Value Chain, Primary Activities and Support Activities of the System Approach

Value chain

The value chain is a tool proposed by Michael E. Porter (1985) for identifying methods of creating more customer value. According to him, value chain is a set of inter-linked value-creating activities performed by an organization. These activities begin with inputs, go through processing and continue up to outputs marketed to customers. The value chain identifies two types of activities that can create value and cost in a business. They are shown in following figure:

Value Chain Analysis

Primary Activities

They consist of following five activities:

1. Inbound logistics: It is the activity of bringing materials into the business. It consists of receiving and storing raw materials; material handling, stock control, material, transport etc.
2. Operations: It is the activity of converting raw materials into finished products; manufacturing, packaging, assembling, testing etc.
3. Outbound logistics: It consists of order processing and physical distribution; collect, store and distributes products to customers.
4. Marketing and sales: It consists of pricing, promotion and selling products to satisfy customer needs.
5. Service: It consists of installation, repairs, spares and training. These activities help to enhance and maintain value of product.

Support Activities

The support activities of the value chain are as follows:

1. Procurement: It involves all the activities related to processes for purchasing inputs.
2. Technology development: It involves all the activities related to acquiring new technologies and research and development for innovation.
3. Human resource management: It involves all the activities related to acquisition, development, utilization and maintenance of human resources.
4. Infrastructure: It involves all the activities related to infrastructure building, such as strategic planning, quality control, accounting, finance, information management, organization design etc.

The value chain analysis identifies separate activities performed to produce, market, deliver and support a product. The firm’s task is to examine its costs and performance in each value-creating activity and to look for ways to improve it. The firm should estimate its competitors’ costs and performances as benchmarks against which to compare its own costs and performance.

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Value Creating Activities: Activities creating benefits and utilities to the customers

Value Creating Activities

Value creating activities refer to the activities cornering to create benefits and utilities to the customers. Value creating activities in marketing are very important. The major task of marketing is to create value to the customers. It needs to deliver value to the target customers. It should add maximum value to the customers. If a marketing firm creates value, it can run its business successfully. If not it may disappear from the market. In this reality, the marketing firm should perform value creating activities and deliver the maximum value to the customers for their satisfaction. For this, the firm can use value delivery network concept in marketing.

Value Delivery Network

To be successful a firm also needs to look for competitive advantage beyond its own operations, into the value chains of its suppliers, distributors, and customers. Many companies today have partnered with specific suppliers and distributors to create a superior value delivery network which is also known as supply chain. Value delivery network is building mutually beneficial relationship with key stakeholder to capture the value generated by the supply chain. This network is a set of participating companies or stakeholders who agree upon building mutually beneficial relationship among them for capturing the value generated by the supply chain. It involves partnering with key stakeholders to create superior supply chain.

The value delivery network for sugar can be shown in the following figure:

Value Delivery Network for Clothes

The participating firms of this network are fully aware of each other’s needs and priorities and are prepared in advance to deliver products and services at the right time at a low cost.

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