Porter's Value Chain Presentation 1

Porter’s Value ChainBorn in 1947Harvard professorWrote book,

Competitive Advantage

Primary ActivitiesInbound LogisticsOperationsOutbound LogisticsMarketing and SalesService

Inbound LogisticsThe receiving and warehousing of raw

materialsDistribution of raw materials to

manufacturing and operations

OperationsProcess of transforming inputs into finished

goods and services

Outbound LogisticsWarehousing of finished goodsDistribution of those finished goods to

customers or retail stores

Marketing & SalesIdentification of customer needsDeploying product into marketplaceProcess of selling to customers

ServiceSupporting customers after they buy

products and services

Support ActivitiesProcurementTechnology DevelopmentHuman Resource ManagementFirm Infrastructure

ProcurementThe purchasing of raw materials and inputs

needed to create the product

Technology DevelopmentTechnology developments that support value

chain activities

Human Resource ManagementActivities associated with recruiting, training,

hiring, and compensation

Firm InfrastructureIncludes general and planning management,

legal, finance, accounting, public affairs, and quality management

Ex. A firm’s legal team consisting of lawyers to aid in lawsuits

Accounting department to keep track of financial figures

Why this mattersProfits depends on how well firms execute

these activities in the value chainFirms that excel in a value chain activity is

said to have a competitive advantageCompetitive advantage is gained through

cost advantage

Cost AdvantageReducing cost of individual value chain

activitiesReconfiguring the value chain

10 Costs Drivers of Each Value Chain Activity1. Economies of Scale2. Learning3. Capacity Utilization4. Linkages among activities5. Interrelationships among business units6. Degree of vertical integration7. Timing of market entry8. Firm’s policy of cost or differentiation9. Geographic location10.Institutional Factors (regulation, union

activity, taxes etc.)

Reconfiguring Value ChainStructural changes to an activity in a value

chain to reduce costs

The Bigger PictureFirm’s value chain is part of a bigger value

chainCompetitive advantage also depends on the

management of connections with other firms’ value chains

Citationshttp://www.12manage.com/methods_porter_v

alue_chain.htmlhttp://www.netmba.com/strategy/value-chain/http://en.wikipedia.org/wiki/

General_Motors_Chapter_11_reorganization