INTRODUCTION TO VALUE
CHAIN ANALYSIS
WHAT IS Value Chain?
Value chain - is a concept describing the full chain of a business's activities in the
creation of a product or service -- from the initial reception of materials all the way
through its delivery to market, and everything in between.
✓ refers to the full lifecycle of a product or process, including material sourcing,
production, consumption and disposal/recycling processes etc.
✓ describe all the business activities it takes to create a product from start to finish
✓ Value chains are an integral part of strategic planning for many businesses today.
Value chain Frame Work
The value chain framework is
made up of
i. Five primary activities
ii. Four Secondary activities
concept was first described in 1985 by Harvard
Business School professor Michael Porter,
Primary Activities
contribute to a product or service's physical
creation, sale, maintenance and support
i. Inbound operations - The internal handling
and management of resources coming from
outside sources – i.e inputs/ raw materials
ii. Operations - Activities and processes that
transform inputs into "outputs“ i.e flow out to
customers
iii. Outbound logistics - The delivery of outputs to
customers – includes storage, distribution,
managing customers systems etc
Primary activities cont…
iv. Marketing and sales - advertising and brand-
building, which seek to increase visibility, also tell
why a consumer should purchase a product or
service
- Reach marketing audience and communicate
v. After sale Service - Activities such as customer
service and product support, which reinforce a long-
term relationship with the customers who have
purchased a product or service.
Secondary Activities
Secondary activities help primary activities become more
efficient—effectively creating a competitive advantage—
and are broken down into:
i. Procurement and purchasing
- Finding new external vendors, maintaining
vendor relationships, negotiating prices etc
necessary for bringing in materials
ii. Human resource management - This includes
functions such as hiring, training, building and
maintaining an organizational culture also
maintaining employees’ positive relations
Secondary activities cont..
iii. Technology development
Activities such as research and development, IT
management etc
iv. Company infrastructure
Necessary company activities such as legal,
general management, administrative,
accounting, finance, public relations and quality
assurance
Importance of Value Chain
The value chain framework helps organizations
understand and evaluate sources of positive and
negative cost efficiency
Analysing these value chain activities, sub activities and
the relationships between them helps organizations
understand them as a system of interrelated functions
organizations can individually analyse each to assess
whether the output of each activity or sub activity can be
improved -- relative to the cost, time and effort they
require
Value Chain Analysis
Value chain analysis - is a means of evaluating each of the
activities in a company’s value chain to understand where
opportunities for improvement lie.
Conducting a value chain analysis prompts you to consider
how each step adds or subtracts value from your final product
or service.
Benefits of the Value Chain
• Support decisions for various business activities.
• Diagnose points of ineffectiveness for corrective action.
• Understand linkages and dependencies between different
activities and areas in the business.
• Optimize activities to maximize output and minimize
organizational expenses.
• Potentially create a cost advantage over competitors.
• Understand core competencies and areas of improvement.
Value Chain Analysis Steps
1. Determine the business' primary and
support/secondary activities.
2. Analyse the value and cost of the activities.
3. Refer to your competitors' value chains.
4. Understand your customer base's perception of
value.
5. Identify opportunities to gain a competitive
advantage.
Example of Value chain Analysis
Group work
In 40 minutes, Prepare a value chain
analysis for your business
Explain why the chain and its cost
effectiveness
