VALUE CHAIN

A value chain is the ongoing process by which the products pass through a chain of activities in order, and at each activity the product gains some value.

The whole idea behind the value chain is to finally deliver maximum value for the least possible total cost and create a competitive advantage, where the products finally are gained more added value than the sum of added values of all activities.

The typical illustration of value chain process is the activity of a diamond cutter by which the act of cutting may have a low cost, while adding much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond.

While the value chain always properly operates at the business unit rather than corporate level, the activities related to product and service enhancement have been conventionally categorized as two major areas of:

• Physical value chain: a physical and tangible activity performed in order to enhance a product or service. Such activities evolved over time by the experience people gained from their business conduct.
• Virtual value chain: facilitated by information technology infrastructures, all activities of traditional and physical value chain process are supported to enhance the added value process at higher quality and standard.

In practice, however, those organizations that utilize both extents of above value chains would only be able to leverage the markets, enabling further improvement or developing new product or service. The fusion of employing two value chains is so called Combined Value Chain.