The document discusses Michael Porter's value chain model, which describes the activities within a firm that create value. It analyzes both primary activities, such as operations and logistics that are central to creating a product, and support activities like procurement and infrastructure. Examples are given of value chain analyses for the pizza restaurant and automotive industries. The value chain can be used to examine how activities create value and where a firm has competitive advantages.

1. VALUE CHAIN

2. The Value Chain An analytical tool that describes all activities that make up the economic performance and capabilities of the firm. It is used to analyze and examine activities that create value for a given firm.

3. Ex. 3-1. The Value Chain Infrastructure Human Resource Management Technology Development Procurement PRIMARY ACTIVITIES Inbound Logistics Operations Outbound Logistics Marketing / Sales Service SUPPORT ACTIVITIES Reprinted/Adapted with the permission of The Free Press, a division of Simon & Shuster, Inc., from COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance, by Michael E. Porter. Copyright ©1985 by Michael E. Porter.

4. The Value Chain Primary Activities – Activities which relate directly to the actual creation, manufacture, distribution, and sale of a product or service to the firm’s customers. Secondary Activities – Economic activities which assist the firm’s primary activities.

5. The Value Chain Upstream Activities – Economic activities that occur close to the firm’s suppliers but far away from the customers. Downstream Activities – Economic activities that occur close to the customer but far away from the firm’s suppliers.

6. Support Activities Product Development – The conception, design, and commercialization of new products. Process Development – The design and use of new procedures, technologies, techniques, and other steps to improve the value-adding process.

7. Ex. 3-2. Pizza Restaurant Industry Value Chain Infrastructure Human Resource Management Technology Development Procurement PRIMARY ACTIVITIES Obtain funds, carry out accounting and payroll functions, and perform other administrative tasks for each activity Supervise truck drivers & warehouse personnel Improve truck routing & warehouse methods Buy trucks, lease warehouse space Haul dough, cheese, etc. to restaurants Supervise kitchen personnel Develop new menu items, improve oven design Buy dough, cheese, ovens, and supplies Cook pizzas, make salads, etc. Supervise advertising personnel Discover new promotional materials Buy TV time Develop advertising copy Supervise waiters Improve restaurant lay-out Buy tables, chairs, silver-ware to equip restaurant Serve food to restaurant customers Inbound Logistics Operations Outbound Logistics Marketing / Sales Service SUPPORT ACTIVITIES Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

8. Ex. 3-3. Automotive Industry Value Chain Obtain funds, carry out accounting and payroll functions, and perform other administrative tasks for each activity. Supervise truck drivers, warehouse personnel Improve truck routing & warehouse methods Buy trucks, lease warehouse space Transport components to assembly facility Supervise assembly workers Improve product design & assembly process Buy components, assembly equipment Assemble components into autos Supervise advertising & sales personnel Improve selling methods Hire advertising agency, buy media time Advertise, promote, & sell autos Supervise maintenance personnel Improve maintenance procedures Buy tools for maintenance personnel Maintain, repair autos Inbound Logistics Operations Outbound Logistics Marketing / Sales Service (Same as inbound logistics) Transport autos to dealers (Same as inbound logistics) (Same as inbound logistics) Infrastructure Human Resource Management Technology Development Procurement SUPPORT ACTIVITIES PRIMARY ACTIVITIES Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

9. Ex. 3-4. Pizza Hut’s Business System Infrastructure Human Resource Management Technology Development Procurement SUPPORT ACTIVITIES PRIMARY ACTIVITIES Inbound Logistics Operations Outbound Logistics Marketing / Sales Service Key: = Extensive activity = Modest activity = No activity

10. Ex. 3-5: GM’s Business System SUPPORT ACTIVITIES Infrastructure Human Resource Management Technology Development Procurement PRIMARY ACTIVITIES Inbound Logistics Operations Outbound Logistics Marketing / Sales Service Key: = Extensive activity = Modest activity = No activity