Marketing and sales are examples of a support activities in the value chain of an organization.

1. Career Development
2. Primary Activities in the Value Chain (With Examples)

By Indeed Editorial Team

Published May 5, 2022

Most businesses aim to create something of value and offer it for profit to a customer. The value chain is a conceptual framework that examines a company's systems to see how well it creates value for a consumer. If you're looking to streamline your business operations and increase profits, you may be interested in learning how to perform a value chain analysis. In this article, we outline the primary activities in the value chain, review its support activities, and discuss how each of these activities helps a company provide value to the consumer.

What are the primary activities in the value chain?

The primary activities in the value chain are those by which the company adds value to a product or service throughout its creation. A value chain maps the journey a product takes through different systems on its way to a consumer. The potential value of a product to the final consumer increases as it undergoes the various stages. The following are the five primary activities:

Inbound logistics

Inbound logistics refers to all the activities associated with receiving, storing, and distributing inputs such as raw materials. This can include interacting with suppliers, ordering and receiving materials, the storage of these materials internally, and taking inventory of equipment.

For example, inbound logistics for a pizzeria may involve receiving shipments of fresh ingredients, storing them in refrigerators, and paying supplier invoices. In an industry like this one where inputs are perishable, it's important to ensure the logistical processes are operating seamlessly. Consider whether strategies such as combining shipments can help the company save on transport costs.

Related: What Is Warehouse Logistics and Why Should You Use It?

Operations

You can think of the operations stage of the value chain as transforming the inputs the company gathered in the first step into outputs that are ready to offer to customers. Operations refer to adding value by changing inputs into a finished product. This phase is synonymous with production in industries that manufacture physical goods, but you can also apply the operations category to service-based businesses.

For example, the pizzeria's operations phase includes washing and chopping ingredients and assembling and baking pizzas. A gourmet tea shop selling custom blends of teas may order loose-leaf tea and dried herbs in bulk during the inbound logistics stage. They can also create and package custom blends of these ingredients to sell as proprietary items to retail customers in the operations phase.

Related: How to Become a Supply Chain Manager

Outbound logistics

Outbound logistics is transferring finished goods to the final user. In this step, the company transition from the production stage to the distribution stage. This can include storage of finished goods in a warehouse, loading products onto transport trucks, or distributing them to retail stores. This step usually occurs after the production phase.

For example, the pizzeria may offer home delivery of pizza orders, and they may also distribute their pizzas in frozen form to a supermarket for retail sale. This means both are examples of outbound logistics. A carefully planned and well-executed outbound logistics process can help reduce the chances of product spoilage and loss of profits in industries that involve perishable products.

Related: What Is a Logistician? (With Job Requirements and Salary)

Sales and marketing

The category of sales and marketing includes the supporting activities the company performs to inform potential customers about their product, attract them to make a purchase, or encourage them to find out more. These activities are separate from production but necessary to ensure that the goods reach their intended market. The company may consider different approaches for their marketing to reach their target audience while not incurring additional costs.

For example, the pizzeria may distribute copies of their menu with promotional offers in mailboxes in the neighbourhood and maintain a presence on social media platforms as part of their marketing activities. They may create a mascot or a custom jingle for the company to boost brand recognition. They may also purchase advertising spots on local television and radio stations, newspapers, or billboards to promote the restaurant.

Service

The service stage of the value chain describes any activity the company's employees engage in and isn't part of the production, distribution, or marketing phases. These are activities with which the company supports or assists its customers after the completion of a sale. This can include providing installation services and offering warranties, repairs, exchanges, or refunds. In the service phase, the company usually focuses on maintaining the created value of its product for the customer.

For example, the pizzeria may offer a replacement pizza for free to an unsatisfied customer. They can also offer a voucher for a discount on the next purchase if a customer receives their pizza delivery late. These steps are outside of the production and distribution stages but may help maintain good customer relationships, encourage company loyalty, and enhance the restaurant's reputation.

Support activities in the value chain

Support activities, also called secondary activities in the value chain, are outside of the primary functions listed above but may occur in parallel to support them. You can often associate the support activities with a corresponding primary one, but they sometimes apply to more than one category. The following are the four support activities:

Procurement or purchasing

Procurement relates most closely to the inbound logistics stage, as it describes the operation of acquiring raw materials or inputs for the company. This also includes building relationships with suppliers, negotiating prices for purchases of materials, placing orders for goods or tools, and paying vendor invoices.

For example, the pizzeria may include sourcing company-branded cardboard boxes, or negotiating bulk order deals with a local cheese-making shop. Refining the procurement process can help the company reduce costs by negotiating better deals with suppliers, or finding alternatives for inputs that fluctuate often in price.

Related: 10 Careers in Logistics (With Salaries and Primary Duties)

Infrastructure

Infrastructure refers to the framework governing all company operations and provides the backbone supporting all the primary activities. This is an essential organizational structure that executives implement to allow the company to operate and carry out its activities. Examples of infrastructure can include IT, administration, public relations, or quality assurance departments.

For example, the pizzeria may have a simpler infrastructure than a pharmaceutical company, but it still requires functioning systems in place to pay employees, perform company bookkeeping, and provide customer service. The infrastructure of a larger business can also include legal, accounting, and human resources departments.

Technological development

This refers to all the technology the company may use and implement to execute the operation of converting their inputs into finished goods. It may include computer systems, telecommunications, equipment, software, and technical knowledge. Technological development relates most closely to the operations phase of the value chain where the company transforms inputs into finished goods.

For example, the pizza restaurant may use a point of sales (POS) system to monitor inventory and process credit card sales. They can also use accounting software to do bookkeeping and digital screens to present the menu in the dining room. These are all examples of technological development used to streamline operational processes.

HR management

This section describes all the activities related to hiring employees and distributing labour tasks to keep the company operating and producing goods. This can include hiring and firing staff, payroll administration, or training new employees. Human resources management is most relevant in the operations phase of the value chain.

For example, in the pizza restaurant, HR management can include standard payroll activities, ensuring that employees have the proper food safety and service certifications and offering this training and certification in-house. These activities don't relate directly to the production of pizzas, but are necessary to ensure the seamless operation of the business.

The usefulness of value chain analysis

Any company can examine its own value chain to get a better understanding of the relationship between the initial cost of creating goods or services and their final value. Although this can be particularly relevant for manufacturing businesses that produce goods. You can use the value chain framework to identify areas where it may be possible to reduce expenses at each stage of the product journey and help increase profit margins.

Once you identify the particular goals, you can examine the company's value chain while considering that goal. For example, a company in a highly competitive industry may want to differentiate itself from competitors with similar products. Here, you can apply what you learned about the product journey through value chain analysis to identify opportunities to improve the company's product. Likewise, if your primary goal is to reduce expenses, you can use the conclusions of your analysis to help you eliminate unnecessary costs in the primary stages of the company's value chain.

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