A2.4.3.1 Value Activities
1. Primary Activities
The primary activities are those involved in the creation of the product. They include the following:
- Inbound logistics
- These are the activities concerned with receiving the materials from suppliers, storing these externally sourced materials, and handling them within the firm: warehousing, materials handling, inventory control, etc
- Operations
- These are the activities related to the production of products and services, the activities that transform inputs into finished products: machining, testing, packaging, equipment maintenance, etc
- This area can be split into more departments in certain companies. For example, the operations in case of a hotel would include reception, room service etc.
- Outbound logistics
- These are all the activities concerned with distributing the final product and/or service to the customers: warehousing, delivery vehicle operations, order processing
- Marketing and sales
- This functional area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target audience of the company about the firm’s products and services: advertising, sales force operations, selection and management of distribution channels, etc.
- Service
- There is often a need to provide services like pre-installation or after-sales service before or after the sale of the product or service: installation, repair, parts supply, etc.
2. Support Activities
The secondary activities are those which support primary activities and each other. They include the following:
- Procurement
- This specifically refers to the function of purchasing not to the purchased inputs themselves.
- This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices.
- While raw materials procurement is usually concentrated in a purchasing department, other purchasing is often dispersed throughout a firm (temporary office staff, hotel and travel expenses, office equipment and even strategic consulting).
- Technology development
- This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive.
- This includes engineering and process development and, while usually associated with an engineering or development function, is also dispersed (office automation, telecommunications, etc)
- Human resource management
- This includes the recruitment, hiring, training, development and compensation of all personnel. Partly centralised but increasingly dispersed, Porter observes that the skills and motivation of employees and the costs involved may be critical to competitive advantage.
- Infrastructure (this supports the entire chain)
- This is a broad category and encompasses general management activities, finance, accounting, legal, corporate affairs and quality management.
- Such activities are often viewed as an overhead, these can be a considerable source of advantage (eg skilful negotiations with regulatory bodies).
3. The Margin
“the difference between total value and the collective costs of performing the value activities”.