Unit 3 - Value Chain Design

Value Chain Definition

A set of activities an organization carries out to create extra gains for customers; an end-to-end flow of unique add-ons.

SIPOC Acronym

Supplier-Input-Process-Output-Customer; a high-level process mapping tool.

Porter's Value Chain Purpose

Breaks down organizational activities to visualize cost drivers, differentiation sources, and make strategic changes.

Primary Activities (Porter)

Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales, Service.

Support Activities (Porter)

Firm Infrastructure, Human Resource Management, Technology Development, Procurement.

Red Ocean Strategy

Focuses on competing in existing markets, beating competition, exploiting existing demand.

Blue Ocean Strategy

Creates uncontested markets, makes competition irrelevant, creates new demand.

Value Chain Margin Formula

Value Created and Captured – Cost of Creating that Value = Margin.

Direct Activities (Porter)

Create value directly (e.g., manufacturing processes like drilling, packaging).

Indirect Activities (Porter)

Support direct activities (e.g., machine maintenance, inventory monitoring).

Quality Assurance (Porter)

Ensures direct/indirect activities meet standards (e.g., product testing).

Blue Ocean Shift

Focuses on increasing buyer value while reducing relative cost.

SIPOC Example

Coffee-making process: Suppliers (beans), Inputs (water), Process (brewing), Output (coffee), Customer (drinker).

Value Chain Network

Interconnected chains: Supplier → Organization → Distributor → Buyer.

Red vs Blue Ocean Table

Red (compete existing) vs Blue (create new) markets across 5 strategy dimensions.