Value chain

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The value chain was described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance, New York, NY The Free Press.

The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales, and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, R&D, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs. The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic actors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, the Empty vessel and the firm's buyers (and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its part suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system.

The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The "SCOR" framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched "DCOR" framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution.

A value chain reference model has been developed by the Value Chain Group to offer de facto standard for value chain management encompassing one unified reference framework representing the process domains of product development, customer relations and supply networks called the Value Chain Operations Reference model,or VCOR. VCOR is the next generation Business Process Management that extends the Supply Chain processes of Acquire, Build, Fulfill and Support to include Market, Research, Develop, Brand, Sell and Support.

Contents

[edit] When not to apply The Value Chain

Porter's basic model describes an industrial organization buying raw materials and transforming these into physical products.

In 1985, When Porter introduced the Value Chain, around 60% of most western economies' workforces were active in service industries. In 2006, most service industries in western countries employ over 80% of the workforce.

Critique on the Value Chain model and its applicability to services organizations has since been voiced by both academics and practitioners. Porter's focus on 'either or' strategies and competition as the main driving force in any industry, are not that well suited to the complexity of most industries today. Collaboration in addition to competition and differentiation in addition to low cost are common drivers. Furthermore, Porter is focused on the tangible outcomes of cost, revenue, margin and basic configuration of business activities. The Value Network may be the mental model that embraces the linear Value Chain Model and that adds an extra dimension for those seeking to make sense of complexity as we see it in organizations and their environment today.

[edit] Literature

Rolf G. Poluha: Application of the SCOR Model in Supply Chain Management. Youngstown, NY 2006, ISBN: 1-934043-10-9.

[edit] See also

[edit] External links

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