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This study examined innovation in the value chain of Ethiopian leather industries. It furthermore addressed the multifaceted challenges and barriers for knowledge management (knowledge acquiring, knowledge conversion and knowledge diffusion) across the value chain of Ethiopian leather industries. The Ethiopian leather sector is a priority sector which has a lack of human power in both pre-slaughter and post-slaughter techniques or process which affects the whole value chains of the leather industries Among others, porter's VC model which focused on primary and supportive activities for material flow. The researcher used both primary and secondary data and analyzed using SPSS software. The major findings were the selected evaluation factors, KA (knowledge acquiring evaluation factors), KC (knowledge conversion factors) and KD (knowledge diffusion factors) are confirmed to proposedinnovation value chain structural model which recommended for Ethiopian leather industries. Finally, it can also use for other industries with same adjustment.