Value Chain & Supply Chain are two basic concepts of the business sector as they encompass every activity and process from the production of products, till it gets to the end consumers. Understanding their concepts, similarities and differences, gives a solid foundation in the business sector.
The term value chain refers to the process in which businesses, obtain raw materials and add value to them via production, manufacturing, branding, and other processes in order to create a finished product, worthy for sales to potential consumers
The idea of a value chain was pioneered by American academic Michael Porter in his 1985 book Competitive Advantage: Creating and Sustaining Superior Performance, where he used the idea to illustrate how companies add value to their raw materials to produce sellable products.
There are five steps in the value chain process, which enables a company to create value that exceeds the cost of production and provision of its goods or services to customers. They include:. The five steps or activities are:
+ Inbound Logistics: Receiving, warehousing, and inventory control.
+ Operations: Value-creating activities such as manufacturing, assembling and branding that transform inputs into products.
+ Outbound Logistics: Delivery activities which ensure that finished product to the requesting customer. These include warehousing, inventory management, order fulfilment, and shipping.
+ Marketing and Sales: Activities that incites interest in potential consumers, getting them to purchase the products
+ Service: Activities that complement maintain and enhance a product’s value, such as customer care service & support, and warranty service.
In order to help streamline the five basic steps, the value chain also requires a series of support activities. These include procurement, human resource management, technology development, and infrastructure.
A profitable value chain requires connections between what consumers demand and what a company produces. It places a great amount of emphasis on things such as innovation, product testing, research and development, and marketing. Maximizing the activities in any one of the five steps allows a company to have a competitive advantage over competitors in its industry
A supply chain includes steps businesses take to deliver products or services to customers, usually involving OEM and aftermarket parts. The supply chain comprises the inflow and outflow of all information, products, materials, and funds between multiple stages of creating and selling a product to the end user. Every step in the process—including product or service creation, manufacture, transportation place of sale and, sale—is part of a company’s supply chain.
The supply chain includes all functions involved in receiving and filling a customer request. These functions include:
+ Product development
+ Customer service
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.
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.
KEY TAKEAWAY DIFFERENCES
+ The value chain is a process in which a company adds value to its raw materials to produce sellable products while the supply chain represents all the steps required to get the product to the customer.
+ The concept of the value chain comes from a business management perspective while supply chain comes from an operational management perspective
+ The value chain gives companies a competitive advantage in the industry, while the supply chain leads to overall customer satisfaction.
+ The main stakeholders in value chains are shareholders and investors, while supply chain partners are crucial stakeholders in the supply chain.