Understanding key industry terms is essential in an age where effective business management relies heavily on making informed, strategic decisions. Two such terms are supply chain and value chain, which are closely related yet distinct. While both involve a network of entities that source raw materials, transform them into finished products, and then distribute or sell them to customers, the two have distinct differences.
This article will explore the key differences between supply chain vs value chain. It will answer questions such as what is the value chain, how it differs from the supply chain, and how the two impact your business’s day-to-day operations and long-term strategic planning.
What is Supply Chain?
A supply chain refers to a network of interconnected entities, processes, and activities involved in product development, handling, and distribution from the point of origin to the end consumer. It encompasses various stages, such as sourcing raw materials, manufacturing, warehousing, transportation, and retailing. The primary goal of supply chain management is to streamline these processes, ensuring the efficient and timely delivery of products while minimizing costs and maintaining quality.
Sometimes, the term supply chain is usually confused with logistics. However, to better comprehend the differences between supply chain vs logistics, think of a supply chain as a network of activities and processes. In contrast, logistics is a subset that deals with the physical movement of goods and services.
For example, in the automotive industry, supply chain activities may include the following steps:
- Procuring steel, aluminum, rubber, glass, and other materials required for vehicle production from various suppliers
- Assembling vehicles at a production facility using the sourced materials, including processes like welding, painting, and quality control
- Storing finished vehicles in a designated area before shipping them to dealerships or distributors
- Moving vehicles from the production facility to dealerships or distribution centers via trucks, trains, or ships
- Selling vehicles to end consumers through dealerships or online platforms
What is Value Chain?
A value chain is a set of interconnected activities and processes that adds value to an organization’s products or services. This concept builds on the supply chain by focusing on adding value to a product. Its goal is to create and deliver products that meet customer needs while maximizing profits.
When a finished product requires multiple countries’ inputs, the value chain becomes a global value chain. This is when a product or service moves through various stages in multiple countries worldwide.
Value chain activities fall into two categories:
- Primary activities. These are activities that directly add value to a product or service. They include research and development, inbound logistics, production processes, outbound logistics, marketing, and customer service.
- Support activities. These are auxiliary functions that enhance any primary activity’s efficiency. Support activities include procurement, human resources management, technological development, and infrastructure.
Value chain management involves systematically examining each activity to identify areas where you can add value, reduce costs, or optimize processes. A profitable value chain enhances the company’s competitive advantage by maximizing value creation and improving efficiency across all functions.
For instance, an automotive industry value chain might consist of the following steps:
- Purchasing raw materials and components from suppliers at the best prices and conditions
- Receiving, storing, maintaining, and distributing raw materials to the production facility
- Recruiting, training, and retaining a skilled manufacturing, warehousing, transportation, and service workforce
- Providing effective and efficient financial, legal, and administrative support to facilitate the smooth functioning of operations
- Designing new components and features to improve vehicle performance, efficiency, and safety and for product testing
- Manufacturing vehicles at a production facility, including welding, painting, and quality control
- Moving vehicles from the production facility to dealerships or distribution centers via trucks, trains, or ships
- Promoting vehicles via television, radio, print ads, online channels, or other platforms
- Offering after-sales services, such as repair and maintenance
5 Differences Between Supply Chain and Value Chain
Here is a detailed view of the core differences between supply chain vs value chain:
Scope and Focus
The scope of the supply chain includes everything involved in producing, distributing, and delivering goods and services from suppliers to end consumers. The focus is on the flow of materials, information, and finances across different stages and organizations.
The value chain is more focused on a single organization’s activities, both primary and support, that contribute to creating and delivering value to customers. The emphasis is on optimizing each activity to maximize value creation and achieve a competitive advantage.
Value Creation Perspective
In supply chain management, value creation results from efficient and cost-effective coordination among different entities involved in the production and delivery process, such as suppliers, manufacturers, distributors, and retailers.
In value chain analysis, value creation involves combining organizational activities that add value at each stage, ultimately resulting in high-quality product development or service for the end consumer.
Integration and Collaboration
Supply chain management focuses on integrating and collaborating with external partners, including suppliers, logistics providers, and distributors, to optimize the flow of products, information, and finances throughout the entire chain.
Value chain management enhances internal integration and collaboration among various organizational departments and functions to improve efficiency and maximize value creation.
Customer Orientation
In supply chain management, customer orientation is often indirect, as the primary focus is managing the flow of goods and services through various stages to reach the end consumer efficiently.
In value chain management, customer orientation is more direct, as each activity’s purpose is to create and deliver value to the end consumer, ensuring their satisfaction and meeting their needs and preferences.
Performance Measurements and Metrics
Performance measurement in supply chain analysis typically involves metrics related to efficiency, cost reduction, lead times, and inventory management. Examples include inventory turnover, order fulfillment rate, and transportation costs.
Performance measurement in value chain analysis focuses on assessing the effectiveness of each activity in adding value and contributing to the organization’s competitive edge. Metrics may include customer satisfaction, market share, and return on investment (ROI).
Leverage Supply Chain Efficiency for Value Chain Optimization
While the two terms —supply chain vs value chain— are distinct, the two models complement each other. While the supply chain forms the backbone of efficient product or service delivery, the value chain provides a granular view of individual activities. That said, supply chain efficiency is key to optimizing the value chain; efficient processes lead to cost savings, which can then be used to invest in activities that add value and improve efficiency.
At Surgere, we understand the need to streamline supply chain operations while driving value creation. We engineer solutions that leverage IoT and RFID technology to equip you with real-time intelligence on your supply chain operations. This enables you to make informed decisions that optimize the entire value chain and ensure enhanced business outcomes.
Contact us today to learn how we can help you leverage supply chain efficiency.
