Porter's Value Chain

Strategy Tools Explained - Part 3

Porter's Value Chain is a framework invented by Harvard professor Michael Porter. It identifies how a company creates value and where it can improve.

It follows on from Porter's 5 Forces tool, which looks at the external competitive environment.

Porter's value chain looks at the internal factors in a business by looking at Core Activities and Support Activities.

Porter's Value Chain - Explained

1. Porter's Value Chain - Core Activities

Core Activities are the 5 direct value-generating activities — the creation, sale, and delivery of a product or service.

📥 Inbound logistics – receiving and storing raw materials.

🏭 Operations – converting inputs into finished products.

🚚 Outbound logistics – distributing products to customers.

📢 Marketing & sales – persuading customers to buy.

🛠️ Service – after-sales support and maintenance.

2. Porter's Value Chain - Support Activities

Support Activities are the 4 activities that are needed to support the core activities.

⚙️ Firm Infrastructure – Strategic planning, finance, legal, quality control, and management systems that guide and support the business.

🧑‍💼 Human Resource Management – Hiring, training, and developing employees to ensure the right people are in the right roles with the right skills.

🤖 Technology Development – Product research and development, process innovation, and IT systems that improve efficiency and competitiveness.

🛒 Procurement – Sourcing of materials, components, and services needed to support operations and deliver value to customers.

3. Using the Value Chain for a Company - Example

Toyota

🏃Activity	📝 Description
📥 Inbound logistics	Just-In-Time (JIT) system:Toyota minimised inventory costs by having parts delivered exactly when needed in the production process. Close supplier relationships:a network of reliable suppliers with joint quality improvement programs.
🏭 Operations	Toyota Production System (TPS): A globally recognized lean manufacturing approach emphasizing Kaizen(continuous improvement) and Jidoka(automation with human intelligence).
🚚 Outbound logistics	Global logistics network:coordinates shipping from factories to dealers efficiently. Regional production:Builds vehicles closer to the markets they serve (e.g., North America, Europe), reducing shipping costs and time.
📢 Marketing & sales	Strong brand image:Known for reliability, quality, fuel efficiency, and innovation.
🛠️ Service	Extensive service network: Authorised service centers globally with trained technicians and standardized service procedures.

4. Value Chain Checklist

📥 Inbound Logistics

Getting materials, supplies, or products into your business.

Do we receive materials/supplies on time consistently?
Are we holding too much inventory (cash tied up)?
Are there delays or quality issues with suppliers?
Could we reduce shipping or storage costs?

🏭 Operations

The way we create or deliver our product/service.

Are our processes efficient, or are there bottlenecks?
Can we automate or simplify any step?
Are we tracking production/service costs effectively?
Is quality consistent across all outputs?

🚚 Outbound Logistics

Getting products/services to the customer.

Do we fulfill orders quickly and accurately?
Are delivery/shipping costs too high?
Do customers experience delays or miscommunications?
Can we track orders or deliveries easily?

📢 Marketing & Sales

How we attract and convert customers.

Do we clearly communicate what makes us different?
Are we targeting the right audience ?
Are salespeople trained and using consistent messaging?
Are we tracking which marketing channels actually work?

🛠️ Service

How we support customers after a sale.

Are customers satisfied and likely to refer others?
Do we track complaints, returns, or support costs?
Do we offer guarantees, warranties, or helpful documentation?
Are we asking for feedback and acting on it?

🧱 SUPPORT ACTIVITIES

⚙️ Firm Infrastructure

Leadership, finance, admin, and planning.

Do we have clear goals and a plan to reach them?
Do we review financial performance regularly?
Are systems (accounting, payroll, CRM) efficient?
Do we make decisions based on data, not guesswork?

👥 Human Resource Management

Hiring, training, managing your team.

Do we have the right people in the right roles?
Do staff understand their responsibilities and goals?
Are we training and developing staff regularly?
Do we reward high performance and handle issues early?

🤖 Technology Development

Using tools to improve operations or customer experience.

Are we using outdated or inefficient tools?
Do our systems integrate (POS, inventory, CRM, etc.)?
Are we collecting and using customer, production, logistics and financial data?
Do we review and upgrade tools regularly?

🛒 Procurement

How we source products, services, or materials.

Are we getting the best value (not just lowest cost)?
Do we have alternatives if a supplier fails?
Are supplier relationships collaborative or strained?
Do we bulk-buy or negotiate pricing where possible?