The paper 'Michael Porter’ s Concept of Value Chain' is a great example of a Business Essay. The Concept of Value Chain was introduced by Michael Porter in the 1980s. This concept helps the firm become more competitive by adding value to the product, thus making a profit by selling at a profit. This essay will discuss the concept of the value chain analysis, its wider implications, and the effect IS/IT will have on this concept. The value chain helps the firms to gain a competitive advantage by adding to the product at each value.
Therefore, Michael Porter introduced a set of generic activities. This provides a guideline for firms to become competitive. Porter outlined two ways in which the value of the product could be increased. These are lowering the cost and/or creating a differentiated product (Michael E. Porter, On Competition). If a firm lowers the cost of the product or differentiates it by, for example, providing a Unique Selling Point (USP), it would make a profit. However, many Japanese companies use both concepts together, which makes them extremely competitive in the world market.
This suggests and raises questions, that Porter’ s approach may be outdated. The concept of the generic value chain as defined by Porter comprises three elements. These are primary activities, support activities, and the margin a single firm makes. Primary activities are related to production, selling the products and providing after-sales service. Lean production, a concept introduced in Japan, would be a classic example of minimizing the costs of the production of primary activities. Reducing the costs of wastage in the form of time, raw materials, and labor reduces the overall cost of producing the product.
For example, Toyota, a car manufacturing company, has designed its production in a way that encourages the usage of cost-reducing mechanisms such as Just in Time. That is, delivery of the raw material, semi-finished and final products arrive just when the previous stocks finish. It consequently reduces costs associated with warehousing, such as no waste of products breaking or getting obsolete, and rental costs of warehousing them are also reduced. Furthermore, selling the product in a way that increases its value, such as chocolates sold in shopping malls are generally more expensive as selling in malls displays better quality.
Support activities support those activities which take place at a primary level. These activities include departments such as Human Resource, Procurement, Firm Infrastructure, and Technology development. For example, by building a motivating and therefore productive workforce will reduce the costs associated with time and mistakes. Additionally, technology such as computer-aided design helps produce products one of a kind, thus creating demand and adding value. Firm infrastructure, however, aids the entire value chain. The chart below briefly outlines how to identify value activities. “ -Inbound Logistics includes warehousing, material handling, and inventory control. -Operations are the activities that transform inputs into finished products (example machining, testing, packaging, equipment maintenance. -Outbound Logistics includes the activities that store and distribute products to buyers.
(an example would be warehousing, delivery vehicle operations, order processing)
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Available at http://www.gd.com/overview/ist/Default.htm
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Available at http://www.quickmba.com/strategy/value-chain/
Professor Michael Bird, Value Chain Analysis and it’s Role in The Supporting Activities.
Available at http://professormbird.com/id20.html
Narasimhan, Ram, Kim, Soo Wook, 2001. Journal of Business Logistics. Information system utilization strategy for supply chain integration
Anon, (N.d). Strategy- Value Chain Analysis.
Available at http://tutor2u.net/business/strategy/value_chain_analysis.htm