Porter's Value Chain Model

Michael Porter devised the model of the value chain to describe the flow of value from producers to consumers. This model also makes clear that there are many points of intermediation along the value change within and between companies collaborating in these networks required for production and distribution.

For most business enterprises, there are two broad categories of value activities (figure 1.13): 

1. Primary Activities: The former includes activities connected with the physical creation of the firm's product or service, its marketing and delivery, and provision of after-sale support. Based on technological and strategic distinctness, the primary activities are generally divisible into five basic categories as follows: 
• i) Inbound Logistics: These are activities associated with procurement, storage, and flow of inputs to the product, like material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers. 
• ii) Operations: Activities involved in the transformation of inputs into final product, like machining, assembly, packaging, equipment maintenance, testing, and facility operation belong to this category.
• iii) Outbound Logistics: These include activities, which are associated with collection, storage and physical distribution of finished goods to the customers, such as storage/warehousing of finished goods, order processing, scheduling deliveries, operation of delivery vehicles. 
• iv) Marketing and Sales: This category includes activities such as advertising, sales promotion, sales force management, channel selection, channel relations, and pricing. 
• v) Service: These are activities aimed at providing service to enhance or maintain the value of the product, like installation, repair, training, supply of parts and product adjustment.
2. Support Activities: The support activities are those, which provide inputs or infrastructure for primary activities to be performed. Support activities, which provide the infrastructure for primary activities, are also .required to be identified by isolating them on the basis of technological and strategic distinctiveness. Four categories of support activities are generally distinguished as follows: 
• i) Procurement: Procurement activities which include purchase of materials and service inputs, cquipment and machinery etc., pervade all other activities in the value-chain, for every activity needs to use purchased inputs of some kind. 
• ii) Technology Development: Technology involved in product designing and manufacturing processes require activities to be performed for perfection and upgradation. Thus, technology development includes activities related with creating and improving the way in which various activities in the value chain are performed. 
• iii) Human Resource Management: Management of human resources - recruitment, training and development of Manpower- is involved in each and every activity in the value chain, and they constitute a distinct set of support activities.
• iv) Firm Infrastructure: Quite distinct from the specific primary or support activities but essential to the entire chain of value activities are those activities that provide the infrastructure of the firm as a whole. They relate to general management, accounting and finance, legal affairs, strategic planning, etc.