The Role Of Value Chain Model

2183 words - 9 pages

2 From value chains to value networks and inter firm relationship
2.1 The evolution of the concepts of value chain
Porter´s value chain model shaped our way of understanding and analyzing industries for the past 30 years. It explores the links between the activities to be undertaken in order to commercialize a product in the market and how these activities add value to the final delivery (Peppard and Rylander, 2006). It focus on the value creation processes within the firms, not on the inter firms links in the value chain (Kothandaraman and Wilson, 2001) and how the different links influence the competitiveness of the industries (Peppard and Rylander, 2006).
Therefore, this model assumes that the value is created within one single main firm with a clear hierarchy, or expanded through the interaction of this main firm with other firms with a defining coordination. This main firm performs or coordinates the activities throughout the productive process - from raw materials to the final product. The main firm suppliers are included in the model, as they also perform tasks needed in the production process. Nevertheless, the buyer-supplier interactions are analyzed and performed taking into account market relations mainly based in price and therefore, follow a more competitive than collaborative model (Kothandaraman and Wilson, 2001).
The value creation in this model is considered linear, which means that every firm has a clear position in the value chain and provides the inputs for the next part of the production process, until reaching the customer in the market. The value is added in every new part of the process and measured in each output delivered to the next buyer in the chain.
The buyer´s choice of suppliers is based predominantly on financial aspects. Generally, the decision to buy or outsource part of the production or to do it in house is made taking into account the costs involved in the transaction and the competition in the suppliers market (Hoyt and Huq, 2000). Therefore, the suppliers in this type of value chain can be replaced at any time, as they do not have strong bonds with the buying firm and provided that another company could perform the same task for a lower price.
In this scenario, competition is examined between firms and their outcomes of the productive process and enhance competitiveness has to do with finding the flaws in the value chain in comparison to the competitor and try to fix them, also by changing suppliers. As Peppard and Rylander (2006) state: "Strategy becomes primarily from the art of positioning the firm in the right place in the value chain." What matters in this model is the role of each firm individually and the relation between firms is not meant to be long lasting nor considered to be a source of competitive advantage. This relationships are meant to last only until the point where they are beneficial to the main firm, financially wise.
With the increasing complexity of markets and products the model...

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