Everyone in business should learn the difference between a supply chain and a value chain. The concepts are related but here is the key difference, supply chain is the logistical process of getting goods to market, while a value chain is about creating value for customers.
Understanding these two ideas is essential for any company that wants to succeed in today’s competitive environment. Let’s take a closer look at each one!
Value Chain vs Supply Chain
The main difference between a value chain and a supply chain is that a value chain focuses on creating value for the customer. In contrast, a supply chain ensures an efficient and effective flow of materials and resources.
A company’s value chain begins with the raw materials to create its products or services. These raw materials are then transformed into finished goods or services and delivered to the customer. The value chain also includes marketing, sales, and customer service activities.
On the other hand, a supply chain is the network of suppliers and distributors that a company uses to source its raw materials and deliver its products or services to customers. The main goal of a supply chain is to ensure that materials and products are delivered quickly and efficiently.
While the two concepts are closely related, it’s important to note that they are not the same. A company’s value chain is focused on creating value for the customer, while a supply chain is focused on ensuring an efficient and effective flow of materials and resources.
Value Chain
The term “value chain” was first coined by Michael Porter in his 1985 book “Competitive Advantage: Creating and Sustaining Superior Performance.” A value chain is used to analyze a company’s competitive position within an industry. It is a framework that breaks down a company into its core functions (or activities) and then assesses how they contribute to its competitive advantage.
The value chain is a framework for understanding the sources of value in a company and how that value is created. The value chain can be used to understand the cost structure and identify the activities that create the most value for the customer. By understanding where costs are incurred, and value is created, companies can decide how to improve their operations and compete more effectively.
A value chain is a tool that companies can use to understand a company’s cost structure and identify the activities that create the most value for the customer. By understanding where costs are incurred and where value is created, companies can decide how to improve their operations and compete more effectively.
Primary Activites
Primary activities are directly involved in creating or delivering a product or service. They can be further divided into four categories:
- Inbound logistics: Refers to the receiving and warehousing of raw materials
- Operations: Covers the actual production or assembly of the product or service
- Outbound logistics: Encompasses the shipping and delivery of the finished product or service
- Marketing and sales: Involves the promotion and sale of the product or service to customers
Support Activities
Support activities, on the other hand, are not directly involved in the creation or delivery of a product or service, but they contribute to the efficiency and effectiveness of the primary activities. There are also four categories of support activities:
- Firm infrastructure: Includes all the supporting functions that keep the company running, such as accounting, legal, and IT
- Human resources management: Covers all activities related to recruiting, training, and managing employees
- Procurement: Refers to the procurement of materials and services from suppliers
- Technology development: Encompasses all activities related to research and development and the management of technological resources and knowledge.
Supply Chain
The supply chain is the system that moves goods from suppliers to customers. It includes the people, organizations, activities, information, and resources involved in moving a product or service from supplier to customer.
In a global economy, the supply chain includes the traditional “upstream” and “downstream” partners within a company’s own country and the partners in other countries involved in designing, producing, transporting, and selling the company’s products or services and because of this, managing the supply chain has become increasingly complex.
Types of Supply Chain
There are many different types of the supply chain, each with its strengths and weaknesses. Here are some of the most common:
- The linear supply chain: This is the most basic kind of supply chain, in which raw materials are turned into finished products and then sold to customers. It is simple but can be very inflexible since there is no easy way to introduce new products or change existing ones.
- The branching supply chain: This supply chain is more complex, with multiple factories and warehouses producing different products that are then shipped to different customers. It is more flexible than the linear supply chain but can be more challenging to manage.
- The virtual supply chain: This is a relatively new supply chain in which companies use information technology to manage their production and distribution. It is extremely flexible since it can be easily adapted to changing market conditions but can be challenging to set up and maintain.
- The green supply chain: This supply chain considers the environmental impact of the products and materials it uses. It is becoming increasingly popular as companies attempt to reduce their carbon footprint.
- The reverse supply chain: This is a supply chain in which products are returned to the manufacturer after the customer has used them. It is often used for products that are difficult to recycle or reuse, such as electronics.
Each of these supply chains has its advantages and disadvantages, so choosing the right one for your company is essential. If you are unsure which kind of supply chain is best for you, consult with a professional who can help you decide.
The most important thing to remember about the supply chain is the system. That means that all of the different parts must work together seamlessly to be effective. When one part of the system breaks down, it can have a ripple effect that can cause problems throughout the entire supply chain.
That’s why it’s so important for companies to have a good understanding of their supply chains and to manage them carefully. They can avoid disruptions and ensure that their products and services are delivered to customers on time and in good condition.
Key Takeaways
Here’s a detailed discussion of supply chain vs. value chain. So, what’s the difference? Supply chain is the process that gathers raw materials and distributes them to businesses for production. Once products are made, the supply chain delivers them to retailers and consumers.
While value chain is a business model that adds value to a product or service by creating different stages of production. This can be done by adding more steps in the manufacturing process, assembling products uniquely, or developing new marketing strategies.
