A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer’s door. It is the combination of activities a business undertakes to move a product or service along its life cycle, including design, marketing, distribution, and customer support . A company’s end goal is value creation, particularly in the form of profit .
The value chain can be divided into primary activities and secondary (or support) activities . Primary activities consist of five components: inbound logistics, operations, outbound logistics, marketing and sales, and service. All are essential for adding value and creating competitive advantage . Secondary activities include procurement, human resource management, technology development, and infrastructure .
A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of a value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost . By examining the value they create, companies can discern areas of their business that are inefficient and implement strategies that will optimize their procedures for maximum efficiency and profitability .
Michael E. Porter introduced the concept of a value chain in his book “Competitive Advantage: Creating and Sustaining Superior Performance” . He wrote: “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product” .