In the business world, supply and value chains play a critical role in ensuring the smooth running of operations. Both supply and value chains are used in the management of resources, processes, and outputs, but they have distinct differences. Understanding the differences between the two is essential for businesses to make informed decisions on how to optimize their operations. In this article, we will explore the definitions of supply chain and value chain, their uses, and a table comparing both supply chain vs value chain in a side-by-side manner.
Supply Chain Vs Value Chain (Comparison Table)
| Supply Chain | Value Chain |
|---|---|
| Supply chain refers to the sequence of activities involved in the production and delivery of a product or service to the end consumer. | Value chain refers to the sequence of activities that a company uses to create value for its customers. |
| The supply chain focuses on the production and delivery of the product or service. | The value chain focuses on creating value for the end consumer. |
| Its main objective is customer satisfaction. | Its main objective is to gain a competitive advantage. |
| A supply chain actually originated from operation management. | A value chain is mainly originated from business management. |
| Perspectively, it focuses on the internal operations of the company | It has a broader perspective that includes both internal and external factors that impact the creation of value for the end consumer. |
| The supply chain starts and ends as : Product request – Supply chain – Customer | It starts and ends as : Customer request – Value chain – Product |
| Supply chain activities include procurement, production, distribution, and delivery to the end consumer. | Value chain activities include inbound logistics, operations, outbound logistics, marketing, sales, procurement, technology development, and human resource management. |
What is Supply Chain
A supply chain is the sequence of activities involved in the production and delivery of a product or service to the end consumer. The supply chain starts with the raw materials and ends with the final delivery of the finished product or service. It encompasses everything from the procurement of raw materials, production, distribution, and delivery to the end consumer.
Moreover, the system which is responsible for planning and controlling the supply chain activities/operations is known as supply chain management. This system focuses on managing the flow of raw materials within the firm as well as the flow of goods outside the organization, keeping customer requirements and satisfaction in view. Following is the set of activities that are included in the supply chain process.
- Product development
- Transmission of information
- Distribution
- Marketing
- Finance
- Customer service
- Analyzing the performance
Supply chain management plays a very significant part in all supply chain activities of different companies and large corporations. Therefore, this system requires a lot of experience, skills, and expertise. A good supply chain management system helps a business in generating more profit on less investment.
What is Value Chain
A value chain, on the other hand, is the sequence of activities that a company uses to create value for its customers. It encompasses all the activities that add value to the product or service that the company provides The value chain focuses on enhancing business efficiency so that the best quality of goods and services can be delivered at a minimal cost.
The idea of a value chain was first evolved by an American academic Michael Porter in 1985 in his book ‘Competitive Advantage. In his book, he is giving an idea and concept of adding value to raw materials to produce a good quality of goods and services. Moreover, he said that the two major steps involved in the value chain analysis are as follows.
- Recognition of each activity
- Analyzing the value added in each activity and then relating it to the organization’s strength of competition.
Moreover, based on Porter’s book there are two main categories for adding value i.e primary activities and support activities.
Primary Activities of Value Chain
The primary activities are as follows.
- Inbound Logistics – This includes all the activities involved in receiving, storing, and distributing the raw materials that are used in the production process.
- Operations – This includes all the activities involved in converting the raw materials into finished products or services.
- Outbound Logistics – This includes all the activities involved in distributing the finished products or services to the end consumer.
- Marketing and Sales – This includes all the activities involved in promoting the product or service and generating sales.
- Services- These activities help in enhancing customer satisfaction. For example, customer support, warranty, exchange, refund, etc.
Support Activities of Value Chain
Supportive activities provide strength to primary activities. There are four supportive activities that are discussed as follows.
- Procurement – This includes all the activities involved in purchasing the raw materials and other resources needed for the production process.
- Technology Development – This includes all the activities involved in developing new technologies or improving existing technologies to enhance the production process.
- Human Resource Management – This includes all the activities involved in managing the workforce and ensuring that they have the necessary skills and resources to perform their duties effectively.
- Infrastructure- It includes team-like planning, value control, and finance.
Key Differences Between Supply Chain And Value Chain
The key differences between the supply chain vs value chain are given below.
- Meaning – The supply chain comprises all parties, resources, businesses, and activities involved in the different stages like logistics, marketing, distribution, and delivery through which the goods/products are finally sold to the consumers. On the other hand, the value chain refers to the set of activities that add value at every single step of designing, producing, and delivering a quality product, so as to meet the needs of the consumers.
- Activities: The supply chain encompasses all the activities involved in the production and delivery of the product or service, while the value chain includes all the activities that add value to the product or service.
- Originated From – While the concept of the supply chain originated from operation management, the value chain originated from business management.
- Perspective: The supply chain focuses on the internal operations of the company, while the value chain takes a broader perspective that includes both internal and external factors that impact the creation of value for the end consumer.
The following table shows all the comparisons between both supply vs value chain in a brief manner.
Usages of Supply Chain
Improved Efficiency – Supply chain management helps businesses improve their operational efficiency by streamlining processes and reducing waste. This can lead to faster delivery times, higher quality products or services, and better customer satisfaction.
Risk Management – Supply chain management can help businesses mitigate risks associated with disruptions in the supply chain, such as natural disasters, political instability, or supplier bankruptcies. By identifying potential risks and developing contingency plans, businesses can minimize the impact of disruptions on their operations and ensure continuity of supply to their customers.
Usages of a Value Chain
Differentiation: A value chain can be used to create a unique product or service that sets the company apart from its competitors. This can be achieved through a combination of product design, marketing, and customer service.
Competitive Advantage: A value chain can be used to create a product or service that is superior to that of the company’s competitors. This can be achieved through a combination of operational efficiency, product quality, and customer service.
Conclusion
In conclusion, both supply and value chains are essential for businesses to optimize their operations and create value for their customers. While they have some similarities, they also have distinct differences in their focus, activities, perspective, goals, and customer focus.
Businesses need to understand these differences to make informed decisions on how to manage their resources, processes, and outputs effectively. By understanding the differences between supply and value chains, businesses can create a competitive advantage and differentiate themselves from their competitors.
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