VALUE CHAIN

• Michael Eugene Porter (born 1947), University

Professor at Harvard Business School

• Author of Competitive Advantage (1985)

• First to introduce Value Chain Analysis

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 What is Value Chain Analysis?

The theory that underlies activity based

management

• Helps to identify the critical success factors for

the key processes within the business

• Reduces the non-value added activities

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 The activities
•Primary activities produce the product or service for
the customer
•Support activities provide the firm-wide
infrastructure for the primary activities

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Description: What is Vertical Integration?

• an approach for increasing or decreasing the level

of control which a firm has over its inputs and
distribution of outputs.

• extent to which an organization controls its inputs

and the distribution of its products and services.

• refers to the degree of integration between a firm’s

value chain and the value chains of its suppliers and
distributors.
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 There are two sorts of vertical
integration:

• backward integration -firm’s control of its

inputs or supplies

• forward integration -a firm’s control of its

distribution

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The benefits of using Vertical Integration

• Often considered as a strategic choice.

For example if suppliers are very powerful, a
solution to that threat is to buy a number of
them up.

• Is an action to decrease the bargaining power of

suppliers and customers.

• It allows reducing transaction costs.

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 Horizontal Integration

Increases the share of the market

• Similar products

• Substitutes for one products

• Competitors

• To complete the product range

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 Horizontal Integration

Strengths Weaknesses

• Economies of scale • Monopolising

• Synergy • Purchasing substitutes
• Defence against
substitues
• Fulfilling customer
expectations
• Increased negotiation
power

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 SUPPLY CHAIN MANAGEMENT
Planning, Organizing, directing & controlling flows
of materials, so that merchandise is produced
and distributed in the right quantities to the right
locations at the right time in damage-free
conditions and so as to minimize the total
system cost of a company subject to satisfying
service requirements.

Motivation for SCM:

• Need to meet customer requirements
• Desire to reduce costs

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 KEY BENIFITS OF SCM

• Improved customer responsiveness

• pre and post-production inventory levels
• Higher product quality
• Faster product innovation
• obtain greater efficiency from labour,
equipment and space across the company
• More consistent on-time delivery

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