A value chain is a concept in business that describes the series of activities and processes a company undertakes to create, deliver, and provide value to its customers. It encompasses the entire journey a product or service goes through, from its inception as raw materials to its delivery to the end consumer.
Here’s a detailed breakdown of the components of a value chain:
Primary activities: These are the core activities directly involved in the creation and delivery of a product or service. There are five primary activities:
- Inbound logistics: This involves receiving, storing, and managing raw materials and components that are necessary for production.
- Operations: It involves converting raw materials into finished goods, assembling products, and providing services.
- Outbound logistics: This involves the processes required to get the finished product to the end consumer.
- Marketing and sales: This involves activities aimed at promoting and selling the product or service to customers.
- Service: This involves providing after-sales service and support to customers. It includes activities like customer support, maintenance, repairs, and warranties.
Support activities: These activities are necessary to support the primary activities and contribute to the overall value creation process:
- Procurement: This involves the process of sourcing and acquiring the necessary inputs, including raw materials, supplies, and services, to support the primary activities.
- Technology development: This encompasses activities related to research, development, and implementation of technology and systems that enhance the production process and create competitive advantages.
- Human resource management: This involves activities related to recruiting, training, developing, and managing the workforce to support the primary activities effectively.
- Infrastructure: This includes the necessary organisational structures, systems, and processes that enable and support all other activities within the value chain.
- Firm infrastructure: This refers to the overarching organisational structure, including the company’s management, finance, planning, and quality assurance systems.