Value chain

What is the difference between value chain and supply chain?

Value Chain vs Supply Chain: An Overview

The term value chain refers to the process by which companies receive raw materials, add value to them through production, manufacturing and other processes to create a finished product, and then sell the finished product to consumers. A supply chain represents the steps required to get the product or service to the customer, often dealing with OEM and aftermarket parts.

While a supply chain involves all parts to fulfill a customer demand and lead to customer satisfaction, a value chain is a set of interrelated activities that a company uses to create a competitive advantage.

Key points to remember

  • The value chain is a process in which a company adds value to its raw materials to produce products that are eventually sold to consumers.
  • The supply chain represents all the steps necessary to get the product to the customer.
  • The value chain gives companies a competitive advantage in the industry, while the supply chain leads to overall customer satisfaction.

Value chain

The idea of ​​a value chain was launched by American academic Michael Porter in his 1985 book Competitive advantage: creating and sustaining superior performance. He used the idea to show how companies add value to their raw materials to produce products that are ultimately sold to the public.

The value chain concept originated from a business management perspective. Value chain managers look for opportunities to add value to the business. They can look for ways to reduce shortages, prepare product plans, and work with others in the chain to add value to the customer.

There are five stages in the value chain process. They give a business the ability to create value beyond the cost of providing its goods or services to customers. Maximizing activities in any of the five stages allows a business to have a competitive advantage over competitors in its industry. The five steps or activities are:

  1. Inbound logistics: Receiving, warehousing and inventory control.
  2. Operations: Value-creating activities that transform inputs into products, such as assembly and manufacturing.
  3. External logistics: Activities necessary to deliver a finished product to a customer. These include warehousing, inventory management, order fulfillment and shipping.
  4. Marketing and Sales: Activities associated with causing a buyer to purchase a product.
  5. A service: Activities that maintain and enhance the value of a product, such as customer support and warranty service.

To help streamline the five main steps, Porter says the value chain also requires a series of supporting activities. These include procurement, technology development, human resource management and infrastructure.

A profitable value chain requires connections between what consumers demand and what a company produces. Simply put, the connection or sequence in the value stream originates from the customer request, moves through the value stream process and finally ends at the finished product. Value chains place great emphasis on things like product testing, innovation, research and development, and marketing.

Supply chain

The supply chain includes the flow of all information, products, materials and funds between the various stages of creating and selling a product to the end user. The concept of the supply chain comes from an operational management perspective. Every step of the process, including creating a good or service, manufacturing it, transporting it to a place of sale, and selling it, is part of a company’s supply chain.

The supply chain includes all the functions involved in receiving and processing a customer request. These functions include:

  • Product development
  • Marketing
  • Operations
  • Distribution
  • Finance
  • Customer service

Supply chain management is an important process for most companies and involves many links in large companies. For this reason, supply chain management requires a lot of skills and expertise to maintain.

The main players in value chains are shareholders and investors, while supply chain partners are essential players in the supply chain.

Although many people think of logistics, or freight transportation, as synonymous with supply chain, it is only part of the equation. The supply chain involves the coordination of how and when products are produced as well as how they are transported.

The main concerns of supply chain management are the cost of materials and the efficient delivery of products. Good supply chain management can reduce consumer costs and increase manufacturer profits.