Rather than looking at the supply chain as merely a series of activities, organizations are increasingly looking at how value is created by each stage of the process. Lowering costs or raising performance are key
How It Works
Michael Porter first introduced the concept of value chain in his book “Competitive Advantage” . Most organizations have numerous activities along the supply chain into the process of converting raw materials to products or services .
These can be classified either as primary or support activities that all business must undertake. The idea of the value chain is that how activities are organized and carried out determines a firm’s cost and thus its margin. each link of the chain must communicate to other department clearly and promptly. For example marketing and sales must communicate accurate sales forecasts and pass them on the enough time for procurement to buy the correct type and quantity of raw materials who in turn must coordinate with inbound logistics so they can organize receipt of goods.
Porters Value Chain
Primary activities works directly to create or deliver a product or service , while support activates help to improve their efficiency. To apply the value chain a company has to identify each activity and either lower its cost or differentiated from its competitors to add value in the eye of the customer.
Case Study “Pizza Hut’s ” Value Chain
Pizza Hut greatest asset is breaking down complex pizza-making into simple steps unskilled chefs can do.
- Inbound Logistics : Vast global purchase orders for ingredients
- Operations : Target countries with a liking of Italian food , on a franchise model with local staff.
- Outbound logistics : inhouse meals and home delivery services.
- Marketing : Differentiate from other pizza firms.
- Service : Delicious, convenient, value for money pizza .
In 2018 the Internet value chain revenues in US alone is 1.9Trillion $ alone, more than a quarter of the world’s population use the internet for everyday activates. from shopping to banking , sharing photos and watching tv even. to handle these volumes a complex value chain delivers internet service made up of global and local firms with assets to deliver as content rights.
Next time you think Supply Chain , Think Value chain as well. looking at the value chain map above, the Margin “In Green” would increase or decrease depending how you handle the value chain components like your logistics and procurement . designing a Value Chain always pays back as a major contributor to your business and supply chain strategy .