All five primary activities are essential in adding value and creating a competitive advantage. The first activity in the value chain is inbound logistics, which includes all receiving, warehousing and inventory management of raw materials ready for production. The second activity is operations and encompasses all efforts needed to convert raw materials into a finished product or service.
Outbound logistics is the third activity in the value chain and occurs after all operations are completed and the end product is ready for the customer. Activities required to deliver a product to the end user are considered part of outbound logistics. Marketing and sales are the fourth part of the value chain and include all strategies used to get potential customers to purchase a product, such as channel selection, advertising and pricing.
Service is the fifth and final step in a company’s value chain and describes all activities that create better consumer experiences, such as customer service and repair services. Companies can harness a competitive advantage at any one of the five activities in the value
chain. Creating outbound logistics that are highly efficient, for example, cuts down on a company’s shipping costs and allows it to either realize more profits or pass the savings through to the consumer, lowering the price point.
Support Activities of the Value Chain
Support activities facilitate the efficiency of the primary activities in a value chain. The four support activities are procurement, technological development, human resource management and company infrastructure. Increasing the efficiency of any of the four
support activities increases the benefit to at least one of the five primary activities. These support activities are normally denoted as overhead costs on a company’s income statement.