As an advantage, we can mention that the Value Chain can be adapted to absolutely any company size and any type of business. Finally, the importance of the Value Chain is to make it possible to evaluate the profitability of operations. The Value Chain has several activities. We’ll talk about that in the next topic.
Elements of the Value Chain
Rather than focusing on departments or types of accounting costs, Porter’s Value Chain focuses on systems, as well as how inputs are transformed into outputs that, in turn, are purchased by consumers. Based on this principle, Michael Porter described a chain of activities common to all companies and divided them into primary and support activities, as shown below:
Value Chain Elements
Regardless of the industry company, there are five primary activities:
Internal or inbound logistics: relationship with suppliers is decisive for creating value.
Operations: machinery, packaging, assembly, equipment maintenance, testing and other value creation activities that transform inputs into final products.
External or outbound logistics: activities associated with the delivery of the product or service to the customer.
Marketing and sales: processes used to convince customers to buy your products or services.
Services: activities that maintain and increase the value of products or services after purchase.
As for the support activities support the primary activities. Its generic classification is made in four categories.
Infrastructure: support systems to maintain daily operations. It includes general, administrative, legal, financial, accounting management, among others.
Human Resources Management: activities associated with the recruitment, development, talent retention and compensation of employees and managers. As people are an extremely valuable source of value for any business, companies can create great advantages by using good HR practices.
Technological development: activities that support value chain activities, such as process automation, for example.
Acquisition or purchases: processes carried out with the objective of acquiring the necessary resources to keep the company in operation: acquisition of raw materials, services etc. It also includes searching for suppliers and negotiating the best prices.
Looking at the image, we still have to address the Margin. It is nothing more than the difference between the value perceived by the product or service and the collective cost of carrying out activities to create the product or service. You can Head on over with the best choices.
How to use the Porter Value Chain?
To use this tool, you need to follow some steps, as defined below:
Identify the subactivities for each primary activity:
Determining the subactivities that create value means further optimizing the results.
Subactivities can be:
- Direct: create value on their own
- Indirect: allow direct activities to function normally
Quality assurance: ensure that previous activities comply with the necessary standards. Subactivities must be described in a spreadsheet.
