What Exactly Is a Value Chain?

A value chain is a business model that describes the entire process of creating a product or service. A value chain for a company that manufactures things includes all of the procedures involved in taking a product from conception to distribution, as well as everything in between, such as acquiring raw materials, manufacturing operations, and marketing activities.

A value-chain analysis is performed by a corporation by assessing the comprehensive procedures involved in each step of its business. The goal of a value-chain analysis is to improve production efficiency so that a company can give the most value for the least amount of money.

• A value chain is a step-by-step business model for taking an idea and turning it into a product or service.


• Value chains aid in increasing a company’s efficiency, allowing it to provide the most value for the least amount of money.


• The ultimate purpose of a value chain is to give a company a competitive edge by boosting productivity while keeping costs low.


• The value-chain theory examines a company’s five major activities as well as four support activities.

Recognizing Value Chains

Companies must constantly analyze the value they provide. This needs to be done in order to maintain their competitive advantage in the face of increased competition: for great prices, exceptional products, and client loyalty. A value chain can assist a corporation in identifying inefficient sections of its business and then implementing ways to optimize its procedures for optimum efficiency and profitability.

In addition to ensuring that production processes are smooth and efficient, firms must ensure that customers feel confident and secure enough to remain loyal. Value-chain analysis can also help with this.

A value chain’s main purpose is to provide the most value for the least amount of money in order to gain a competitive edge.

Value Chain Components

Porter’s value chain model divides a company’s activities into two categories: “main” and “support,” with examples of each listed below.

The specific actions in each category will differ depending on the industry.

Primary Functions

Primary activities are made up of five components. All of which are necessary for providing value and building a competitive advantage:

1. Receiving, warehousing, and inventory management are all examples of inbound logistics functions.


2. Procedures for transforming raw materials into a final product are included in operations.


3. Outbound logistics refers to actions that involve delivering a finished product to a customer.


4. Advertising, promotion, and pricing are examples of marketing and sales methods used to increase visibility and target the right customers.


5. Customer service, maintenance, repair, refund, and exchange are examples of programs used to sustain items and improve the consumer experience.

Activities to Provide Assistance

The role of support activities is to aid in the efficiency of primary activities. At least one of the five major activities benefits from the efficiency of any of the four support activities.  These support operations are often denoted as overhead costs on a company’s revenue statement:

1. Procurement is the process by which a corporation obtains raw materials.


2. Technological development is applied during the research and development (R&D) stage of a company, such as creating and developing manufacturing techniques and automating processes.


3. Human resource (HR) management entails hiring and keeping personnel. Personnel who will carry out the firm’s business strategy and assist in the creation, marketing, and sale of the product.


4. The infrastructure of a corporation includes its systems and the composition of its management team.  This includes  planning, accounting, finance, and quality control.