Value Chain
Is a framework that identifies international competitive advantage Concept of the Value Chain provides a systematic means of displaying and categorizing activities. The activities performed by a firm in any industry can be grouped into the nine generic categories shown. At each stage value chain there exists an opportunity to contribute positively to the company’s competitive strategy by performing some activity or process that is better than and/or different from the competitors’ offer, and so provides some uniqueness or advantage.
If a firm attains such a competitive advantage, which is sustainable, defensible, profitable, and valued by the market, then it may they earn for return, even though the industry structure may be unfavorable and the average profitability of the industry modest. The Porter value chain Porter’s (1986) original value chain displays total value and consists of value activities and margins. This value physically, and technologically have a distinct activity that may firm performs In Competitive Advantage One firm buys more value more efficiently than other competitors at a low cost and Create more customer value than the competitors are able to offer and, hence, premium product (differentiation). The firm might be able to identify elements of the value chain that are not worth the costs. These can then be unbundled and produced outside the firm (outsourced) at a lower price.
Types of Value Chain Activities :
- Primary activities: This Is an activity that involved the physical creation of a product and it does sell and transfers to the buyer, as well as after-sales assistance.
- Support Activities It includes providing purchased input, technology, and human resources that can be associated with specific primary activities as well as supporting the entire chain.
Primary activities include five main areas:
1. Inbound Logistics
- Operations
- Outbound Logistics
- Marketing And Sales
- Service
1. Inbound logistics:
This activity receiving, storing, and distributing inputs to the products/service These include materials, handling, stock control, and transport. 2. Operations: The transformation of this input into final products or services, e.g. machining, packaging, assembly, and testing3. Outbound logistics: The collection, storage, and distribution of the product to customers. For tangible products this would involve warehousing, material handling, and transport; in the case of services, it may be more concerned with arrangements for bringing customers to the service if it is in a fixed location (e.g. sports events).
4. Marketing & Sales: Consumers are aware that products and services will able to purchase them. This would include sales administration, advertising, and selling. In public services, communication networks that help users access a particular service are often important. 5. Service:
These are all that maintain the value of a product/service.
Support activities These have four areas:
- Procurement.
- Technology development
- Human resource management
- Infrastructure
1. Procurement :
Process acquiring various resource input primary activities and its is to many parts of the organization
2. Technology development:
How they advance technology for using value chain. In case they use R&D with a particular resource
3. Human resource management. This includes with recruiting, training, developing, and rewarding people within the organization.
4. Infrastructure. organization’s strategic capability in all primary activities.
Infrastructure also consists of the structures and routines of the organization that sustain its culture. ‘upstream’ activities and the more marketing-oriented, ‘downstream’ activities. In understanding the competitive advantage of an organization, the strategic importance of the following types of linkage should be analyzed in order to assess how they contribute to cost reduction or value added.
There are two kinds of linkage:
1. Internal linkages between activities within the same value chain, but perhaps on different planning levels within the firm
2. External linkages between different value chains ‘owned’ by the different actors in the total value system.
Internal linkages There may be important links between the primary activities. In particular, choices will have been made about these relationships and how they influence value creation and strategic capability. For example, a decision to hold high levels of finished stock might ease production scheduling problems and provide a faster response time to the customer. However, it will probably add to the overall cost of operations. An assessment needs to be made of whether add value chain stocking’ is greater than the added cost. Suboptimization of single value chain activities should be avoided.
It is easy to miss this point in the analysis if, for example, the marketing activities and operations are assessed separately. The operations may look good because they are geared to high-volume, low-variety, low-unit-cost production. However, the marketing team may be selling quickness, flexibility, and variety to the customers. When put together these two potential strengths are weaknesses because they are not in harmony, which is what a value chain requires. As a supplement to comments about different activities, it is also relevant to regard the value chain as a thorough-going model on all three planning levels in the organization.
In purely conceptual terms, a firm can be described as a pyramid as illustrated in It consists of an intricate conglomeration of decision and activity levels, having three distinct levels, but the main value chain activities are connected to all three strategic levels in the firm.
Internal Value Chain :
needs to be analyzed and understood.
- Strategic
- Managerial
- Operational Level R&D Production Marketing Sales and service The value chain in relation to the strategic pyramid Suppliers have value chains that create and deliver the purchased inputs used in a firm’s chain (the upstream part of the value chain). Suppliers not only deliver a product but can also influence a firm’s performance in many other ways. For example, Benetton, the Italian fashion company, managed to sustain an elaborate network of suppliers, agents, and independent retail outlets as the basis of its rapid and successful international development during the 1970s and 1980s.