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Value chain

The value chain was described and popularized by Michael Porter in his 1985 best-seller: Competitive Advantage: Creating and Sustaining Superior Performance. New York, NY The Freee Press.

The value chain categorizes the generic value-adding activities of an organization. The main activities are: outbound logistics, production, inbound logistics, sales and marketing, maintenance. These activities are supported by: administrative infrastructure management, human resources management, R&D, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forfront of management though as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs.

The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic actors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Capturing the value generated along the chain is the new approach taken by many management strategists. By exploiting the upstream and downstream information flowing along the value chain the firms may try to bypass the intermediaries creating new business models.

See also