A value chain is a high-level model 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 that end product to customers. Companies conduct value-chain analysis by looking at every production step required to create a product and identifying ways to increase the efficiency of the chain. The overall goal is to deliver maximum value for the least possible total cost and create a competitive advantage.
A value chain is a company model that breaks down the flow of production activities into five categories. Each one of these categories is an opportunity for a company to maximize efficiency and create a competitive advantage. The aim of the value chain is to increase profits by creating value at each of the five product touch-points so the value exceeds the cost associated with the product.
Primary Activities
1. Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores.
2. Operations: concerned with managing the process that converts inputs (in the forms of raw materials, labor, and energy) into outputs (in the form of goods and/or services).
3. Outbound Logistics: is the process related to the storage and movement of the final product and the related information flows from the end of the production line to the end user.
4. Marketing and Sales: selling a product or service and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
5. Service: includes all the activities required to keep the product/service working effectively for the buyer after it is sold and delivered.
Support Activities
1. Infrastructure: consists of activities such as accounting, legal, finance, control, public relations, quality assurance and general (strategic) management.
2. Technological Development: pertains to the equipment, hardware, software, procedures and technical knowledge brought to bear in the firm's transformation of inputs into outputs.
3. Human Resources Management: consists of all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying off personnel.
4. Procurement: the acquisition of goods, services or works from an outside external source.
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