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Value Chain

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The value chain is a strategic analysis tool that helps determine the competitive advantage of the company.

With the value chain it's possible to examine and divide the company into its most relevant strategic activities in order to understand how costs work, current sources and what is the difference.

The origin of this concept arises in 1985 when Professor Michael E. Porter of Harvard University introduced the analysis of the value chain in his book «Competitive Advantage». For this purpose, the analysis used previously by Mckinsey & Co. Porter was more detailed in the analysis with the objective of improving the profitability of the companies.

Analysis of the value chain

The value chain seeks to generate competitive advantages, and its study also applies to other activities such as the supply chain and distribution networks. The globalization has led to the creation of global value chains.

The value chain establishes four aspects of the competitive landscape:

- Degree of integration: All activities that are carried out in the company itself and not in other independent companies are defined.
- Industrial panorama: It's the market and the sectors related to our company and with which it competes. A delimited strategy is established with the clear objective of achieving the objectives set in the first instance.
- The segment panorama: In this case, reference is made to the variations that may be affected by the product and the buyers of this item.
- The geographical panorama: The countries, cities or regions where the company competes are included.

Representation and activities of the value chain

In the value chain two types of activities can be distinguished:

1) Primary activities: A group of actions focused on the physical development of each product and the transfer process to the buyer.

Five primary activities are distinguished:

- Internal logistics: Includes operations of reception, storage and distribution of raw materials.
- Operations (production): Processing of raw materials to transform them into the final product.
- External logistics: Storage of finished products and distribution of the product to the consumer.
- Marketing and sales: Activities with which the product is advertised to make it known.
- Service: after-sales or maintenance, the activities in charge are intended to maintain, enhance the value of the product and apply guarantees.

2) Support activities: They are a primary support and include the participation of human resources, for example. The following are distinguished:

- Organizational infrastructure: Activities that support the entire company, such as planning, accounting and finance.
- Human resources management: Search, hiring and motivation of staff.
- Technology development, research and development: Cost and value generators.
- Shopping: It's everything whose objective is to supply and store raw materials or materials to produce.


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