Describe the value chain and explain how a company might use value chain analysis to support decisions about outsourcing.

Question

What will be an ideal response?

Answer 1

The "value chain" refers to the structure of primary and support activities (e.g. purchasing, human resource management, operations, marketing, sales, distribution, etc.) that companies use to implement their business strategies. Firms can use value chain analysis to determine which activities contribute the most to creating value for customers, as well as to evaluate the costs incurred to complete each value creation activity.

Companies can use benchmarking to compare how they implement value creating activities with other high-performing firms and make improvements based on those comparisons. Sometimes firms are able to identify serious inefficiencies in how they complete one or more value chain activities. When these inefficiencies come to light, firms can either take action to improve efficiency or decide to outsource those inefficient activities to companies that can perform them in more cost effective ways. This use of outsourcing allows a firm to focus on the activities that are its strengths and benefit from the specialized activities of other firms.