What is the purpose of a value chain analysis?

The purpose of value chain analysis is to enable a company to understand the various activities involved in producing and delivering a product or service and to identify opportunities to gain a competitive advantage. The concept of the value chain was introduced by Michael Porter and involves examining all activities a firm performs and how they interact to create a competitive advantage.

Definition and Purpose:

A value chain describes the series of activities that an organization carries out to create value for its customers.

The primary purpose is to systematically identify and analyze these activities to understand where value is added to the final product or service, which can then be leveraged to gain a competitive advantage​​.

Components of Value Chain:

Primary Activities: These include inbound logistics, operations, outbound logistics, marketing and sales, and services. Each of these activities adds value directly to the production and delivery of the product.

Support Activities: These include procurement, technology development, human resource management, and firm infrastructure. These activities support the primary activities and add value indirectly​​.

Systematic Approach:

By analyzing each activity in the value chain, a firm can identify areas where efficiencies can be improved or where innovation can be introduced.

This systematic approach helps the firm to focus on optimizing these activities to reduce costs, improve quality, and differentiate its products from competitors, thus developing a competitive advantage​​.

In summary, value chain analysis allows a company to use a systematic approach in developing a competitive advantage by identifying and optimizing the activities that create value​​.