 The value chain is a series of activities that add value to a product or service. It includes all activities from the inception of the product idea through the after sales customer support. The activities are broadly classified as follows. Research and development, design, production for manufacturers or purchases for merchandisers, marketing, distribution and customer service. Let's look at each one in more detail. Research and development, which is often referred to as R&D, are the costs associated with researching and developing new or improved products or services and or the process of producing them. This is often a conceptual stage. So costs associated with this activity are classified here. Design, which falls between R&D and production activities, is the process of taking a conceptual design or product created by the R&D engineers and trying to figure out a way to mass produce it at a price consumers would be willing to pay. This is an important step. It's the reason that we aren't all driving hydrogen cars today. R&D knows how to build them, but design hasn't figured out a way to mass produce them at a price that consumers would be willing to pay. So costs associated with this activity are classified here. Production is the activity where resources are used to produce a product or service intended for sale. Once design can create a manufacturing process that laborers can perform, then the goods can be mass produced. This is the purchase activity for merchandisers where finished merchandise is purchased with the intent to resell. Any costs associated with this activity are classified here. Marketing is the promotion and advertising of products or services. The goal of marketing is to create consumer demand for products and services. So any costs associated with this activity are classified here. Distribution is the process of delivering products to consumers. For some companies, this is an expensive and large portion of their value chain. Think about Walmart and distributing goods to more than 11,000 stores worldwide. That is a massive distribution channel, but a small law firm would likely just use the post office and have a very small distribution costs. So costs associated with this activity are classified here. Customer service is the support provided for customers after the sale. This is not to be confused with the marketing activity. Some students get these two confused. Customer service or support is after the sale where marketing is getting the sale. And costs associated with this activity are classified here. So much of what we will do in managerial accounting will focus on the production activity of the value chain. We will use the value chain as we learn some new terms in future video podcasts.