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Posted on June 24th, 2012, by

The notion of the Value Chain Analysis is usually associated with the name of Michael Porter, who published his book The Competitive Advantage in 1985. The key point of his writing was based on the assumption, that activities inside of any organization are able to add value to the products sold or services provided. Thus thorough control and implementation of such activities would guarantee the necessary competitive advantages to the organization. This is evident, that such activities have their costs as well, but as the author of the book stated, the value, they are able to bring, under the condition that they are efficiently fulfilled, would overcome the initial expenses, first of all due to return of the customers.

From the notion of the value chain, the notion of the value chain analysis was developed. The word chain is used here in its direct meaning, thus describing the chain of activities. As soon as products go through this chain, they gain certain value. The value chain concept should be split from the costs of the activities. A simple example here could be free of charge packaging of goods sold, certainly the packaging materials along with work operations have their cost and belong to the expenses. On the other hand if customers know, that at the concrete shop they are able to buy the same products, for the same price, but the products are also packed for free they would certainly prefer to come back to this shop.

The scheme of the value chain includes two types of activities, namely the primary activities logistics, production operations, marketing, sales and so on and support activities human resource management, technology of production and procurement (Martin, 1995). All these activities are to contribute to achievement of the competitive advantage by the organization. Procurement takes care of the best prices for the best quality products, development of technology helps the organization or enterprise to become competitive enough, human resource management is responsible for recruiting of well qualified specialists as well as training and development of the existing workers of the organization. Infrastructure of the organization might be also used as a part of value chain activities.

The value chain analysis is important not only for individual organizations, but can be successfully applied in supply chains of distribution networks. They are rather actual for providing of a number of different services or products to the end customer, under the condition, that each of the economic factors controls its own value chain. The notion of the value system is related to the value chains, actually including the value chains of suppliers, the firms, the distribution channels and firm buyers or customers (Martin, 1995).

Individual organizations or enterprises develop their own methods of value chain applications, for example one of the strategies could be locating of the assembly plant very closely to the supplier of the parts, which would contribute to transportation costs saving. 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 (Porter, 1996).

Overall, we can conclude here, that the value chain analysis and management, presented by Michael Porter, is the unique and important tool for financial growth and development of the potential of any organization. The knowledge of the activities and correct application of them would ensure successful operating and competitiveness of the organization or firm. One of the brightest examples of value chain application can be traced in Wal-Mart approach.

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