Value Chain

Every product moves through a “chain” of activities from resource extraction to production and distribution, while in the process gaining value at each step. Value and cost, in this concept, are not the same: the cost of a step in the chain may be relatively low (as in pumping crude oil out of the ground), but it adds greatly to the value of the good. Conversely, a cost may be relatively high (as in transporting gasoline to the various gas stations), but the value added is very low.

The initial concept of the “value chain” was introduced by Harvard business professor Michael Porter in his 1985 book Competitive Advantage: Creating and Sustaining Superior Performance, and further developed in subsequent work. Competitive advantage represents a company's ability ...