for value addition. The business units need value chain analysis because of the following reasons:
Limitations of VCAPorter introduced the business world to the concept of the value chain. It has been broadly implemented by managerial personnel to enhance organizational growth. But, one cannot overlook the following shortcomings of this concept:
ConclusionWe know that SWOT analysis refers to the identification of strengths, weaknesses, opportunities and threats of a business organization. Whereas, value chain analysis is the examination of all the business activities and processes to determine the organizational strengths and weaknesses intensely. Therefore, value chain analysis is a broader concept as compared to SWOT analysis. What is Porter's model of value chain?Porter's value chain is a framework for developing an analytic structure that follows interdependent activities from raw material acquisition or idea through production and finally, into the hands of a customer.
What is the role of value chain analysis?A value chain analysis is a process that helps organizations understand points in their value chain, as well as relationships between these different points. Conducting a value chain analysis helps a company identify factors that create or hinder cost efficiency in its business model.
What is value chain in information system?The value chain model identifies specific, critical leverage points where a firm can use information technology most effectively to enhance its competitive position. This model views the firm as a series or chain of basic activities that add a margin of value to a firm's products or services.
What is value chain analysis explain process of value chain with help of an example?What Is Value Chain Analysis? Value chain analysis is a means of evaluating each of the activities in a company's value chain to understand where opportunities for improvement lie. Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final product or service.
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