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Supply chain and Value chain

Resources to help you undertake an internal analysis of a company’s value chain.

Value Chain

The sequence of activities a company performs in order to design, produce, market, deliver, and support its product or service. The concept of the value chain was first suggested by Michael Porter in 1985, to demonstrate how value for the customer accumulates along the chain of organizational activities that make up the final customer product or service.

Porter describes two different types of business activity: primary and secondary.

  • Primary 
    activities are concerned principally with transforming inputs, such as raw materials, into outputs, in the form of products or services and in delivery and after-sales support.
  • Secondary 
    activities support the primary activities and include procurement, technology development, and human resource management. All of these activities form a part of the value chain and can be analyzed to assess where opportunities for competitive advantage may lie.

 

Image from: Market Research.com

In this example, expected gross profit margins differ significantly within and between value chain modes.

Highest margins
a. ice cream manufacturer
b. foodservice distributor
c. additive producer

Lowest margins
a. sugar importer
b. grocer

Additional insights could reveal issues such as:
a. trade regulations that create volatility in the price of imported sugar
b. grocer margins fluctuate between major national chains
c. local regulations