Value Chain Analysis

Value chain analysis is an important and powerful tool for an organization to sustain competitive advantages and gain core competency. By mastering the primary value adding activities that were contain in the value chain analysis, organization might gain competitive advantages and an effective status within the global market place.

According to Michael Porter (1985), the value chain analysis is a systematic approach that enables organization to analyze the specific activities through which firms can create a competitive advantage. Porter identified a set of interrelated generic activities common to a wide range of firms which is useful to model the firm as a chain of value-creating activities. These activities are divided into primary activities which were inbound logistics, operations, outbound logistics, marketing & sales and services, as well as support activities which include administrative infrastructure management, human resources management, R&D, and procurement.

Primary activities are the most important activities that determine an organization's competitive advantages. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin. By linking these primary activities together, company are able to perform more efficient and effectively as well as gaining more competitive advantages. Each activity has its own unique value and all of them have close relationship with each others since they are dependent on each others. There are integrated relationships between these primary and support activities and they can create greater competitive advantages if they were link wisely and operate in an effective manner.

The value chain is a system of inter-dependent activities. Linkages within the value chain are really important. Behaviour in one part of the organization can affect the costs and performance of other business units and functions, and this frequently involves trade-off decisions. Effective and efficient linkages between these activities can also increase margin, the more effective they are link, he higher margin a company can achieve. Higher link will create value adding in the mind of the customer.

In conclusion, all the value adding activities contributed to the final value of the products to the customer. Thus, organization must analyse each activities and the linkage between these activities to see if any improvements can be made which will increase the final value of the product or decrease the cost of making it. The effective linkages between suppliers of inputs and services, and effective linkages with distribution channels and customer will give competitive advantages to the company. The value of the products may also depend upon linkages with the retailers which involves in the outbound logistic and marketing and sales process.