The document discusses value chain analysis and how to assess a firm's value chain. It defines a value chain as the linked set of activities involved in producing and delivering a good or service, from raw materials to the final customer. It is important for firms to analyze their value chain to determine which activities add the most value and competitive advantage. The document provides guidance on how to examine each activity in a firm's primary and support value chains to identify ways to increase efficiency and value. It emphasizes using the VRIO framework to assess whether each activity is a source of competitive advantage.

1. Value Chain Analysis
Value chain
Is a term referred to a linked set of value creating activities that
begins with basic raw materials from suppliers, and it moves
toward a series of value added activities (such as production,
marketing, etc.), and it ends with distributors and customers
receiving a final good.
Figure 5-1: Typical Value Chain for a Manufactured Product
Lecture Notes:
It’s important to assess a firm’s value stream (also known as
value chain) in order to determine whether or not each of firm’s
activity is adding the maximum value to help it gain
competitive advantage. This assessment is part of “analyzing
the firm’s resources” or analyzing the “internal” environment of
an organization.
Value chain is not only related to manufacturing. Service
organizations, financial and tax corporations, insurance
companies, hospitals, shopping malls, schools, and almost every
company has a stream of activities from the beginning to the
end to produce a service. This stream of activities is called
value stream.
Value stream analysis is probably one of the most important
technical skills that strategic management could offer using
non-mathematical techniques. From lower level managers to

2. high executives, managers become obsessed with value stream
analysis once they know how important this topic is. I
(personally) get most of my consulting or corporate trainings
for this analysis. Due to the importance of this issue, I have
added supplementary slides (upcoming) to get you started in
performing a value chain analysis. Your textbook and many
others don’t actually have a detail process of how to preform
this analysis (which is why I get asked for training managers
inside various corporations).
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Value Chain Analysis
Value chains of most industries are divided into two segments:
Upstream
Downstream
Center of gravity
Is the point in value chain that is most important to a company.
It’s where a company’s core competencies lie.
What do we do if we found an entire activity doesn’t add much
value?
Lecture Notes:
Upstream refers to upstream of your specific area or department
of analysis. This is to say that you start from where you need to
examine the value chain, and move backward toward the
suppliers (the beginning).
Downstream refers to downstream of your specific area or
department of analysis. This is to say that you start from where

3. you need to examine the value chain, and move forward toward
the end customers.
Answer: if the activity is not based on regulations, and if it
doesn’t link with other activities, we should cut that activity
(we should outsource it).
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Figure 5-2:
A Corporate’s Value Chain
Lecture Notes:
Above are some of the areas that managers should examine
when analyzing their value chain. We study each area in
upcoming slides.
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Value Chain Analysis
Areas of
Primary Activities
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Services
Areas of
Support Activities
Procurement
Technology development
Human resource management

4. Firm’s infrastructure
Lecture Notes:
When assessing a company’s value chain, managers should
know whether examined activities are primary or support.
Above slides shows examples of primary and support activities
to help guide managers.
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Performing Value Chain Analysis
Examine the product or service line’s value chain: Analyze
series of activities involved in producing a product or service.
Use VRIO framework to examine each activity.
Examine the linkages between activities. Assess whether
improvement of one activity could cause its linked activities
any problems. This means whether improving one activity could
cause any problems down- or up-stream of value chain.
Examine the potential synergies among value chain activities.
Ask: how can an activity become more efficient by its linkages
to before and after activities (without improving the activity
itself)?
Lecture Notes:
Remember that VIRO framework is referred to a methodology

5. that assesses each resource (see slide 6).
For value chain analysis, managers should use VIRO framework
because if the set of questions in VIRO framework reveals that
an activity doesn’t add value, managers should take that activity
out of the value chain. Such activity is referred to as non-value
added activity. Examining a product line is usually for
manufacturing. Thus, for service, managers should study the
entire chain of activities that produces “one” service (or the
service line).
When managers examine an activity within a value chain, they
should discover all upstream and downstream activities that are
link to it. They should be aware of any harm that could result by
improving or changing one of the activities. Some of these
activities are so tied together that changing one activity could
cause a domino effect.
Managers should study the synergies among activities. Asking:
without improving a specific activity, could this activity be
improved ‘automatically’ by an activity related to it (its
upstream and downstream linkages)?
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Additional Lecture Notes For Value Chain Analysis
Assessing Primary Activities:
1. Inbound logistics – these activities are associated with
receiving, storing, distribution, material handling, paperwork
related to a service, and more. To add value here managers
should:
minimize shipping time (or processing time)
have an excellent material and inventory control system

6. receive raw material faster (or make upstream activity faster)
design an optimal warehouse or storage room for raw material
Example: Toyota has excellent inbound logistics due to its Just-
In-Time practice (JIT).
Lecture Notes:
This slide through slide number 28 are additional lectures and
not included in your textbook. See chapter 1, slide 1, footnote
2.
In here we start assessing company’s value chain to ensure
competitive advantage. The question is “how” should managers
assess each activity? And, “how” can managers make these
activity more efficient (to add value)? Unfortunately, the
textbook (among others) neither explains the process of
assessing value chain activities, nor does the process of
improving them. Therefore, I’ve added this and several
forthcoming slides to ensure students know how to examine
value chain and add additional value in each area.
In above slide, we begin to examine all activities related to a
company’s “Inbound Logistics”. Inbound logistics is listed as
one of the first activities under company’s primary activities
(see slide 17 and 18). Managers could use above a – d steps to
add value to company’s inbound logistics activities. Adding
value in business refers to making a process more efficient (by
lowering costs) and more effective (by increasing output).
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Assessing Primary Activities:
2. Operations – these are activities associated with transforming

7. input to output. For example, manufacturing, machining,
packaging, assembly, testing, paperwork, and more. To add
value here, managers should:
make operation and process simple and efficient and cut cost by
adding automation
increase quality of product or service to decrease repeated
activities and inspections
have efficient layout or design the area in a way to make
process or paperwork move faster
Additional Lecture Notes For Value Chain Analysis
Lecture Notes:
Next step is to examine all activities related to company’s
“Operations”. Operations is listed as second activity under
company’s primary activities (see slide 17 and 18). Manages
could add value to their operations using the above steps (a –
d).
Paperwork is mentioned here and in previous slide. In previous
slide, paperwork is related to inbound logistics (related to raw
materials) while here paperwork is related to operations
(example: related to loan or insurance claim application).
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Assessing Primary Activities:
3. Outbound logistics – these are activities associated with
collecting, storing, and distribution. To add value here
managers should:

8. provide a quick delivery and minimize shipping damage
have efficient finished warehouse (or storage)
minimize transportation cost
implement an excellent material handling and efficient flow of
paperwork, information, and products
Additional Lecture Notes For Value Chain Analysis
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Assessing Primary Activities:
4. Marketing and sales – these are activities associated with
promoting of products. To add value here, managers should:
have highly motivated and competent sales force
have innovative approaches to marketing and advertising
discover what customers really want
have the right price for product or services
Additional Lecture Notes For Value Chain Analysis
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Assessing Primary Activities:
5. Services – these are activities associated with providing a
service such as: installation, repair, training, parts supply,
cleaning, and more. To add value here managers should:

9. receive and analyze customer’s feed back
response to customer’s emergencies quickly
have effective replacement parts
have effective inventory parts
train employees to deal with customer nicely
have warrantee and guarantee
Additional Lecture Notes For Value Chain Analysis
10
Assessing Support Activities:
6. Procurement – are activities related to purchasing raw
materials or input. To add value here, managers should:
buy good quality raw material that optimizes quality and
minimizes cost
develop a win-win situation with suppliers
analyze alternatives for inputs (not to have one supplier)
maybe make decision about whether leasing or buying
equipment
Additional Lecture Notes For Value Chain Analysis
Lecture Notes:
Next step for managers is to examine support activities.
Procurement is listed as one of the first activities under
company’s support activities (see slide 17 and 18).

10. 11
Assessing Support Activities:
7. Technology development - Technology is a support activity.
To add value here, managers should:
have effective R&D (or have current technology)
have positive relationship between R&D, technology group, and
other company’s employees
train employees for new software
hire capable people who like technology and are computer
intelligent
make sure all employees are able to meet their deadlines
Additional Lecture Notes For Value Chain Analysis
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Assessing Support Activities:
8. HR management – these are activities associated with hiring,
firing, recruiting, training, compensation, and more. To add
value here, managers should:
have an effective recruiting and retention program
have good relationship with union
have good quality of life for employees
provide rewards and incentives programs
Additional Lecture Notes For Value Chain Analysis

11. 13
Additional Notes For Value Chain Analysis
Assessing Support Activities:
9. General administration – these are activities associated with
planning, finance, management, accounting, and legal. To add
value here, managers should:
have an effective planning process
anticipate problems and quickly respond to it
have lower capital expenditures
have good relationships with stakeholders
have ability to coordinate activities throughout an organization
have good reputation, culture, and values
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Figure 6-1: Strategic Factor Analysis Summary
(SFAS) Matrix

12. Lecture Notes:
Above figure shows an example of SFAS Matrix. This matrix is
used to summarize the results of SWOT analysis for managers.
Notice that table’s top section includes firm’s internal factors
studied in chapter 5, and bottom section includes firm’s external
factors studied in chapter 4. For this Table, it’s permitted to
skip the right hand side table, which is used to explain some
factors in detail (because it includes redundant information).
You may ignore the right side table if you use this SFAS for
your assignment.
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