Value Chain Management

The coordinated series or sequence of functional activities necessary to transform inputs

such as new product concepts, raw materials, component parts, or professional skills into the

finished goods or services customers value and want to buy. In other words, efficient and

effective value chain management optimizes value for the customers' customer.

Value-chain management development of a set of functional-level strategies that support

a companys business-level strategy and strengthen its competitive advantage. It is requires

marketing managers to focus on defining the company business in terms of customer needs.

Value chain analysis is a means of achieving higher customer satisfaction and managing

costs more effectively. The value chain is the linked set of value creating activities all the way

from basic raw materials' sources, component suppliers, to the ultimate end-use product or

service delivered to the customer.

Value chain management to development of a set of functional-level strategies:

Product development

Engineering and scientific research activities involved in innovating new or

improved products that add value to a product.

Materials management function

Controls the movement of physical materials from the procurement of inputs

through production and into distribution and delivery to the customer.

Production function
 Responsible for the creation, assembly or provision of a good or service, for

transforming inputs into outputs.

Sales function

Plays a crucial role in locating customers and then informing and persuading them

to buy the companys products.

Customer service function

Provides after sales service and support.

Can create a perception of superior value by solving customer problems and

supporting customers.

The Value Chain

To better understand the activities through which a firm develops a competitive advantage and

creates shareholder value, it is useful to separate the business system into a series of value-

generating activities referred to as the value chain. In his 1985 book Competitive Advantage,

Michael Porter introduced a generic value chain model that comprises a sequence of activities

found to be common to a wide range of firms. Porter identified primary and support activities as

shown in the following diagram:

 Porter's Generic Value Chain

A
Marketing
Inbound Outbound R
> Operations > > & > Service >
Logistics Logistics G
Sales
I

Firm Infrastructure

HR Management

Technology Development

Procurement

The goal of these activities is to offer the customer a level of value that exceeds the cost of the

activities, thereby resulting in a profit margin.

The primary value chain activities are:

 Inbound Logistics: the receiving and warehousing of raw materials and their distribution

to manufacturing as they are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing & Sales: the identification of customer needs and the generation of sales.

Service: the support of customers after the products and services are sold to them.

These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company

culture, etc.

Human resource management: employee recruiting, hiring, training, development, and

compensation.

Technology development: technologies to support value-creating activities.

Procurement: purchasing inputs such as materials, supplies, and equipment.

The firm's margin or profit then depends on its effectiveness in performing these activities

efficiently, so that the amount that the customer is willing to pay for the products exceeds the

cost of the activities in the value chain. It is in these activities that a firm has the opportunity to

generate superior value. A competitive advantage may be achieved by reconfiguring the value

chain to provide lower cost or better differentiation.