How do you define the value chain

Value chain

The Value chain is a graphic representation that shows the individual stages of production in a company in an orderly order of the individual activities. It is used for company analysis. The concept was first presented by the American business economist Michael E. Porter in 1985. In his book “Competitive Advantage”, Porter describes the value chain as a sequence of activities that go from design to manufacture for a product Sales through to delivery and customer service are required. Other names are Value chain or Value chain.

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Basic model of the value chain according to Michael E. Porter

The value chain illustrates which processes a product or service goes through or can go through on the way from raw material to use. According to Porter, the added value of a product encompasses 5 primary activities and, depending on the company, different secondary activities. The primary activities according to Porter are:

  • the inbound logistics
  • the manufacture of the product
  • the outbound logistics
  • marketing and sales
  • the customer service

The primary activities make a direct and value-adding contribution to the manufacture of a product. The secondary activities are designed to support the primary activities. They are an indispensable prerequisite for the manufacture of a product. Secondary activities are for example:

  • the procurement
  • the corporate culture
  • human resource management
  • the technology development

According to Porter, if a company optimally coordinates and implements the individual activities, the competitiveness of the products and thus of the company is achieved.

Application of the value chain in practice

The value chain is a methodological analysis tool with which individual company activities are compared with the company's strategy in order to reveal the strengths and weaknesses of a company on the basis of detailed investigations. These analyzes serve, among other things, the so-called Core competencies of a company to recognize and highlight, on the basis of which subsequently a tailored to the company Competitive strategy can be developed.

One result of the analyzes can, for example, be that it is more advantageous for a company to outsource certain production processes and parts manufacturing to other companies or, for example, to outsource sales. The analysis of value creation in a company often leads to the result that products that have been obtained from other manufacturers for many years can be manufactured more cheaply in-house. In addition, the analyzes can help a company to adapt to changing market situations, for example when new competitors enter the market with low prices, and to develop new approaches.In this way, the entire value chain can be optimized and competitive advantages achieved, secured or expanded.

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