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Value Addition and Value Chain Analysis

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What is a Value Chain? Who gave this concept? How value can be added to value chain?
What are the primary activities and support activities in a Value Chain?

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Solution Summary

The solution describes the concept of value chain and the components of value chain. It describes the primary activities and support activities with examples. Value Creation for the consumer is a major task for the company. Therefore, it also describes the five major ways in which a value can be increased.

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Michael Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five Forces framework lacked an implementation methodology that bridged the gap between internal capabilities and opportunities in the competitive landscape. This framework focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. However, significant differences in performance exist between companies operating within the same industry that can be explained either by the company's participation in a successful strategic group or by a firm's specific competitive advantages.

Value Chain Analysis helped identify a firm's core competencies and distinguish those activities that drive competitive advantage. The cost structure of an organisation can be subdivided into separate processes or functions assuming that the cost drivers for each of these activities behave differently. Porter's strength was to condense this activity based cost analysis into a generic template consisting of five primary activities and four support activities. The nine activity groups are:

Primary Activities:
1. Inbound logistics: materials handling, warehousing, inventory control, transportation;
2. Operations: machine operating, assembly, packaging, testing and maintenance;
3. Outbound logistics: order processing, warehousing, transportation and distribution;
4. Marketing and Sales: advertising, promotion, selling, pricing, channel management;
5. Service: installation, servicing, spare part ...

Solution provided by:
  • BCom, M.D.S University, Ajmer
  • MBA, M.D.S University, Ajmer
  • PhD, Suresh Gyan Vihar University, Jaipur
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