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Pull supply chain

An emphasis on using the 

supply chain to deliver 

value to customers who 

are actively involved 

in product and service 

specification.

The value chain

Focus on

Michael Porter’s 

value chain (VC)

 is a  well‑  established concept for considering key activities 

that an organisation can perform or manage with the intention of adding value for the cus‑

tomer as products and services move from conception to delivery to the customer (Porter, 

1980). The value chain is a model that describes different  value‑  adding activities that connect 

a company’s supply side with its demand side. We can identify an internal value chain within 

the boundaries of an organisation and an external value chain where activities are performed 

by partners. By analysing the different parts of the value chain managers can redesign inter‑

nal and external processes to improve their efficiency and effectiveness. Benefits for the cus‑

tomer are created by reducing cost and adding value:

● 

within each element of the value chain such as procurement, manufacture, sales and 

distribution;

● 

at the interface between elements of the value chain such as between sales and 

distribution.

In equation form this is:

Value = (Benefit of each VC activity − Its cost) + (Benefit of each interface between VC 

activities − Its cost)

Electronic communications can be used to enhance the value chain by making activities such 

as procurement more efficient (see Chapter 7) and also enabling data integration between 

activities. According to IBF (2008), BT’s implementation of e‑procurement enabled 95% 

online purchasing of all its  office‑  related supplies in the secondary value chain. This reduced 

the average purchasing transaction cost from £56 to £40, which is significant across hun‑

dreds of thousands of purchases. In the primary value chain, benefits can be even greater; for 

example, if a retailer shares information electronically with a supplier about demand for its 

products, this can enhance the value chain of both parties since the cycle time for ordering 

can be reduced, resulting in lower inventory holding and hence lower costs for both. Case 

study 6.1 illustrates this point.

Traditional value chain analysis (Figure 6.8(a)) distinguishes between primary activities 

that contribute directly to getting goods and services to the customer and support activities 

which provide the inputs and infrastructure that allow the primary activities to take place. 

It can be argued that, with the advent of digital business, the support activities offer much 

more than support; indeed, having effective information systems and management of human 

resources contributes critically to the primary activities. Michael Porter now acknowledges 

that this is the case.

Internet technologies can reduce production times and costs by increasing the flow of 

information as a way to integrate different value chain activities. Rayport and Sviokla (1996) 

contend that the Internet enables value to be created by gathering, organising, selecting, syn‑

thesising and distributing information. They refer to a separate parallel virtual value chain