In a manufacturing process, companies take many different steps to make their products. These steps usually fall into three main activities: material activities, production activities, and sales activities. All three of these steps make up the value chain.
Material activities deal with raw materials. Companies purchase the raw materials and begin prepping them for the manufacturing processes. Production activities include all the steps of actually producing or manufacturing the products. This could include machining and testing products. Sales activities happen after all the products are fully manufactured. In other words, sales activities only deal with finished goods. These activities can include marketing and promotion activities.
In a nutshell :
- A value chain is a step-by-step business model for transforming a product or service from idea to reality.
- Value chains help increase a business's efficiency so the business can deliver the most value for the least possible cost.
- The end goal of a value chain is to create a competitive advantage for a company by increasing productivity while keeping costs reasonable.
- The value-chain theory analyzes a firm's five primary activities and four support activities.