The thought of a value chain represented initiative proposed by Michael Porter (1985) to describe how customer value gathers by a string of activities that direct to an output or service. Porter depicts the value chain as the inside operations or activities a company execute “to designing, produce, commercialize, deliver and support its product.” He additional expresses that “a business firm value chain and the manner it executes separate activities are a contemplation of its history, its strategy, its approaching to applying its strategy, and the fundamental economics of the activities themselves.” Porter depicts two leading categories of business concern activities: primary activities and support activities. Primary activities are straight required in transforming inputs into end product* and in delivery and after-sales back up. These are commonly as well the line activities of the organization. They include:
· Inbound logistics-material handling and warehousing;
· Operations-transforming inputs into the final product;
· Outbound logistics-order processing and distribution;
· Marketing and sales-communication, pricing and channel management; and
· Service-installation, repair and parts.
Support activities support primary activities and other support activities. They are managed by the organization’s staff affairs and include:
· Procurement-purchasing of raw materials, supplies and other consumable items as well as assets;
· Technology development-know-how, procedures and technological inputs needed in every value chain activity;
· Human resource management-selection, promotion and placement; appraisal; rewards; management development; and labor/employee relations; and
· Firm infrastructure-general management, planning, finance, accounting, legal, government affairs and quality management.
Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage.
The term ‚Margin’ implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.