It has been said that Sourcing is a Support not a Primary Activity

© Frank Haluch 2011-2025

According to Investopedia’s article “What are the Primary Activities of Michael Porter’s Value Chain”* the Primary Activities are Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Services.

“The goal of the five sets of activities is to create value that exceeds the cost of conducting that activity, therefore generating a higher profit.”

Secondary services include Procurement, Human Resources, Infrastructure (Accounting, Legal, and Administrative Functions) and Technological Development (innovation).

*https://www.investopedia.com/ask/answers/050115/what-are-primary-activities-michael-porters-value-chain.asp

For years management consultants have used value chain analysis to reorganize and refocus major corporations around the world.

However, a different set of lenses, ones less influenced by marketing and sales, uncovers real opportunity available to companies today!

Fact 1:

The Variable Cost Data from the latest U.S. Census Bureau, Annual Survey of Manufactures for NAICS 31-33 Manufacturing: Direct Material: 58.15%, Direct Labor: 8.22% and Variable Overhead: 33.63% and Operating income 7.15%

Fact 2:

Therefore, every 1% reduction in direct material generates 7.15% increase in operating income.  These numbers are based on all industries that the USA Government requires to report data.

Fact 3:

The math shows a $500,000 direct material saving, generated through sourcing, equals the same operating income as $6,993,000 ($500,000/0.0715 = 6,993,006.90) in sales.  Even better, that $500,000 direct material savings increases the bottom-line impact of sales going forward!

Based on the fact above it seems to me that Sourcing falls into the Primary Activity area.  Your thoughts?

Sourcing is for Convergent Thinkers!