Porter's Value Chain Analysis

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Porter identified different activities within business that adds value to the product and contributes to stay competitive within industry. He divided activities into two groups. The first group is primary value activities and the second is secondary value activities.

Primary value activities:

Ø  Inbound logistic: It includes receiving, storing and handling raw materials. It tracks raw inventory and helps manage inventory to enhance value of product by reducing input-cost tied up in raw inventory.

Ø  Operation: It refers to process involved to convert input into finished goods and services. Operational efficiency is increased using machinery and redesigning process involved.

Ø  Outbound logistic: It includes storing, distribution and delivery of finished products. It tracks finished products and on-time delivery of finished products.

Ø  Marketing and sales: It includes promotion of products and handling customer order. Promotional activities like advertisement, philanthropy and sponsorship is used to boost sales.

Ø  Services: It involves support activities for sales made by companies. Installation, training and repair are support activities provided by the firm.

Secondary value activities:

Ø  Firm infrastructure: It defines company's features, conditions and styles. Upgraded infrastructure may increase productivity and add economic of scale.

Ø  Human resource management: It defines capabilities of staffs at all level and how they are managed. It involves reducing idle time and analyzing learning curve effect if applicable.

Ø  Technological development: It focuses on use of technology. Latest technological changes can reduce overhead and decrease product cost in long run.

Ø  Procurement: It stands for every purchases within firm. Volume discount, quality assurance, reliability of suppliers and warranty and services help generate value to the organisation.

Functional Structure of an organisation:

A little customization in Porter's value chain resembles the functional structure of an organisation. Therefore, it can be used as a helpful tool to describe functional structure of organisations.

Activities	Functions
Human Resource Management	Human Resource Management
Technological development	Resource and Development
Procurement	Procurement
Inbound/Outbound logistic and Operations	Production process
Marketing, sales and services	Sales and support