Value chain meaning

A high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. Definition
The value chain is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. The value chain categorizes the generic value-adding activities of an organization.

Primary value chain activities Inbound Logistics Operations Outbound Logistics. Marketing and Sales Service Secondary activities 1. 2. 3. 4. Procurement. Human Resource management Technological Development Infrastructure Cost drivers
cost driver categories structural: related to strategic choices that drive costs executional: related to an organizations ability to execute successfully structural cost drivers scale: investment size in manufacturing, R&D and marketing scope: degree of vertical integration experience: learning based on previous repetitions of current work technology: process technologies used at each step in value chain complexity: broadness of product line executional cost drivers

work force involvement: participation; empowerment; commitment to continuous improvement capacity utilization: given scale choices on plant construction plant layout efficiency: compared to current norms

product configuration: design or formulation effectiveness exploiting linkages with suppliers/customers: in relation to the value chain

objective of analysis 1.a way to identify opportunities to improve added value; 2.an understanding how added value may change over time. 3.source:Pankaj Ghemawat, strategy and the business landscape Technologies in value chain Service Technologies Testing Communications Information systems Note that many of these technologies are used across the value chain. For example, information systems are seen in every activity. Similar technologies are used in support activities. In addition, technologies related to training, computer-aided design, and software development frequently are employed in support activities. analysing industrys profit pools

estimate the total size of the industry profit pool using aggregated data and assumptions estimate the distribution of the profit pool - use you own firms profit structure per activity; - concentrate on the largest firms first - start with the focused ones - sample the smaller firms validate finding by matching the sum of the distribution and the total size