Porter’s value chain analysis What is the Porters Value Chain Analysis?The value chain also known

chain analysis helps
activities that add

Suppliers must have a high level of competence in order to obtain and function on complex knowledge or orders from lead firms. Only then would it be possible to transmit dynamic yet codified information or to engage in intense interaction . When qualified suppliers aren’t available, leading companies must either internalise the job or outsource it to suppliers they can closely track and manage . The supply chain’s main goal is to achieve full customer satisfaction, which is not the case for the Value Chain. The supply chain order starts with the product request and ends when the product meets the customer.

Value Chain Analysis Example Value chain analysis allows businesses to examine their activities and find competitive opportunities. For example, McDonald’s mission is to provide customers with low-priced food items. Below is an example of a value chain analysis for McDonald’s and it’s cost leadership strategy. Value chain refers to a concept which describes the full process of business activity in the creation of a product or a service.


Identification of cost drivers and linkage with value chain activities help managers to focus on cost reduction and on finding ways to optimize returns throughout the value chain. As well, value chain analysis helps managers to understand cost management problems. Failure to see the impact of a decision on the overall value chain will result in missed opportunities. A firm must de-emphasize its functional structure to identify its value-creating processes. Most of large businesses still organize themselves as cost, revenue, profit and investment centres.

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It’s critical to track global output trends and understand how GVCs operate or are “governed,” as well as the positions they play in both rich and poor countries. It provides information on particular industries and locations’ employment, technology, standards, laws, products, procedures, and markets. Economic players, companies, staff, and policymakers must have a clear understanding of how GVCs operate in particular cases and resources to forecast how they will evolve over time. Materials are transferred from one location to another as part of supply chain operations.

Value chain evaluation helps an organization understands the way it adds value to one thing and subsequently how it can promote its services or products for greater than the cost of including the value, thereby generating a revenue margin. Use the same distinction as in step 1 for direct and indirect activities and quality assurance. For example, consider how human resource management can create value to inbound logistics,marketing & sales and service. It is the concept of detecting and analyzing the primary and support activities adding value to the final product.

Value Chain Analysis

Thus by analyzing and evaluating product quality and effectiveness of services, along with cost, a business can find and implement strategies to improve. It’s these factors that give certain businesses a competitive advantage over others. This competitive edge can help a business provide value to their customers at prices that are the same as or lower than those of their competitors.

Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. The focus of Porter’s argument is that the achievement of either lower cost or differentiation will depend on all the discrete activities that a company undertakes. By “disaggregating” these into “strategically relevant” groups, managers should be able to understand the behaviour of costs as well as identify existing or potential sources of differentiation.

The consistent evolution in the supply chain is driven by the benefits of the value chain analysis. It is no longer a unidirectional and sequential process but combines the tried and tested strategies for typical products. The supply chain is a core part of any business’s success, especially in the fashion industry. The fashion business is a powerful economic engine for any country and has been continuously evolving due to multiple factors, including e-commerce, globalization, and retail consolidation. The dynamics change so continually that it calls for dedicated systems to keep an eye on the fashion industry. Service– These are the activities related to maintaining the value of your product or service to your customers, once it’s been purchased.

How to get the differentiation advantage using value chain analysis in the fashion industry?

In these sectors, product design and marketing are more important than manufacturing know-how, making it easier for leading companies to outsource production. In addition to employing e-commerce technology to enhance distribution channels, this technology is also used to redefine pricing strategies. Most companies pursuing a premium pricing strategy, for example, can use the Internet to better understand their customers.

As mentioned before, major activities add worth directly to the production course of, however they aren’t necessarily extra necessary than assist actions. This is the most market-like of the three GVC governance patterns based on networks. In most modular supply chains, manufacturers produce products or offer services according to a customer’s requirements. In modular supply chains, suppliers are more likely to take full responsibility for process technology and to use common equipment to spread investments over a large customer base. Even though buyer-supplier interactions can be extremely complex, this keeps switching costs low and transaction-specific investments to a minimum. In high paced business climate, organizations are offering high quality product to gain long term competitiveness.

Through evaluating the strategic advantages and disadvantages of the company’s activities and value-creating processes in the market place, value chain analysis is needed to evaluate the company’s competitive advantages. Porter set out to describe a company’s competitive advantage, recognizing that it is derived from operations like marketing and supporting activities. Then he breaks them down even further into four activities that complement the primary activities. Inbound logistics, operations, outbound logistics, marketing and sales, and service are the major functions of Michael Porter’s value chain.

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This template has a variety of fully editable file formats available for download on your PC or mobile device. The firms that strive to create superior products or services use differentiation advantage approach. The notion of the value chain is based on the process view of organisations, the idea of seeing a manufacturing organisation as a system, made up of subsystems each with inputs, transformation processes and outputs.

Primary activities include the following

The fact that these activities are all submerged within the overall organisation and that managers have choices about how they undertake and combine them remains a serious barrier to recreating a competitor’s advantage. Starting with the generic value chain, individual value activities must be identified for the particular firm within its particular industry. Each of the main categories in the generic model can be subdivided into discrete activities. For instance, Sales and Marketing might be subdivided into marketing management, advertising, sales force administration, sales force operations, technical literature, promotion, etc.

It includes all those activities that are required to transform a product from its infancy to becoming a reality. Inbound logistics are the receiving, storing and distributing of raw materials used in the production process. The GCC system drew attention to the significant position that large retailers like Wal-Mart and brand marketers like Nike have come to play in global manufacturing and distribution governance. Global consumers have also been able to secure price cuts from their biggest suppliers thanks to their disproportionate market strength. Suppliers have responded by concentrating more of their factories in low-cost locations and exerting greater pressure on their own upstream suppliers to reduce prices. Furthermore, as one of these three variables shifts, value chain governance trends shift in predictable ways.

Porter defines the value chain as made of primary activities and support activities. Primary involves inbound logistics , operations , outbound , marketing and sales and service . The primary activities are concerned with physical creation of the prod-uct, its marketing and delivery to buyers and after-sales service. The support activities provide the inputs and infrastructure for the primary activities. When it was introduced, the concept of the value chain was seen as a powerful tool that would enable strategists to diagnose and enhance competitive advantage.

W.L. Hill and Gareth R. Jones maintain

At Vet Helpline India we conduct value chain analysis both to suggest ways for value chain up-gradation and to assist government agencies for people centered risk based control of animal diseases. Porter’s Value Chain Analysis template Start listing the activities which add value to the organization with this ready to use this Porter’s ValueChain Analysis template. Arya.ag announces partnership with Shivalik Small Finance Bank to drive farmers’ financial inclusionGrain commerce platform Arya.ag on Thursday announced a strategic partnership with Shivalik Small Finance Bank.


Value chain analysis can support companies to determine which type of competitive advantage to follow, and how to pursue it. Many academicians stated that value chain is an effectual technique for organizational appraisal as it helps in providing clarity about the areas of strengths and weaknesses. A value chain is a business model that outlines the entire process of creating a product or service. The steps involved in taking a product from creation to delivery, as well as all in between—such as procuring raw materials, production functions, and marketing activities—make up a supply chain for companies that manufacture products. Value chain analysis is undertaken in order to understand the behaviour of costs and the sources of differentiation . Porter argued that a business can develop a supportable competitive advantage based on cost, differentiation, or both.

Think With Niche is that special place where you “discover your niche” at #TWN, our mission is to deepen our understanding on the world of startups, business, synergy and spread the ideas that matter the most for a sustainable tomorrow. At , you get small business ideas, startup and business blogs, trending world business news, and success tips that ensure sustainable growth and development of your business under one roof. In short, think of a general purpose value chain connecting the company’s activities, and focus on Systems/Process rather than departments. The linkages in value chains can be finely tuned to realize a aggressive edge.

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ProductionThese are all the activities that convert inputs of products or services into semi-finished or finished products. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly. The primary activities add direct value to the final product of the customer, while the support activities only add indirect value.

  • Marketing and SalesThese are all processes related to putting the products and services in the markets including managing and generating customer relationships.
  • Although he did not develop the idea at the time, Porter also saw the concept of a value chain as important in terms of how organisations are structured.
  • Value chain analysis is a way to visually analyze an organization’s enterprise activities to see how the corporate can create a competitive advantage for itself.
  • Firms and staff in far-flung areas have a greater impact on one another than in the past.
  • For example, fewer components in the product design may lead to less faulty parts and lower service costs.

For the latest updates, news blogs, and articles related to micro, small and medium businesses , business tips, income tax, GST, salary, and accounting. Human resource management refers to the recruitment, training and development process of workers to enhance their skills and expertise level. Understand the linking and dependence of various activities involved in the business activity. Having delved into the activities that bear the scrutiny of a value chain analysis process, it would help to shift the focus to the different ways in which a value chain analysis can be carried out.

The Internet allows value chain analysis example to price with far more precision than they can off-line and to create enormous value in the process. One approach to pricing involves businesses offering heavily discounted prices in an attempt to attract customers to their web sites. Another approach involves businesses transferring their “off-line” prices to the Internet. Neither of these approaches is very efficient because they do not maximize value. An attractive alternative approach is to utilize the Internet to track customers buying habits and adjust prices accordingly, thereby uncovering new market segments.

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