A firm's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. The company does not outsource its procurement , ensuring high quality standards right from the point of selection of coffee beans. The enhanced value is passed on to the customers and thus further helps in consolidating a company's competitive edge. Value chain management is the process of organizing these activities in order to properly analyze them. However, need-based marketing activities are carried out by the company during new products launches in the form of sampling in areas around the stores.
At the end of the process, customers can enjoy high-quality products at lower costs. A value chain is the full range of activities — including design, production, marketing and distribution — businesses conduct to bring a product or service from conception to delivery.
For companies that produce goods, the value chain starts with the raw materials used to make their products, and consists of everything added before the product is sold to consumers. Value chain management is the process of organizing these activities in order to properly analyze them. The goal is to establish communication between the leaders of each stage to ensure the product is placed in the customers' hands as seamlessly as possible.
Harvard Business School's Michael E. Porter was the first to introduce the concept of a value chain. Porter, who also developed the Five Forces Model to show businesses where they rank in competition in the current marketplace, discussed the value chain concept in his book " Competitive Advantage: Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation.
After identifying the primary and support activities, businesses should identify the cost drivers for each activity. For a more labor-intensive activity, cost drivers could include how fast work is completed, work hours, wage rates, etc. Businesses should then identify links between activities, knowing that if costs are reduced in one area, they can be reduced in another. Businesses can then identify opportunities to reduce costs. Value-chain business activities are divided into primary activities and secondary activities.
The primary activities are directly related to the creation of a good or service, while the support activities help in enhancing the efficiency and work to obtain a competitive advantage among peers. For related reading, see " Industry Handbook: Porter's 5 Forces Analysis. The Starbucks journey began with a single store in Seattle in the year to become one of the most recognized brands in the world.
The inbound logistics for Starbucks refer to company-appointed coffee buyers selecting the finest quality coffee beans from producers in Latin America, Africa and Asia. These are transported to the storage sites, after which the beans are roasted and packaged. They are then sent to distribution centers, a few of which are company owned and some of which are operated by other logistic companies. The company does not outsource its procurement , ensuring high quality standards right from the point of selection of coffee beans.
Starbucks operates in 65 countries, either in the form of direct company-owned stores or licensees. There is very little or no presence of intermediaries in product selling. The majority of the products are sold in their own or in licensed stores only. Retailers bring together a range of products and present them in a way that's convenient to customers, sometimes supported by services such as fitting rooms or personal shopper advice.
And insurance companies offer policies to customers that are underwritten by larger re-insurance policies. Here, they're packaging these larger policies in a customer-friendly way, and distributing them to a mass audience.
The more value an organization creates, the more profitable it is likely to be. And when you provide more value to your customers, you build competitive advantage. Understanding how your company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy. Michael Porter discussed this in his influential book " Competitive Advantage ," in which he first introduced the concept of the value chain.
A value chain is a set of activities that an organization carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization. Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.
Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities, as shown below.
Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following:. These activities support the primary functions above. In our diagram, the dotted lines show that each support, or secondary, activity can play a role in each primary activity.
For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities. Companies use these primary and support activities as "building blocks" to create a valuable product or service.
For each primary activity, determine which specific subactivities create value. There are three different types of subactivities:. For each of the Human Resource Management, Technology Development and Procurement support activities, determine the subactivities that create value within each primary activity. For example, consider how human resource management adds value to inbound logistics, operations, outbound logistics, and so on.
A value chain is a high-level model developed by Michael Porter used to describe the process by which businesses receive raw materials, add value to the raw materials through various processes to create a finished product, and then sell the finished product to customers. A value chain is the full range of activities – including design, production, marketing and distribution – businesses conduct to bring a product or service from conception to delivery. The value chain categorizes the generic value-adding activities of an organization. The activities considered under this product/service enhancement process can be broadly categorized under two major activity-sets. Physical/traditional value chain: a physical-world activity performed in order to enhance a product or a service.