Comparing Value Chain and Supply Chain
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- Опубликовано: 7 фев 2025
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In business, there are certain processes that need to be done if anyone is to see any profits. One such process is implementing an effective value chain. It's sometimes easy to confuse the value chain with the supply chain. There is a difference between the two, though seemingly subtle, but a big difference. We are going to take an in-depth look at what a value chain is and we'll also review some similarities and mostly the differences between that and a supply chain.
Michael E. Porter's definition of Value Chain
Simply put, a value chain is the set of input activities that a company carries out in order to create value for its valued customers. Sounds like a mouthful but it's really simple. In order for companies to make money, they have to create a product. This often involves finding the raw material for manufacturers or just simply packaging and marketing for retailers.
What you need to ask yourself is how your company takes whatever business input it has and transforms that into outputs to be presented to its customers. The trick is doing this in such a way that the outcome of the whole process is having an output that is of higher value than the whole process of creating it.
How much profit a business makes is determined by the quality of the value it creates. The reason every high-end store charges considerably more for their goods and services is because they have created better value for their customers. Either that or they just simply target wealthier clients who can spend more. But with wealth comes higher standards and expectations, which means the store has to be able to provide better and more suited products to satisfy their clients' demands and expectations. Simply put:
The value a business creates and captures
the cost of creating and capturing that value
= their profit margin
Porter proposed a general-purpose viewpoint of the value chain. He says that the way a company creates value for its customers determines costs and thus affects profits. He said that there are several factions or elements involved in the value chain:
The Primary Elements involve the physical creation of a product, packaging, marketing, sale, and maintenance. The Support Activities on the other hand involve a process and departments that help the Primary Elements come into play. Things like the procurement office, human resources department, technical department, and the business's infrastructure. All these factions go into play when the value chain is concerned.
The Differences Between Value Chain and Supply Chain.
In layman's terms, a supply chain is what ensures that the products you value so much actually get to you. Some of the things we use are manufactured halfway across the world from your local convenience store. A supply chain, therefore, involves bulk storage and transportation. The major difference between a supply chain and a value chain is the simple fact that within a supply chain, there is no value-added. In a supply chain, all that is being done is a conveyance. One product or material is taken from one company or from one end and transported to the other. Of course, there are procedures involved such as proper storage and careful transportation but that is about it. In value chains, as much as there is the transportation and some storage involved, the main purpose of a value chain is to add value to the product so as to make it presentable to the client. This is often achieved via packaging, marketing, and sales.
Our goal in working with supply chains is to find ways to increase efficiencies through accuracy and automation. This focus allows us to see a rapid ROI for our customers as well as increases the value to the end consumer in the form of excellent customer service.
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You just made this very simple for a first timer who knows nothing about business. Thank you
Just a couple of points here. First, not everyone agrees with Porter's view of the world. As has been pointed out below, moving products from one location to another clearly adds value. If it didn't, Amazon would make you go to their one warehouse in Seattle to pick up your goods. Have fun with that. But more importantly, you have failed to properly present the key difference between the two models (at least as Porter envisions them). Value stream models apply at the firm or business unit level. Supply chain models, which deal with virtually identical issues, include the relationships and interactions between firms. So a value chain for a furniture manufacturer would start with the timber supplier from whom they purchase their wood, their hardware supplier from whom they purchase their other bits, include their internal manufacturing processes, and then to their distributor. In the supply chain construct, our furniture manufacturer is concerned with the source of the wood all the back to the forest where it was grown. This set of linkages might include the forest management organisation, the timber processor, one or two levels of distribution, the shipping companies (probably trains, boats, trucks) that move the logs or processed timber, the import/export operators who will be involved in what is typically an international supply chain, and let's not forget any possible government-level interactions with occasionally uncooperative countries. At the other end, we need to link distributor to the wholesaler through to the retailer, and in some cases the actual final customer. Along the way we will be managing inventories, costs, schedules, payments, and relationships. it's complicated! There is one other point I'll make. The entire purpose of your video is to sell your services. You have just couched it as an educational experience. It's really bad form to so blatantly misrepresent these two concepts to satisfy your marketing goals. Marketing is fine, just don't insult education in the process.
Thanks for the inputs, i am actually looking for content on value chain analysis.
I like the distinction between value chain and supply chain. Thank you.
I love this
This video is goated
Got a typo in the beginning, you said insurance companies offer affordable insurance. It should be unaffordable insurance.
This is a good video UNTIL you stated that a supply chain adds no value...really? You state that a supply chain is only concerned with moving and storing the physical product. Even given your extremely narrow definition of a supply chain, value is still created. Does not moving a product to its place of sale also add value? If one of the four P's of marketing is not "Place" then I will eat my hat. Place is also a value adding activity. You are just plain wrong on this one.
A better way of understanding this is in terms of push and pull systems. There is a common, but incorrect view that:
• Supply chains = Push system and therefore bad, and
• Value chains = Pull system and therefore inherently good.
Many, like this video, loudly speak of a ‘value chain’ when referring to a company’s supply chain, and bad mouth supply chain management as an old fashioned term or say its just about transport and storage (I thought this was logistics? could be wrong). Further these people will incorrectly proclaim that a much better way is to use a value chain or a pull system. This is an incorrect understanding of what a push and pull system looks like and ignores the fact that ALL supply chains and so called value chains are actually a mix of push and pull systems - hybrid systems.
A proper understanding will recognise that a supply chain is a value chain and a value chain is a supply chain, the base system or mechanism is identical. In fact the views are synergistic.
I would argue that the difference between a value chain and a supply chain is a simple matter of perspective. When you are discussing a value chain you are attempting to observe the underlying supply chain through the value creation and value destruction lenses. In other words, trying to find those parts of your supply chain that are the key to value adding and contribute the most to value as perceived by the final consumer.
To be a little technical, a value chain perspective is simply a heuristic (or a mental model or mental tool) that allows you to analyze a supply chain for a value objective. The key advantage of doing so is that it places what the consumer values at the heart of supply chain design and operations, and this I believe, is what value chain proponents are trying to achieve.
Please stop propagating this rubbish.
Regards
I see a supply chain as linked value chain across several organizations, therefore i follow this defination of supply chain, "A set of firms or a linkage of separate agents, each with their own individual value chains that pass materials forward and bring products or services to the market, is called a supply chain". so giving a sweeping statement like "supply chain doesnt add any value" (as given in this video) is not correct. I think, effiecient and effective supply chain clearly add value to time, place and price utility.
My own definition and differences between these two is
Supply Chain- is the set of activities of sourcing the materials, storing, and distributing to the market efficiently to satisfied consumers.
Value Chain- is a set of activities which are receiving the material, producing, marketing, delivering it to increase the efficiency in the production.
In summary
Supply chain is focusing in adding value to their consumer
Value chain is focusing in their internal business to add value in their products and services.
Totally agreed with your comments
Mae Ann Cotamora
Absolutely stupid! This commentator/author does not know the first thing about supply chains, let alone value "creation"! However, it does provide a starting point for an interesting discussion on why we see chaos in today's supply chains - it is because similar views are espoused by some, at the highest levels in corporate environments!
Mae Ann Cotamora