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Value Chain vs Supply Chain

Posted by [email protected] on Jan. 10, 2022  /  Subscribe 0

The two terms, value chain, and supply chain can often be confused with each other. Both speak to the acquisition, production, and delivery of products or services to consumers. However, a value chain is a term that covers a greater amount of territory in the equation than the term supply chain. It's essential to know and understand the difference between the two if you're involved in either chain. There are many opportunities available in each discipline and knowing where the differences and the similarities between the two can mean the difference between saving money, making money, and losing money for manufacturers and service providers,

Supply Chain Defined

The term "supply chain" is defined as those activities that occur at each stage of the process of obtaining, manufacturing, and delivering the final product to the customer. This covers the actual mechanics of identifying vendors, arranging transportation of goods, receiving and storing those goods, using those goods to produce a product (or service), and then delivering those goods to the ultimate consumer. Think of it as the puzzle that must be assembled correctly to achieve the proper picture. There are many pieces in the puzzle, and they all fit together just right to result in the sale of the product or service to the final customer.

Value Chain Defined

The term "value chain" is defined as the organizational approach to providing products or services to customers. This means the value chain is other activities that add value to the produced product or service. These activities include management actions like reducing costs, improving production efficiencies, and creating new marketing efforts to sell more products. The value chain includes non-material concerns like customer satisfaction, transportation streamlining, and reducing product shortages. The greatest concern for value chain managers is creating "value-adding" aspects to the products or services so that consumer acceptance is greater and more widespread.

What's the Difference?

Consider the main concerns of each discipline and then look at them as individual spheres of activity that take place one inside of the other. The inside sphere is supply chain, and the outer sphere, which encompasses it, is the value chain. While the value chain is management-centric, the supply chain is more operations-centric. Let's look at the main differences between the two:

Value Chain - Creating Additional Profit via Management oversight

1. Inbound product logistics - Transportation, inventory control, warehousing.
2. Operations - Product assembly and manufacturing.
3. Outbound product logistics - Order fulfillment, inventory control, shipping.
4. Marketing and Sales - Identifying potential customers and promoting products via advertising.
5. Customer Service - Customer support, warranty support, and communications.

Supply Chain - Creating Additional Profit via Acquisition/Production/Delivery oversight

1. Vendor Relations - Identifying vendors and products needed for manufacturing.
2. Transportation - Documentation, scheduling, and administration for shipping and receiving raw materials.
3. Finance - Negotiating payment terms for raw materials acquisition and delivery.
4. Manufacturing - Producing finished products from raw materials stock.
5. Testing and Certification - Ensuring finished products meet specifications.

A Little of This and a Little of That

Depending on the type of product or service being produced, the two areas of the value chain and supply chain can often overlap. Inbound and outbound transportation may fall under the preview of both concerns and, as such, should be a point of management coordination and focus for each. Some functions are contained in one area or the other, but when there is an overlap, the opportunity exists for improvement at many levels. That's the whole idea behind the value chain vs. supply chain discussion - making sure everything needed to acquire, produce and deliver the final product is managed properly.

Get Clear and Get Going!

The importance of value chain and supply chain can be seen at every step and every level of a manufacturing company's processes. Learning about these two critical functions can be gained from online resources. The Association for Supply Chain Management offers classes, resources, certifications, and networking for professionals as well as newbies in the fields of supply chain and value chain management. Individuals and corporations benefit from the curriculum, association membership, and networking with professionals that are provided. The ASCM training and certifications provide career-enhancing opportunities for education and certification in supply chain and value chain management protocols. 

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