Supply Chain Vs. Value Chain

Posted by Prof. Archana Y C On 11/08/2023 06:35:05

Supply Chain and value chain are the two vital aspects in any businesses, where we will come across how the products and services are made available to final consumers. Supply chain deals with building the products and getting it to the consumer which involves all parties in fulfilling a customer request and leading to customer satisfaction. The company is the protagonist of its supply chain story which is all about obtaining what is needed to produce goods and services and deliver them to the customer. Supply chain is mostly physical.

Whereas, value chain refers to the process in which businesses receive raw materials add value to them through production, manufacturing and other processes to create finished product, and then sell the finished product to consumers. It is a set of interrelated activities a company uses to create a competitive advantage. Customer is the protagonist in the value chain story, because value happens when the goods or services are in the hands of customers.

The main difference between a value chain and a supply chain is that the supply chain deals with building the product and getting it to the consumer. While the value chain looks for ways to enhance the products value as it moves along the supply chain. All of the supply chain is inside the value chain. The performance of any company depends a great deal on success of its supply chain. It is cost-effective, fast enough and reliable enough to manufacture quality products and keep them flowing out to customers, generating revenue and throwing off profit? But business performance depends just as much on  the value that customers perceive from those products or services.

Value chain management looks for opportunities to add value to the business. There are five steps in the value chain process. They give a company the ability to create value exceeding the cost of producing its goods and services to customers. Maximizing the activities in any one of the five steps allows a company to have a competitive advantage over competitors in its industry. The five steps are inbound logistics, operations, outbound logistics, marketing and sale, and customer services.

  • Inbound Logistics: Receiving, warehousing, and inventory control.
  • Operations: Value-creating activities that transform inputs into products, such as assembly and manufacturing.
  • Outbound Logistics: Activities required to get a finished product to a customer. These include warehousing, inventory management, order fulfillment, and shipping.
  • Marketing and Sales: Activities associated with getting a buyer to purchase a product.
  • Service: Activities that maintain and enhance a product's value, such as customer support and warranty service.

Whereas, supply chain includes all functions involved in receiving and filling a customer request. The functions are product development, marketing, operations, distribution, finance and customer services. The supply chain comprises the flow of information, products, materials and funds between different stages of creating and selling a product to the end users.

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

While many people believe logistics—or the transportation of goods—to be synonymous with the supply chain, it is only one part of the equation. The supply chain involves the coordination of how and when products are manufactured along with how they are transported.

The primary concerns of supply chain management are the cost of materials and effective product delivery. Proper supply chain management can reduce consumer costs and increase profits for the manufacturer.

The relationship between a company’s value chain and supply chain can help the business grow. The role of value chain management (VCM) is to identify ways to add more customer value to the company’s products and services, whether that value comes in the form of new product features, higher quality than that offered by competitors or better after-sales support. The point where VCM and supply chain management (SCM) activities intersect — namely, in inbound logistics, operations and outbound logistics — creates the opportunity to leverage the value chain thinking and outputs that imbue the company’s products with greater customer value. And greater customer value can lead to faster business growth.

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