Risk and Insurance Management Society (RIMS) Certified Risk Management Professional (CRMP) Practice Exam

Which model, developed by Michael Porter, describes how businesses convert raw materials into finished products?

1. Supply chain

2. Value stream

3. Value chain

4. Product lifecycle

The correct answer is: Value chain

The model developed by Michael Porter that describes how businesses convert raw materials into finished products is known as the value chain. This concept emphasizes the various activities that organizations engage in to deliver valuable products or services to the market. It breaks down the processes into specific steps, such as inbound logistics, operations, outbound logistics, marketing and sales, and service, thereby illustrating how each step adds value to the product and enhances competitiveness. By analyzing the value chain, businesses can identify efficiencies, optimize processes, and reduce costs while improving customer satisfaction, which ultimately contributes to a strong market position. This framework is essential for understanding both how value is created within an organization and how it can be maximized throughout the production process. The other options, while related to business processes, do not accurately represent the specific model created by Porter. Supply chain refers broadly to the network of entities involved in producing, delivering, and consuming products but does not focus solely on value addition. Value stream typically relates to lean management principles and emphasizes waste elimination rather than the comprehensive process of value creation from raw materials to finished products. The product lifecycle describes the various stages that a product goes through from development to decline, but it is not a model for analyzing internal processes related to value creation.