Porter Value Chain Analysis
PORTER’S VALUE CHAIN ANALYSIS The porter’s value chain is a model that helps to analyze specific activities through which firms can create value and competitive advantage. There are two activities in value chain which are: Primary activity – directly concern with creating and delivering a product. Support activities – not directly involved in production, may increase effectiveness or efficiency. PRIMARY ACTIVITIES | DESCRIPTION | Inbound Logistic | * Concerned with receiving and storing externally sourced materials. * Includes receiving, storing, inventory control, transportation scheduling. Operations | * Manufacture of products and services. * The way that the resource inputs convert to outputs. * Includes machining, packaging, assembly, equipment maintenance | Outbound Logistic | * Required to get the finished goods and services to the customer. * e. g : warehousing, order fulfillment, transportation, distribution, distribution management. | Marketing and Sales | * Associated with getting buyers to purchase the product. * Includes channel selection, advertising, promotion, selling, pricing, retail management, etc. | Services | * Maintain and enhance the product performance after the product has been sold. Includes customer support, repair services, installation, training, spare parts management, upgrading, etc. | SUPPORT ACTIVITIES | DESCRIPTION | Procurement | * Concerned how resources are acquired for a business. * Procurement of raw materials, servicing, spare parts, buildings, machines. | Human Resources Management | * Associated with recruiting, development (education), retention and compensation of employees and managers. | Technology Development| * Concerned with managing information processing and the development and protection of knowledge in business. Includes technology development to support the value chain activities such as research and development, process automation, design and redesign. | Infrastructure | * Concerned with a wide range of support systems and function. * Includes general management, planning management, legal, finance, accounting, public affairs, quality management. | PORTER’S FIVE FORCES 1) Barriers to Entry * Large capital requirements or the need to gain economies of scale quickly. * Strong customer loyalty or strong brand preferences. * Lack of adequate distribution channels or access to raw materials. ) Power of Suppliers High when: * A small number of dominant, highly concentrated suppliers exists. * Few good substitute raw materials or suppliers are available. * The cost of switching raw materials or suppliers is high. 3) Power of Buyers High when: * Customers are concentrated, large or buy in volume. * The products being purchased are standard or undifferentiated making it easy to switch to other suppliers. * Customers’ purchases represent a major portion of the sellers’ total revenue. 4) Substitute products Competitive strength high when: The relative price of substitute products declines. * Consumers’ switching costs decline. * Competitors plan to increase market penetration or production capacity. 5) Rivalry among competitors Intensity increases as: * The number of competitors increases or they become equal in size. * Demand for the industry’s products declines or industry growth slows. * Fixed costs or barriers to leaving the industry are high. GENERIC STRATEGY 1) Cost-leadership Strategy * Do everything to achieve a CA through producing products or services at a lower unit cost (lowering cost structure) charge a lower price. Increase efficiency and lower costs – the manufacturing and materials management functions are the center of attention * A low- level of product differentiation– it means that you do not want to be the industry leader in differentiation. * Target the average customer – Scale and Focus, not Product Variety * Ignores the different market segments – focuses on mass market. * Advantages * Charge a lower price makes the same level of profit. * Win in the price war. * Low-cost as an entry barrier. * Protected from rivals. * Less affected by powerful buyers and suppliers. * Room to reduce its price to compete with substitute products. Disadvantages * Technological advancement makes the low cost advantage outdated. * Limitation ability of competitors. * Lose sight of changes in customers’ tastes. 2) Differentiation Strategy * Do everything to achieve a CA through producing products or services that are unique to customers charge a premium price. * Achieved in 3 principal ways – quality, innovation, ; responsiveness to customers * Try to differentiate along as many dimensions as possible – the bases of differentiation are endless (prestige) * R;D, Sales, ; Marketing functions are center of attention. Serve many market segments(i. e. , a broad differentiator). * Advantages * Premium price. * Protected from rivals. (i. e. , brand loyalty, customer loyalty) * Brand loyalty as an entry barrier. * Less affected by powerful buyers and suppliers. * Disadvantages * Substitutes can be a possible threat. * Difficult to maintain a product’s uniqueness in customers’ eyes for a long time. 3) Focus Strategy * Try to achieve a CA by serving the needs of a specific market segment or niche (i. e. geographically, product line, customer type). Pursue a focus strategy through either a low-cost approach or a differentiation * focused cost-leadership * focused differentiation (i. e. , a specialized differentiator) * Try to build market share in one or a few market segments and, if successful, then begin to serve more segments. * Pursue any distinctive competency. * Advantages * Exploration of a gap in the market customer loyalty. * Stay close to its customers and respond to their changing needs(faster in innovations) * In general, a focused firm is O. K. against the threats of five forces. Disadvantages * Cost disadvantage relative to low-cost leader because of a small volume. * Susceptible to attack from a broad differentiator. * Technological change or changes in customers’ tastes can make a niche market disappear. MAF 490 PORTER’S VALUE CHAIN ; PORTER’S FIVE FORCES AND GENERIC STRATEGIES PREPARED FOR : PN. JAMALIAH BINTI SAID PREPARED BY : MOHAMED SHAHRUL IKRAM BIN MOHAMED SUHAINI 2007150779 NURUL AKMA BINTI AHMAD 2007128071 KAMARIAH BINTI SAMIAN 2007128051 NOOR AZREEN BINTI AMAN 2007128081 GROUP FULL TIME STUDENTS
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