The value chain framework of Michael Porter is a model
that helps to analyze specific activities through which firms can create value
and competitive advantage.
·
Primary activities (line functions)
1. Inbound
logistics-Includes receiving, storing, inventory control, transportation
planning.
2. Operations-
Includes machining, packaging, assembly, equipment maintenance, testing and all
other value-creating activities that transform the input into the final
product.
3. Outbound
logistics- These activities required to get the finished product at the
customers: warehousing, order fulfilment, transportation, distribution
management, etc.
4. Service-
The activity that maintain and enhance the product`s value, including customer
support, repair service, installation, training, spare parts management,
upgrading, etc.
·
Support activities (staff functions,
overhead)
1. Procurement:
Procurement of raw materials, servicing, spare parts, buildings, machines, etc.
2. Technology
Development: Include technology development to support the value chain
activities. Such as: Research and Development, Process automation, design,
redesign.
3. Human
Resources Management: The activities associated with recruiting, development
(education), retention and compensation of employees and managers.
4. Firm
Infrastructure: Includes general management, planning management, legal,
finance, accounting, public affairs, quality management, etc.
CREATING A COST ADVANTAGE
BASED ON THE VALUE CHAIN
A firm may create a cost
advantage:
·
By reducing the cost of individual value
chain activities, or
·
By reconfiguring the value chain
Note a cost advantage can be
created by reducing the cost of primary activities, but also by reducing the
cost of the support activities. Recently there have been many companies that
achieve a cost advantage by the clever use of information Technology.
Once the value chain has been
defined, a cost analysis can be performed by assigning cost to the value chain
activities. Porter identified 10 cost drivers related to value chain activities:
1. Learning.
2. Economic
of scale
3. Linkage
among activities.
4. Capacity
utilization.
5. Interrelationship
among business unit
6. Timing
of market entry.
7. Degree
of vertical integration.
8. Geographic
location.
9. Firm`s
policy of cost or differentiation.
10. Institution
factors (Regulation, union activity, taxes, etc,).
A firm develops a cost
advantage by controlling these drivers better than the competitors do. A cost
advantage also can be pursued by “Reconfiguring” the value chain. “Reconfiguration”
means structural changes such as: a new production process, new distribution
channels, or different sales approach.
Normally, the value chain of
a company is connected to other Value Chains and is part of a larger Value
Chain. Developing a competitive advantage also depends on how efficiently you
can analyze and manage the entire value chain and this is called Supply Chain
Management. Some people use the word “Network” to describe the physical form of
Value Chains: Value Networks.
Book: Michael E. Porter –
Competitive Advantage.
No comments:
Post a Comment