A company's value chain allows it to create a competitive advantage over its competitors. A strong value chain management team helps a company create high value and a strong competitive advantage in any or all of the value chain's five steps.
The value chain is made up of five interrelated activities that allow a company to create value that exceeds the cost of providing its good or service. A strong value chain management team maximizes the value of each one of the five interrelated activities: inbound logistics, operations, outbound logistics, marketing, and sales and service.
Inbound logistics include the receiving, warehousing and inventory control of raw input materials. Operations include the value-adding activities that turn inputs into a final product. Outbound logistics include activities required to get the finished product to a customer. Marketing and sales are the activities associated with getting a potential buyer to purchase a product, including channel selection, advertising and pricing. Service includes activities that maintain and enhance a product's value, such as customer service.
Any or all of these five areas are vital for a company to create a competitive advantage. To improve a company's value chain, its value chain management team identifies each part of its production process and where improvements can be made. These improvements can either reduce costs or improve production capacity. The additional value creation results in a company's customers deriving the most benefit from the company's product or service for the lowest cost.