Value Chain

The value chain is a set of activities that a company goes through to deliver value to its customers and clients. The value chain helps entrepreneurs see which activities add the most value to the product or service and optimize their operations to increase and maximize the profit they receive from it.

The concept of a value chain has been around since 1985, when Michael Porter, an American business theorist, introduced the idea. The value chain reveals a company’s activities and processes, and assesses them against their potential to create value for customers. By analyzing these activities, entrepreneurs can identify certain areas of the business that are not adding enough value and adjust or redesign them as needed.

The value chain consists of primary activities, which are directly related to the company’s core operations, and secondary activities, which are support or complementary actions that help the primary activities. Primary activities are divided into four categories: inbound logistics, operations, outbound logistics, and marketing and sales. Inbound logistics involve acquiring and storing all the resources necessary for production. Operations include the actual production of the product or service. Outbound logistics consists of packaging, shipping, and distributing the finished goods to customers. Lastly, marketing and sales involves all the activities a company needs to do to promote and sell its products. Secondary activities include procurement, human resources management, technology and research and development, and customer service.

To demonstrate how a value chain works, let’s take a look at a company that runs an online retail store. For their inbound logistics, they need to purchase items from various suppliers, store them, and check for any faulty products. The operations stage includes fulfilling any orders that have been made and ⁠ensuring that all products are of good quality. For outbound logistics, they need to package and ship out all of the orders and handle customer returns if necessary. Last, for marketing and sales they need to promote their products online, as well as respond to customer inquiries and handle customer support.

In this example, the secondary activities include䃚 procurement, technology and research and development, and customer service. Procurement involves finding the right suppliers and negotiating favorable terms. Technology and research and development involves developing the website and online systems needed to run the store. The customer service team supports customers and helps answer any questions they might have.

The value chain can help entrepreneurs identify which parts of their business are lacking and can give them the insight needed to make improvements. By understanding the value chain, entrepreneurs can ensure that their products or services are bringing value to customers and are positioned to succeed in the marketplace.