Value Chain
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Transcript of Value Chain
The value chain depicts the firm as a collection of value-
creating activities – five primary functions, and four support
functions. The value chain provides a different perspective on
the production activities that go on inside firms.
Firm infrastructure
Human Resource Management
Technology development
Procurement
Inbound logistics
Operations Outbound logistics
Marketing& sales
Service
Margin
Mar
gin
Primary activities
Supp
ort
activit
ies
1Tuesday, 13 August 13
The value chain provides a framework for analysing cost drivers (factors which affect the average cost of production in a firm) inside a firm, such as:
1. drivers related to the organisation of the firm, internal efficiency and the level of transactions costs
2. drivers related to scale, scope and learning
Firms can ‘map’ their process flows (i.e the stages that are necessary to produce, market and distribute a product, and identify the key value-adding stages (the value of the output at that stage is much greater than the value of the input). The firm may decide to ‘make’ the products or services in the key stages and ‘buy-in’ other less crucial inputs, thus improving competitive advantage. The firm can also use value chain analysis to drive down costs by coordinating linked activities.
Firm infrastructure
Human Resource Management
Technology development
Procurement
Inbound logistics
Operations Outbound logistics
Marketing& sales
Service
Margin
Mar
gin
Primary activities
Supp
ort
activit
ies
2Tuesday, 13 August 13
Farmers WarehousesBulk
transport
Supermarket
Growersmarket
Supermarket
Generalstore
Supermarket
The value chain could also be thought of as a string of companies who together satisfy demand for goods and
services - demand for the final product generates demand for intermediate goods and services
Supplier
Supplier Supplier Supplier
Supplier Supplier
3Tuesday, 13 August 13
Farmers WarehousesBulk
transport
Supermarket
Growersmarket
Supermarket
Generalstore
Supermarket
This view suggest that much of the value created by firms results filling gaps in the chain!
Supplier
Supplier Supplier Supplier
Supplier Supplier
4Tuesday, 13 August 13