e

c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Chapter-2
The Value Chain

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Value Chains
The production of goods and services is the result of the
efforts of many organisations a complex web of
contracts and co-operation known as the supply chain
or the value system.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Supply Chain

Sub-assembly
supply
Component
supply

(e.g. engine,
gearbox, etc.)

manufacture

wholesale
(e.g. import
agent)

(e.g. wheels,
seats, etc.)

Fig: Manufacturing Value Chain

retail
(e.g. local
main dealer)

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Supply Chain (cont)

Manufacturing Inputs:
Components (e.g. wheels, seats, etc.)
Sub-assemblies (e.g. engine, gearbox, etc.)
Sales and Distribution:
Wholesale (e.g. import agent)
Retail (e.g. local main dealer)
The products sold in shops and purchased for use in organisations are
the result of a complex web of relationships between manufacturers,
component suppliers, wholesalers, retailers and the logistic infrastructure
that links them together.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Supply Chain (cont)

The web of trade relationships is referred to as the supply chain or
the value chain.
Each trade exchange in the supply chain is a transaction that adds
cost without adding intrinsic value.
E-commerce is the application of information and communication
technology to the value chain to enable the accomplishment of a
business goal.
The business goal can be to reduce costs, improve service or to tap
into a new market.

e
c
o
m
m
e
r
c
e

Porters Value Chain Model

support activities

Firm Infrastructure

Human Resource Management

Technology Development
Procurement
Inbound Operations Outbound Marketing
Logistics
Logistics
& Sales

Margin

Service

electronic
commerce

strategy
technologies
and
applications

primary activities

Fig: Porters Generic Value Chain

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

Porters model was essentially concerned with the initial activities of the
company.
The three (basic) primary activities of a product processes are:
Inbound Logistics:
Handling goods that are bought into the company, storing them
and making them available to operations as required.
Operations:
The production processes, in many cases a series of sub-activities
that can be represented on a detailed value chain analysis.
Outbound Logistics:
Taking the products of the company, storing them if necessary and
distributing them to the consumer in a timely manner.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

To these basic primary activities Porter adds two further
primary activities:
Marketing and Sales:
Finding out the requirements of potential customers and
letting them know of the products and services that can be
offered.
Service:
Any requirement for installation or advice before delivery and
the after-sales service once the transaction is completed.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

To support these primary functions, there will be a company infrastructure
that performs a number of support activities:
Procurement:
The function of finding suppliers of the materials required as inputs to the
operations of the organisation.
Procurement is responsible for negotiating quality supplies at an acceptable
price and with reliable delivery.
Technology Development:
The organisation needs to update its production processes, train staff and to
manage innovation to ensure that its products and its overall range of goods
and services remain competitive.
Human Resource Management:
The recruitment, training and personnel management of the people who
work for the organisation.
Firm Infrastructure:
The overall management of the company including planning and
accountancy.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

Outbound
Logistics

Inbound Operations Outbound

Logistics
Logistics

Fig: Value Chain Linkages

Inbound
Logistics

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

The efficiency of the linkages may be enhanced by the use of
information and communication technologies(ICTs).
Internal

linkages

can

be

coordinated

using

e-commerce

technologies.
The internal systems need to interface with suppliers and customers.
The production planning and control process can inform the inbound
logistics system of the quantity of components/stock requirements.
The marketing and sales system can be interfaced with production
and outbound logistics to improve the quality of service delivery.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Porters Value Chain Model (cont)

ICTs can also be used in other value chain activities; possible
applications are:
Human Resource Management using electronic media to advertise
vacancies in the organization.
Procurement using online searches to identify appropriate sources
of supply.
Marketing using online advertising or portable sales terminals.
Servicing providing online assistance and/ or fault diagnosis.

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain

Supplier
Value
Chains

Firm
Value
Chains

Channel
Value
Chains

Buyers
Value
Chains

Fig: Porters Value System (Single Firm)

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain (cont)

The overall competitive advantage of an organization is not just
dependent on the quality and efficiency of the company and the
quality of its products but also upon that of its suppliers and of ay
wholesalers and retails it may use.
The analysis of the overall supply chain is called the value chain.
The term introduced by the Porter (1985) in the book Competitive
Advantage: Creating and Sustaining Superior Performance.
Value chains differ considerably across trade sectors and between
different organization within a trade sectors.

e
c
o
m
m
e
r
c
e

Inter Organisational Value Chain (cont)

Internal
Supplies

Component

Suppliers

Vehicle
Assembler

Dealer
Network

Consumer

electronic
commerce

strategy
technologies
and
applications

Fig: Value System for Automobile Assembly

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain (cont)

Automotive Assembly Value System
Inbound Logistics:
Large number of suppliers
Vast number of components
Process:
Just-in-time (JIT) manufacture
Outbound Logistics:
Limited number of Main Dealers

e
c
o
m
m
e
r
c
e

Inter Organisational Value Chain (cont)

Regional
Whse

Food
Processors

Supermarket

Consumer

electronic
commerce

strategy
technologies
and
applications

Fig: Value System of the Supermarkets

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain (cont)

Food Supermarkets Value System
Inbound Logistics:
Large number of suppliers
Vast number of products
Process:
Retail
Outbound Logistics:
Vast number of Consumers

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain (cont)

Agents

Insurance
Company

Consumer

Insurance
Broker

Fig: Value System for Insurance

e
c
o
m
m
e
r
c
e

electronic
commerce

strategy
technologies
and
applications

Inter Organisational Value Chain (cont)

Insurance Value System
Inbound Logistics:
No significant suppliers (financial / re-insurance partners)
Process:
Administrative
Outbound Logistics:
Sales through agents
Sales through brokers
Direct sales