A value chain is a set of activities involved in the flow of value-adding activities from the raw material supplier to the consumer. 

Alternatively, a value chain can also refer to the way in which a business adds values for its customers by procession inputs into products or services.

The value chain includes activities involved in creating added value which leads to comparative advantage. 

This comparative advantage ultimately creates higher profitability for the business.

The term "value chain" was introduced by American academician Michael Porter in his 1985 book competitive advantage: creating and sustaining superior performance.

As porter noted, "value chain comprises activities that are performed by the business to create value to its customers". 

He divided this activity into two categories: primary activities and secondary activities.

Primary activities

Primary activities are those activities that are directly related to the production of goods, sales and maintenance, and the support of goods and services.

Primary activities include inbound logistics, operation, outbound logistics, marketing and sales, and services.

1. Inbound logistics: every activity relating to receiving, storing, and distribution of inputs are inbound logistics. The relationship with suppliers guides the creation of value in this respect.

2. Operation: These are activities that convert raw material into finished or semi-finished goods. Operation system is the guiding principle to the creation of value in this respect.

3. Outbound logistics: These are processes relating to distributing final products to the consumer including the storage, sorting, shipping of the final products. They are as important as inbound logistics 

4. Marketing and sales: if you have read our post on functional areas of business, you would have probably gotten an overview of marketing and sales. Marketing and sales are activities that help persuade customers to purchase from your business instead of your competitors.

These are the activities that enhance the marketing and sales of a product in the targeted market. It is important to note here that that marketing effort by a business is guided by 5 different marketing orientations which are production, product, sales, market, and societal marketing orientations.

5. Services: These are activities that take place after sales are finalized. They are done to maintain and enhance the value of the goods and services to the consumer.

Support activities

Support activities or secondary activities, support the primary activities, and make them more effective. 

Infrastructure, human resources management, technological development, procurement are all secondary activities as suggested by Michael portal.

1. Procurement: This includes every activity involved in the acquisition of inputs and resources required by a firm. Procurement is how a firm negotiates with suppliers about the price and purchase of products.

Procurement is closely related to the primary activity of inbound logistics and, therefore, supports inbound logistics.

2. Infrastructure: This comprises support activities within a business that allows it to maintain its daily operation. Financial management and strategic management are some business infrastructures.

Business infrastructures are building blocks for the primary activities of the business because they support every single primary activity of a business. Hence, it is considered an important source of competitive advantage.

3. Human resource management: As the name suggests, this consists of everything and anything involved in managing perhaps the most important component of a business: human resources.

Human resource management, in a more practical sense, can be defined as the activities that support the management and development of an organization's workforce.

Example of these activities is recruiting employees, hiring and firing employees, training, and coaching employees, and compensating employees.

Like infrastructure, Human resource management also supports the primary activities because the primary activities (of marketing and sales, inbound and outbound logistics, services, and operation) require manpower to function effectively. 😏

4. Technological development: This, as a support activity, embodies all activities connected to the development of goods and services. Examples are telecommunication technology, IT, technology innovation, and, more importantly, research and development of new products.

The importance of technological development can not be over-emphasized because every value-adding activity in an organization embodies some form of technology.

The Bottom line

The main goal of these primary and secondary activities is to create value above the cost incurred in creating them, Which in turn, leads to comparative advantage.

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