At this point in your professional career, you have most likely come across the terms value chain and supply chain management. Many people aren’t quite sure what the differences between these terms are as both are related to the processes involved in acquiring goods from the design board, through manufacturing, and straight into the hands of consumers.
However, the two disciplines look at the process from a unique viewpoint and with different objectives.
To gain a better understanding of manufacturing, retailing, consumer demand, and other important aspects of global trade, it’s crucial to learn the main differences between value chain management and supply chain management.
Below, you can read more about this.
Understanding value chain management is often the starting point for understanding the industry dynamics or getting investment ideas. For instance, without understanding the importance of a retail value chain, it’s unlikely to recognize where the potential for improvement or higher profits lies if you’re running a retail business.
Value chain management is a description of a company’s physical flow and the activities performed in the company to create value.
A value chain is a model for better understanding a company and the activities that are part of it. It involves identifying activities that add value to the company’s offerings. To properly manage the value chain, the activities are divided into primary and support activities.
Primary activities are performed in the company’s physical flow, including logistics for inflow, manufacturing, logistics for outflow, marketing, and service in a manufacturing company. Support activities are activities that must be performed for the primary activities to be performed. Support activities can be product development, investments, administration, and business management.
Value chains are strategic as they focus on innovation, research, and development, product testing, marketing, social trend analysis, and economic conditions. Value chain managers are usually tasked with analyzing issues and opportunities and providing insight to maximize the value of a business. To explore different options and mitigate shortages, they might use supply modeling and prepare product plans or collaborate with marketing and customer service departments on activities that add significant value to the consumer.
A supply chain is a network of all resources, companies, and activities that are involved in the creation, sale, or distribution of a product from raw material until the finished product reaches the end-user.
These activities create a chain between suppliers, manufacturers, wholesalers, distributors, retailers, and the customer. The process that plans and controls the supply chain is known as supply chain management.
Supply chain management consists of five essential elements, which include planning and designing a product to meet the consumer demand, sourcing the materials or components necessary to produce the goods, manufacturing the product, delivering the product to the buyer, and accepting returns of flawed products.
The main focus in supply chains is placed on the costs of materials and efficient delivery. When the supply chain is managed well, costs can go down for the consumer and profits can go up for the manufacturer.
Supply chain managers who are successful at their job bring great value to their employers and contribute to their organization’s success by choosing and managing suppliers of components or raw materials, strategically planning production and delivery to support marketing efforts, special offers, and seasonal demand, as well as monitoring inventory and product flow to prevent supply shortages.
The main differences between the supply chain and the value chain management are as follows:
- The integration of all activities, people, and businesses through which a product is transferred from one place to another is defined as a supply chain. The value chain refers to a business chain whose starting point is to add value for all products in each step, from raw material to finished product.
- The concept of supply chain originates in the operational management, while a value chain is based on the company management,
- Supply chain management activities include the distribution and movement of materials from one location to another. The value chain, on the other hand, aims to add value to a product or service.
- The supply chain begins with a product request being provided and ends when the product reaches the customer, unlike the value chain, which begins in connection with a customer request and ends when the product is completed.
- The main purpose of supply chain management is to achieve complete customer satisfaction while the goal of value chain management is to obtain competitive advantages.
Now that you know more about the differences between a value chain and supply chain management, you’ll have a better understanding of how they impact your business and you’ll be better prepared to grow your operations and add value to the customer.