What is a value chain?

A value chain refers to a set of interconnected activities and processes that a company engages in to deliver a valuable product or service to the market. This concept was introduced by Michael Porter and is fundamental in strategic management. The idea is that each step in the chain adds value to the product or service, from the initial stages of production to delivery and after-sales services.

In this framework, the activities include everything from inbound logistics, operations, and outbound logistics, to marketing, sales, and customer service. A well-optimized value chain allows a company to deliver higher quality products, reduce costs, and enhance customer satisfaction, ultimately gaining a competitive advantage in the marketplace. Understanding the value chain helps businesses identify how each activity contributes to their overall value proposition and where improvements can be made.

While methods for estimating product pricing and reducing waste in production are important operational considerations, they do not encompass the comprehensive concept of the value chain. Additionally, although a network of suppliers and distributors can play a role in the overall supply chain, the value chain focuses specifically on the value-added activities within the organizational framework that culminate in the delivery of a product or service to customers.