Value Chain Analysis: Business Activities

• The value chain concept, introduced by Michael Porter, encompasses all operational activities of a business.
• It is often studied alongside the supply chain.
• Unlike the supply chain (focuses on procurement), the value chain examines value added at each step to create a profitable product.
• The goal is to convert inputs into outputs with greater value.

Value-Chain Business Activities

• Primary activities are directly involved in creating a good or service.
• Secondary activities enhance the efficiency of the primary activities and strengthen competitive advantage.

Measuring Value Creation

• Gross profit margin (gross revenue minus cost of goods sold, divided by gross revenue) indicates value creation from product components.
• Operating margin helps to analyze the value created from indirect business activities like administration, research, and marketing.
• Profit margin is less important to value chain analysis as it focuses on capital expenditures, taxes, and investment activities.
• Higher gross and operating margins indicate more value generated for a company's bottom line.

Starbucks and Value Chain Analysis

• Starbucks started with a single store in Seattle in 1971 and grew into a globally recognized brand,.
• Starbucks' mission is "to inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time".
• Value chain analysis can be broken down into primary and supporting activities.

Starbucks' Inbound Logistics

• Starbucks' coffee buyers select high-quality coffee beans from Latin America, Africa, and Asia.
• Green, unroasted beans are procured directly from farms, transported to storage, then roasted and packaged.
• Starbucks adds value through proprietary roasting and packaging, increasing the beans' selling value.
• The beans are sent to company-owned or third-party operated distribution centers.
• Procurement is not outsourced to maintain high-quality standards.

Starbucks' Operations

• Starbucks operates in over 84 markets through company-owned or licensed stores (not traditional franchises).
• The company has over 36,000 stores globally and owns brands like Teavana and Evolution Fresh.
• In 2022, company-operated stores generated 51% of revenue, while licensed stores accounted for 49%.
• Products are primarily sold in stores with minimal intermediaries.

Starbucks' Marketing and Sales

• Starbucks prioritizes quality products and customer service over aggressive marketing.
• Need-based marketing, such as sampling, occurs during new product launches.
• Howard Schulz, who bought Starbucks in 1987, drove its expansion.

Starbucks' Service

• Starbucks aims to build customer loyalty through in-store customer service, providing a unique "Starbucks Experience".
• Service training is crucial to making the offerings unique.
• Making drinks for customers creates substantial value.

Starbucks' Firm Infrastructure

• Departments like management, finance, and legal are essential for store operations.
• Store managers oversee well-designed stores and customer service.
• A committed workforce is key to the company's success, motivated by benefits and incentives.
• Low employee turnover is attributed to good human resource management and training programs.

Starbucks' Technology

• Starbucks is known for using technology in coffee-related processes for consistency and cost savings, as well as for customer engagement.
• Free Wi-Fi encourages customers to use stores as offices or meeting places.
• Platforms allow customers to provide feedback and suggestions, particularly for the rewards program.
• Apple's iBeacon system lets customers order via the Starbucks app and receive notifications when their drink is ready.

Starbucks' Procurement

• Starbucks manages its own coffee bean procurement, considering it a competitive advantage.
• The value chain of a coffee shop involves cultivation, processing, roasting, and consumption.

Starbucks' Core Competencies

• Ability to expand globally
• Care for employees
• Focus on quality
• Continuous product development
• Excellent customer service

Starbucks' Values

• Promises to partners, customers, farmers, community, shareholders, and the environment.

Benefits of Value Chain Analysis

• Helps business managers identify useful and wasteful activities.
• Integrates value chain analysis into business metrics.
• Provides insights related to operational processes and potential value improvement opportunities, improving margin efficiencies.

Explore Michael Porter's value chain concept, differentiating it from the supply chain. Understand how primary and secondary activities contribute to value creation. Learn to measure value creation through gross profit margin and operating margin.