Michael E. Porter - Term-Value Chain-In

Michael E. Porter illustrated the term-value chain-in his book Competitive Advantage in 1985 as the steps that needed to produce a product or deliver a service from start to finish. When it comes to manufacturing, a successful business value chain can be broken down to 5 major components (Accenture, 2013):

• Inbound Logistics: In manufacturing, different raw materials are needed to produce products. Warehouse are needed to store the products, and transporting systems of getting the materials to the warehouse and to the manufacturing place must be running well.
• Operations: This is the process of taking those raw materials and manufacturing them into a product.
• Outbound Logistics: This is the process of storing and distributing the finished products for sale in time.
• Marketing & Sales: Potential customers need to know the existence of a product before they are interested in buying it. Companies pay to market and advertise their product – in order to increase sales. Anything from traditional advertising to in-store displays to social media marketing falls into this category. Companies sell their products via either an in-house sales team which sell products directly to customers or via third-party stores. Marketing also involves market research and customer analysis.
• After-Sales Service: Companies provide service in case of the need of product repairing and return. Ideally, the better the product is manufactured, the less time and money needs to be spent on service.

Apart from the five major components, there are four supporting components as well:

• Company Infrastructure: This includes company buildings, factories, manufacturing equipment, etc.
• Human Resources: This includes resource management, employee training as well as health insurance, etc.
• Technology Development: This includes inter-system maintenance and tech support.
• Procurement: This includes purchase, payment and other financial issues.

In order to expand profit margin, company need to optimize the manufacturing value chain. There are many ways to achieve that. For example, integrating different manufacturing components to provided more value or focusing on core products, a company may centralize value chain or outsource supporting activities to save cost. Both solutions require technology innovation, and this is when industry 4.0 comes into play.

Industry 4.0 is currently transforming the manufacturing industry to one encompasses products manufactured using new technology, products connected with value chain, and new business model based on information innovation. Innovative technological solutions can reduce costs and add value at each stage of a product’s life-cycle, both within each stage of the value chain and across its entirety. Employing less fixed assets and more virtual assets in manufacturing is where the future leads towards. The impact of virtualization on traditional manufacturing model will require defragmentation of value chains, data-driven decision making and new forms of cooperation. A fully integrated value chain based on virtual integration will be the norms after this industrial revolution.

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