VALUE CHAIN ANALYSIS

• Once an organization enters a new market using one of Porter’s three generic
strategies, it must understand, accept, and successfully execute its business
strategy
• Every aspect of the organization contributes to the success (or failure) of the
chosen strategy. The business processes of the organization and the value chain
they create play an integral role in strategy execution.
• 1. Introduction to Porter’s Value Chain Analysis
• a. What is a Value Chain?
• The value chain is a model introduced by Michael Porter that views an
organization as a series of activities, or processes, that work together to create
value for customers. It serves as a systematic approach to understanding how a
company’s internal activities contribute to competitive advantage and customer
satisfaction.
• b. Purpose of the Value Chain
• The value chain framework helps organizations identify areas where they can
create, enhance, or reduce costs, either by improving efficiency or providing
superior benefits (differentiation). By analyzing each activity, companies can
determine how to increase value, reduce costs, and ultimately gain a competitive
edge.
2. Components of Porter’s Value Chain
• The value chain is divided into two main categories:
• a. Primary Value Activities
• These activities directly relate to the creation, sale, and delivery of a product or service. They include:
1.Inbound Logistics: Receiving, storing, and managing raw materials or inputs.
2.Operations: Transforming inputs into the final product or service.
3.Outbound Logistics: Distributing finished products to customers.
4.Marketing and Sales: Activities that attract customers and generate sales.
5.Service: After-sales services that maintain or enhance product value.
• b. Support Value Activities
• These activities support the primary activities and help ensure they run smoothly and efficiently. They
include:
1.Firm Infrastructure: Organizational structure, management, finance, and legal aspects.
2.Human Resource Management: Recruitment, training, and retention of employees.
3.Technology Development: Research, development, and implementation of technology to support
value activities.
4.Procurement: Acquiring raw materials, equipment, and resources necessary for production.
3. Real-Life Case Studies: Value Chain Analysis
• Case Study 1: Amazon
• Industry: E-Commerce and Digital Services
• Core Strategy: Cost Leadership and Differentiation through Efficient Value Chain Activities
• Primary Value Activities Analysis:
1. Inbound Logistics: Amazon's sophisticated warehouse management systems and partnerships with suppliers
enable rapid inventory replenishment.
1. MIS Integration: Robotics and AI streamline sorting and inventory management, reducing operational costs.
2. Operations: Amazon’s automated fulfillment centers enhance efficiency in processing and packaging orders.
1. MIS Integration: Use of Machine Learning (ML) algorithms to predict demand and optimize warehouse operations.
3. Outbound Logistics: Amazon’s extensive delivery network (Amazon Prime) ensures fast delivery to
customers.
1. MIS Integration: Route optimization software enables faster delivery, reducing transportation costs.
4. Marketing and Sales: Amazon leverages customer data to personalize marketing and recommendations.
1. MIS Integration: Big Data Analytics analyzes customer preferences and purchase behavior, driving targeted marketing
campaigns.
5. Service: Amazon's 24/7 customer support, return policies, and Prime benefits enhance customer
experience.
1. MIS Integration: CRM systems track customer interactions and resolve issues efficiently.
• Support Value Activities Analysis:
1.Firm Infrastructure: Amazon’s strong financial management and technological
infrastructure enable continuous innovation.
1. MIS Integration: Advanced ERP systems streamline internal processes.
2.Human Resource Management: Amazon uses data analytics to manage employee
productivity and engagement.
1. MIS Integration: HR Analytics track employee performance and retention rates.
3.Technology Development: Amazon invests heavily in R&D to innovate services like AWS,
Alexa, and drone delivery.
1. MIS Integration: R&D Management Systems facilitate project tracking and development.
4.Procurement: Amazon’s global procurement strategy ensures cost-effective sourcing of
goods.
1. MIS Integration: E-Procurement systems enhance supplier relationships and streamline purchasing.
• Key Takeaway: Amazon’s integration of MIS across its value chain enables efficiency, cost
reduction, and superior customer experience, contributing to its competitive advantage.
Case Study 2: Zara
• Industry: Fast Fashion Retail
• Core Strategy: Differentiation through Speed and Flexibility in the Value Chain
• Primary Value Activities Analysis:
1.Inbound Logistics: Zara’s just-in-time inventory system reduces storage costs and ensures fast
replenishment.
1. MIS Integration: Inventory Management Systems monitor stock levels in real time.
2.Operations: Zara produces fashion items in small batches, allowing quick responses to trends.
1. MIS Integration: PLM (Product Lifecycle Management) Systems streamline design and production.
3.Outbound Logistics: Quick distribution from Zara’s central warehouse ensures rapid delivery to
stores.
1. MIS Integration: Logistics software optimizes distribution routes and schedules.
4.Marketing and Sales: Zara relies on limited advertising, focusing on store experience and trend
analysis.
1. MIS Integration: POS Systems collect sales data to identify trends.
5.Service: Zara’s in-store experience is enhanced by frequent inventory updates and attentive
staff.
• Support Value Activities Analysis:
1.Firm Infrastructure: Efficient management structure enables Zara to respond
swiftly to market changes.
1. MIS Integration: ERP Systems support financial and operational processes.
2.Human Resource Management: Zara focuses on training staff to understand
fashion trends and customer service.
1. MIS Integration: HR Management Systems monitor employee training and development.
3.Technology Development: Zara invests in technology to streamline design and
production processes.
1. MIS Integration: Design software accelerates the transition from concept to production.
4.Procurement: Close relationships with suppliers ensure rapid access to materials.
1. MIS Integration: Supplier Management Systems optimize procurement processes.
• Key Takeaway: Zara’s value chain is characterized by speed, flexibility, and MIS
integration, enabling it to respond rapidly to fashion trends and maintain a
4. Role of MIS in Enhancing Value Chain Activities
• MIS plays a crucial role in supporting both primary and support activities of the value chain:
• a. Inbound Logistics
• Inventory Management Systems: Real-time tracking of inventory ensures efficient management of raw
materials.
• Example: Walmart uses MIS to manage inventory levels, ensuring timely restocking and reducing holding costs.
• b. Operations
• Manufacturing Execution Systems (MES): Monitor production processes to ensure efficiency and quality.
• Example: Toyota employs MES to streamline assembly line operations, reducing waste and improving efficiency.
• c. Outbound Logistics
• Transportation Management Systems (TMS): Optimize delivery routes, reducing costs and delivery
times.
• Example: DHL uses TMS to manage global logistics, ensuring timely delivery.
• d. Marketing and Sales
• Customer Relationship Management (CRM): Enhance customer interactions and personalize marketing.
• Example: Nike uses CRM systems to analyze customer preferences and create targeted marketing campaigns.
• e. Service
• Customer Service Platforms: Provide efficient after-sales support, improving customer satisfaction.
• f. Support Activities
• Firm Infrastructure: ERP Systems integrate finance, HR, and procurement
processes.
• Example: Siemens uses ERP systems to manage global operations efficiently.
• Human Resource Management: HR Information Systems (HRIS) manage
employee data, performance, and training.
• Technology Development: R&D Management Systems track innovation projects,
supporting technological advancements.
• Procurement: E-Procurement Platforms streamline supplier relationships and
purchasing processes.