The value of Porter consisting of primary and supported activities. The Porter value chain is discussed per part to provide more insight into which parts you can adjust for your organization. When you have determined a strategy , it is time to start implementing it.
Do I need the Porter value chain?
With the value chain of Porter (value chain) you devise a strategy that will be implemented with the chains of the organization. The Porter value chain provides insight into relevant activities to implement your strategy. With these insights you can get more competitive advantage to be one step ahead of the competition.
Which variables do I need?
- Research Development
- Process design
- Manage buildings and machines
- Financing and insurance
How can I apply the value chain?
Each chain of the value chain of Porter has its projects to improve the organization. You apply some parts of the chain, so that you can optimize it for your organization.
Research & Development
In this Porter value chain you can conduct research to increase your capacity. The research projects below are aimed at the food sector. A number of research projects are:
- Waste reduction: You research more efficient reuse of waste.
- Better control methods: You investigate problems caused by the use of incorrect raw materials. By more effectively checking these raw materials in advance, your downtime will decrease.
- Connection with automatic ordering system: You investigate how the costs of ordering can be reduced.
- Warehouse optimization: You investigate how the warehouse can be optimized with faster turnaround times, which reduces warehouse costs.
- Research energy suppliers: You research what the most favorable energy suppliers are.
- Suppliers: You determine who are the cheapest, most expensive or most reliable suppliers?
- Warehouse composition: You determine how large the storage should be for each raw material.
- Product composition: You investigate whether the recipe can be improved.
You always have the option to increase production, at the expense of quality.
In this value chain of Porter (value chain) you determine the purchase price and recommended price for your product (s). In addition, you also promote the product (s) in the Porter value chain. Some promotions may consist of the following components:
- Sample packs
- Money back
- Combination packaging
Outside the store
- TV commercial
- Social media
- Print media ads
- To hand out flyers
- Simple packaging
- Packaging with stand
- Packaging with a special appearance and recognition
You also do market research in this Porter value chain. You research your competitor’s price list and a quality survey to customize your products if needed.
Manage buildings and machines
When expanding your machine park, you should always check the expected extra returns (or less costs) compared to the investment. The Porter value chain includes the following components:
- Purchase machines
- Sell machines
Financing and insurance
What risks can you as an entrepreneur bear yourself and which risks should you insure? There are all potential disasters that could cost your company a capital. You determine an investment package in this Porter value chain. This consists of insurance for buildings, machines, etc. for the coming years. Keep in mind that solvency and liquidity are positive for taking out insurance. The following parts are part of a debtor policy or an insurance policy:
- Use of factoring
- Use of accounts receivable
- Administrative organisation
- Customers in the customer relationship segment: direct payment, 30 days, 60 days or 90 days
- Customers in the price segment: the same term
- Customers in the quality segment: the same term
- Buildings: Pays out in case of damage to buildings
- Liability: pays out in case of damage due to liability
- Environment: reimburse the costs of cleaning up environmental damage
- Credit insurance: protects you against bankruptcy, non-tax or moratorium.
The balance sheet gives an indication of a company’s assets. The assets represent the assets and the liabilities represent the debts of the organization. The items below belong to a balance sheet account.
- Buildings: The book value of buildings (book value minus annual depreciation) and the later extensions of the warehouse
- Stock of finished product
- Stock of raw materials
- Debtors: a customer who still has to pay, also known as a debtor
- Bank balance
- Shareholders’ equity: the company’s assets. So not only the share capital, but also all reserves.
- Loans: (long-term capital)
- Creditors: Parties where you still have outstanding accounts
- VPB to be paid: (corporate income tax)
- Bank debts (short-term capital)
The income statement (also known as profit and loss account) is part of the financial statements and explains the change in equity. The items below are part of a profit and loss account of Porter’s value chain.
- Net turnover
- Movement in stock of finished product / work in progress Sum of operating income
- Costs of raw materials / consumables
- Costs of outsourced work / external costs
- Wages / salaries
- Social Security
- Other operating expenses Operating result
- Interest costs
- Interest income Financial income and expenses
- Result from ordinary activities before tax
- Taxes on profits
- Extraordinary result before tax Net profit
Cash flow statement
cashflow from operational activities
- Adjustment depreciation
- Adjusting changes in debtors
- Adjustment of changes in stock of raw materials
- Adjustments to changes in creditors Cash flow from business operations
- Interest received
- Dividend received
- Interest paid
- Tax paid Cash flow from operating activities
Cash flow from investing activities
- Investments in fixed assets
- Fixed asset disposals
Cash flow from financing activities
- Receipt from current debts
- Repayment of long-term debts
- Movement in short-term debts
- Dividend paid Cash flow from financing activities
Net cash flowNet cash flow
What can I get out of it?
You can adjust every part of the Porter value chain for your organization. You view the components on a strategic level (in the longer term), because you cannot apply a change every year. So you remain consistent with your decisions. The parts of this value chain model can be used to gain more insight into your business processes.