The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, compo-nents,andpurchasedservices)tothecompany’svalue chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased in-put to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and chan-nels.Acompanycancreatecompetitiveadvantageby optimizing or coordinating these links to the outside. Forexample,acandymanufacturermaysaveprocess-ing steps by persuading its suppliers to deliver choco-late in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through co-ordinating with suppliers and channels go far beyond logistics and order processing. The company, suppli-ers, and channels can all benefit through better rec-ognition and exploitation of such linkages.
Competitiveadvantageineithercostordifferentia-tion is a function of a company’s value chain. A com-pany’s cost position reflects the collective cost of per-forming all its value activities relative to rivals. Each value activity has cost drivers that determine the po-tential sources of a cost advantage. Similarly, a com-pany’sabilitytodifferentiateitselfreflectsthecontri-bution of each value activity toward fulfillment of
The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, compo-nents,andpurchasedservices)tothecompany’svalue chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased in-put to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and chan-nels.Acompanycancreatecompetitiveadvantageby optimizing or coordinating these links to the outside. Forexample,acandymanufacturermaysaveprocess-ing steps by persuading its suppliers to deliver choco-late in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through co-ordinating with suppliers and channels go far beyond logistics and order processing. The company, suppli-ers, and channels can all benefit through better rec-ognition and exploitation of such linkages.
Competitiveadvantageineithercostordifferentia-tion is a function of a company’s value chain. A com-pany’s cost position reflects the collective cost of per-forming all its value activities relative to rivals. Each value activity has cost drivers that determine the po-tential sources of a cost advantage. Similarly, a com-pany’sabilitytodifferentiateitselfreflectsthecontri-bution of each value activity toward fulfillment of
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