CIMA E1 Syllabus E1. Operations management - Porter's Value Chain - Notes 3 / 21
Value Chain Analysis
Porter’s value system reflects the importance of adding value at all stages in the supply chain, from the first supplier in the chain to the end user or customer.
The value chain looks at the primary and supporting/secondary activities of what a company does internally.
Looks at the activities of a firm to see those which form a competitive strength
Primary Activities
Inbound logistics
This is the receiving and storage of materials and goods.
Operations
Convert input into final product
Outbound logistics
The distribution of the product to the customer
Marketing and Sales
Advertising and promotional campaigns
After sales service
ensuring that customers who have purchased from the company are fully satisfied.
This also includes outsourced customer call centres.
After sales service is the final primary activity.
| Area | Function | Example |
|---|---|---|
| Inbound Logistics | Receiving, storing and taking it to the product | Stock control, Transport, Materials handling |
| Operations | Transform inputs into the product or service | Packaging, machining, assembly, testing |
| Outbound Logistics | Collection, storage and distribution of product to customer | Warehousing, transport |
| Marketing and Sales | How users are made aware of product and able to purchase it | Sales admin, advertising |
| Service | Enhances or maintains value of the product | Installation, repair, training |
Support Activities
These support the primary activities above...
Procurement
The purchasing of goods.
Dealing with suppliers and negotiating price and quality of inventory purchased
Human Resources
Recruitment, training and rewarding of staff
Infrastructure
Systems and routines including Quality control
Technology development
Informational technology.
Being responsible for all information systems within the company.
| Area | Function | Example |
|---|---|---|
| Procurement | Acquiring inputs into primary activities | Buying raw materials |
| Technology Development | Key technologies (including ‘know how’) for the product / process / resource | R&D, product design, process development, raw material improvements |
| Human Resource Management | Across all primary acts. Determines whether firm is rigid or innovative | Recruiting, training, developing and rewarding staff |
| Infrastructure | Structures, routines, systems (again determines rigid or innovative) | Quality control |
It is rare for 1 company to do all the value activities itself.
Normally specialisation occurs and the company is just a part of a wider value system
In fact, much of the value is created in the supply and distribution channels
Management should look at adding more value at each stage of the value chain
How to Add Value
More features
Less features but more user friendly
Making a purchase easier
Promotion of brand
Speed of delivery
Reliable service
Innovation