The Value Chain

To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted below:

Primary Value Chain Activities

Inbound Logistics

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Operations

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Outbound Logistics

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Marketing & Sales

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Service

The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.

• Inbound logistics include the receiving, warehousing, and inventory control of input materials.

• Operations are the value-creating activities that transform the inputs into the final product.

• Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfillment, etc.

• Marketing & Sales are those activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing, etc.

• Service activities are those that maintain and enhance the product's value including customer support, repair services, etc.

Any or all of these primary activities may be vital in developing a competitive advantage. For example, logistics activities are critical for a provider of distribution services, and service activities may be the key focus for a firm offering on-site maintenance contracts for office equipment.

These five categories are generic and portrayed here in a general manner. Each generic activity includes specific activities that vary by industry.

source: http://www.quickmba.com/strategy/value-chain/