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Encyclopedia > Value chain
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The value chain, also known as value chain analysis, 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. Image File history File links No higher resolution available. ... Image File history File links No higher resolution available. ... ... This article is about the year. ...


A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds to much of the value of the end product, since a rough diamond is significantly less valuable than a cut diamond.


The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, information technology, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs. To meet Wikipedias quality standards, this article or section may require cleanup. ... Look up Procurement in Wiktionary, the free dictionary. ... Strategic planning is an organizations process SCREW YOU, RILEY of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. ...


The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on). A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. ... Wikibooks [[wikibooks:|]] has more about this subject: Marketing Distribution (or placement) is one of the four aspects of marketing. ... Customer service (also known as Client Service) is the provision of service to customers before, during and after a purchase. ...


Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. The term business model describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, including its purpose, offerings, strategies, infrastructure, organizational structures, trading practices and operational processes and policies. ...


The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The "SCOR" framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched "DCOR" framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution. A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. ...


Value Reference Model

A Value Reference Model (VRM) developed by the global not for profit Value Chain Group offers an open source semantic dictionary for value chain management encompassing one unified reference framework representing the process domains of product development, customer relations and supply networks.


The integrated process framework guides the modeling, design, and measurement of business performance by uniquely encompassing the plan, govern and execute requirements for the design, product, and customer aspects of business.


The Value Chain Group claims VRM to be next generation Business Process Management that enables value reference modeling of all business processes and provides product excellence, operations excellence, and customer excellence. Business process management (BPM) is a method of efficiently aligning an organization with the wants and needs of clients. ...


Six business functions of the Value Chain:

  • Research and Development
  • Design of Products, Services, or Processes
  • Production
  • Marketing & Sales
  • Distribution
  • Customer Service

References

  • Porter, M. E. (1996). What is strategy? Harvard Business Review, November-December, 61-78.

See also

Beneficiation is a variety of processes whereby extracted ore from mining is reduced to particles that can be separated into mineral and waste, the former suitable for further processing or direct use. ... This article does not cite any references or sources. ... // Understanding customer demand is key to any manufacturer to make and keep sufficient inventory so customer orders can be correctly met. ... A marketing strategy[1] [2] is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. ... Porters 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979 of Harvard Business School. ... Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses. ... Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives[1]. It is the process of specifying the organizations objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies... To meet Wikipedias quality standards, this article or section may require cleanup. ... Marketing strategy is the art of creating value for the customer. ... Value networks (value webs), are the human and technical resources in a business that work together to form relationships and add value to a product or service. ... The value shop was first conceptualized by Thompson in 1967. ...

  Results from FactBites:
 
Value Chain Strategy (200 words)
Value chain strategy relates to structural supply chain planning encompassing the entire design / source / make / deliver process.
This is of critical importance as the structure of a value chain typically locks in 80% of total costs.
The objective of value chain strategy is to design a supply chain that provides the right balance of flexibility and cost-efficiency to meet the requirements of the marketplace.
Value Chain Analysis (330 words)
When performing a Value Chain analysis you examine all activities, looking at whether they are firstly still needed, and then to examine ways of firstly improving efficiency and trying to achieve cost reductions to increase the profit margins for the business.
Value chain analysis is a way of assessing competitive advantage by determining the strategic advantages and disadvantages of the full range of activities that shape the final offering to the consumer.
Value chain analysis enables a company to better understand which segments, distribution channels, price points, product differentiation, selling propositions and which value chain configurations (i.e., linkages between activities/processes within and outside the company) will yield the greatest competitive advantage.
  More results at FactBites »

 
 

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