## Value Chain Analysis (Michael Porter)
Value Chain Analysis is a tool to examine the activities that create value within an organisation, helping to:
- Identify sources of competitive advantage
- Improve operational efficiency
- Pinpoint areas for value enhancement
It divides all organisational activities into Primary Activities and Support Activities, which are intertwined — support activities enable and enhance primary activities.
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### Primary Activities (5 Main Areas)
These directly contribute to creating and delivering the product/service to the customer.
| # | Activity | Description | Examples |
|---|
| 1 | Inbound Logistics | Receiving, storing, and distributing inputs | Materials handling, stock control, transport |
| 2 | Operations | Transforming inputs into the final product/service | Machining, packaging, assembly, testing |
| 3 | Outbound Logistics | Collecting, storing, and distributing products to customers | Warehousing, transport; or bringing customers to fixed-location services |
| 4 | Marketing & Sales | Making consumers aware and enabling purchase | Advertising, selling, sales administration, channel management |
| 5 | Service | Enhancing or maintaining product/service value after sale | Installation, repair, training, spare parts |
> Memory aid: I O O M S — Inbound, Operations, Outbound, Marketing & Sales, Service
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### Support Activities
Support activities underpin the primary activities across the entire chain. Key support activities include:
- Firm Infrastructure (planning, finance, quality management)
- Human Resource Management (recruitment, training, retention)
- Technology Development (R&D, automation, IT systems)
- Procurement (sourcing inputs for all activities)
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### Key Principle
> Primary and Support activities are intertwined — a weakness in any support activity (e.g., poor HR) degrades all primary activities it underpins.
### Example 1
Q: Explain the primary activities under Value Chain Analysis.
Michael Porter identified five primary activities:
1. Inbound Logistics: Activities related to receiving, storing, and distributing inputs to the product or service. Includes materials handling, stock control, and transport from suppliers.
2. Operations: Activities that transform inputs into the final product or service. Examples: machining, packaging, assembly, and testing on a production line.
3. Outbound Logistics: Activities that collect, store, and distribute products to customers. For physical goods: warehousing and transportation. For fixed-location services (e.g., a sports event): arrangements that bring customers to the service.
4. Marketing & Sales: Activities that make consumers aware of and able to purchase the product. Includes advertising, selling, sales administration, and distribution channel management. In public services, communication networks helping users access a service are important here.
5. Service: Activities that enhance or maintain the value of a product/service after it reaches the customer. Examples: installation, repair services, training, and supply of spare parts.
Agreement with statement: Yes — primary and support activities are intertwined. Support activities (HR, technology, procurement, infrastructure) run across all primary activities, enabling them to function effectively.
### Example 2
Scenario: Reshuffle Corp — Office Furniture Differentiation Using Value Chain Thinking
Context: Reshuffle Corp faces competition from online retailers offering similar furniture at lower prices.
Value-chain-based differentiation strategies:
| Value Chain Activity | Differentiation Opportunity |
|---|
| Operations | Use high-quality materials and innovative designs (tangible product superiority) |
| Outbound Logistics / Service | Offer free installation or extended warranties (value-added intangible benefit) |
| Marketing & Sales | Build strong brand reputation for reliability and durability; emphasise customer service |
| Service | After-sales support — repair, maintenance, customisation services |
| Technology Development (Support) | Continual product feature optimisation based on customer feedback and market trends |
Key insight: Reshuffle Corp should keep products at the centre of all strategic activities and manage the Product Life Cycle proactively — introducing new lines or upgrading existing ones as customer preferences evolve.