Porter's Value Chain
The idea of the value chain is based on the process view of
organisations, the idea of seeing a manufacturing (or service)
organisation as a system, made up of subsystems each with inputs,
transformation processes and outputs. 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.
Most organisations engage in hundreds, even thousands, of
activities in the process of converting inputs to outputs. These
activities can be classified generally as either primary or support
activities that all businesses must undertake in some form.
According to Porter (1985), the primary activities are:
- Inbound Logistics - involve relationships with suppliers
and include all the activities required to receive, store, and
disseminate inputs.
- Operations - are all the activities required to transform
inputs into outputs (products and services).
- Outbound Logistics - include all the activities required
to collect, store, and distribute the output.
- Marketing and Sales - activities inform buyers about
products and services, induce buyers to purchase them, and facilitate
their purchase.
- Service - includes all the activities required to
keep the product or service working effectively for the buyer
after it is sold and delivered.
Secondary activities are:
- Procurement - is the acquisition of inputs, or resources,
for the firm.
- Human Resource management - consists of all activities
involved in recruiting, hiring, training, developing, compensating
and (if necessary) dismissing or laying off personnel.
- Technological Development - pertains to the equipment,
hardware, software, procedures and technical knowledge brought
to bear in the firm's transformation of inputs into outputs.
- Infrastructure - serves the company's needs and ties
its various parts together, it consists of functions or departments
such as accounting, legal, finance, planning, public affairs,
government relations, quality assurance and general management.
Reference
- Porter, Michael E., "Competitive Advantage". 1985,
Ch. 1, pp 11-15. The Free Press. New York.
- Rowe, Mason, Dickel, Mann, Mockler; "Strategic Management:
a methodological approach". 4th Edition, 1994. Addison-Wesley.
Reading Mass.
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