The value chain concept was popularized by Michael Porter in his book “The Competitive Advantage of Nations” in which he argues that a nation’s competitiveness depends on the ability of its firms to upgrade and improve their value chains. The value chain is made up of a series of activities that are necessary to bring a product or service from conception to delivery to the customer. These activities can be grouped into two categories: primary activities and support activities.
Primary activities include:
- Inbound logistics: the receiving, storing, and disseminating of goods.
- Operations: the process of transforming inputs (raw materials, labor, etc.) into finished goods or services.
- Outbound logistics: the storage and movement of finished goods to the customer.
- Marketing and sales: the promotion and sale of the product or service to the customer.
- Service: the provision of after-sales support, such as repairs and maintenance.
Support activities include:
- Procurement: the acquisition of raw materials and other inputs.
- Technology development: the design and development of new products, processes, and systems.
- Human resource management: the management and development of the workforce.
- Infrastructure: the provision of facilities and equipment, such as buildings and transport systems.
By analyzing the economic value chain, companies can identify the key activities that contribute to their competitive advantage and focus on improving those activities. They can also identify areas where they can reduce costs and increase efficiency. This can lead to increased productivity, improved quality, and lower prices, which can help companies to gain a competitive advantage in the marketplace.
Fundamentally, the economic value chain is a tool for understanding the various activities that a company undertakes to create and deliver a product or service to customers. It helps companies to identify areas where they can improve efficiency and reduce costs, which can lead to increased competitiveness in the marketplace.