Value chain

Definition

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.

What is a value chain?

A value chain 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:

1. Inbound logistics: This involves receiving, storing, and managing raw materials and components that are necessary for production.
2. Operations: It involves converting raw materials into finished goods, assembling products, and providing services.
3. Outbound logistics: This involves the processes required to get the finished product to the end consumer.
4. Marketing and sales: This involves activities aimed at promoting and selling the product or service to customers.
5. 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:

1. Procurement: This involves the process of sourcing and acquiring the necessary inputs, including raw materials, supplies, and services, to support the primary activities.
2. Technology development: This encompasses activities related to research, development, and implementation of technology and systems that enhance the production process and create competitive advantages.
3. Human resource management: This involves activities related to recruiting, training, developing, and managing the workforce to support the primary activities effectively.
4. Infrastructure: This includes the necessary organisational structures, systems, and processes that enable and support all other activities within the value chain.
5. Firm infrastructure: This refers to the overarching organisational structure, including the company’s management, finance, planning, and quality assurance systems.

Example of a value chain

Let’s consider a company that produces and sells smartphones. The value chain for this company can be broken down into several primary activities:

1. Research and development (R&D): Engineers and designers work to develop new features and improve existing technology for the smartphones.
2. Manufacturing: The components required for assembling smartphones are sourced from suppliers. The company then manufactures the smartphones in its production facilities.
3. Marketing and sales: The company promotes its smartphones through various marketing channels. Sales teams work to distribute the smartphones to retailers or directly to consumers through online platforms.
4. Product development: Based on market feedback and emerging trends, the company continuously iterates on its smartphone offerings, releasing new models with updated features and improvements.

Each of these activities adds value to the final product and contributes to the company’s competitive advantage and profitability.