Pratikonomics

A value chain is a concept that describes the full range of activities a business undertakes to deliver a product or service to its customers. It breaks down a company’s operations into key steps, from initial idea to after-sales service, highlighting how value is added at each stage.

The idea was popularized by Michael Porter in his 1985 book “Competitive Advantage.”

🔗 Components of the Value Chain

Porter divided the value chain into two main categories:

1. Primary Activities – directly involved in creating and delivering the product:

• Inbound Logistics: Receiving, storing, and handling raw materials.
• Operations: Converting raw materials into final products.
• Outbound Logistics: Distributing the product to buyers.
• Marketing and Sales: Promoting and selling the product.
• Service: Supporting the customer after the sale (e.g., maintenance).

2. Support Activities – enable and enhance the efficiency of primary activities:

• Firm Infrastructure: Company systems, planning, finance, etc.
• Human Resource Management: Hiring, training, and employee development.
• Technology Development: R&D, innovation, and tech integration.
• Procurement: Purchasing inputs like materials and equipment.

💡 Why Is the Value Chain Important?

• Competitive Advantage: Identifies where a firm can reduce costs or differentiate itself.
• Process Optimization: Highlights inefficiencies or redundancies.
• Strategic Planning: Informs investment, outsourcing, or innovation decisions.