Supply chain vs value chain

Supply chain and value chain are two processes that are critical for a company in ensuring that good quality products are delivered to customers at a low cost in a well-timed manner. There are various well-integrated procedures that are part of supply chains and value chains, and these have to be strategically regulated to ensure that the highest satisfaction is offered to customers.  However, both of these have a different focus; supply chain pertains to the transfer of goods from production to delivery. Various activities are involved in supply chain, commencing from the production of raw materials and their conversion into the final product and ending when the product is delivered to the consumer. In contrast, value chain pertains to the modification of different business procedures through which value is added to products and services provided by the company. It involves different activities through which value is generated or added to the product.

In this article, the two terms are defined in more detail and the differences between the two are discussed.

Definitions and explanations

Supply chain

A supply chain is basically a link between all the parties, businesses, resources and processes that are part of the marketing or distribution of a product so that it gets to the end user. Through a supply chain, the channel partners are connected to each other, including the manufacturers, suppliers, distributors, retailers, wholesalers as well as the customer. In simple terms, it pertains to the storage and movement of the raw materials, semi-finished goods, and the finished goods from the point of origination to their ultimate destination, i.e. the customer.

A supply chain transforms raw materials and natural resources into a final product that is ultimately made available to the final consumer. It usually involves a network of individual companies that have to perform a particular stage in the process.

Supply chain management is a process in which the supply chain functions are planned and regulated. It is basically a cross-functional system that deals with the transfer of raw materials inside the organization, as well as the transfer of finished products outside of the organization, while also attaining complete customer satisfaction. A very important part is played by supply chain management in organizations because an efficient, optimized and low wastage supply chain management will lead to improved quality, while taking up less time and incurring low cost.

Value chain

Value chain signifies the various activities that are involved in creating value for the customer. Its focus is on offering the best value to customers at the lowest price.

Through a value chain, value is added at every stage, from designing the product, to its production and finally its delivery to the customer. A value chain analysis is carried out by companies, where the needs of the customers are first analyzed, and then the value added in each step is evaluated and it is determined if it provides competitive strength to the firm. There are two categories of a value chain analysis, which are its primary activities and support activities.

There are five main primary activities involved in a value chain. These include:

  • Inbound logistics, consisting of obtaining, storing and managing inventory, and sourcing.
  • Operations related to manufacturing or production
  • Outbound logistics, consisting of packaging, shipping and delivery to customers
  • Sales and Marketing
  • Support services, through which product’s value is maintained and enhanced, like customer support and warranties.

Support activities facilitate the primary activities, and consist of procurement, human resource management and technology and infrastructure development.

Difference between supply chain and value chain

Difference between supply chain and value chain is given below:

1. Meaning

Various activities, individuals and businesses that are involved in the transfer of product from one place to another are integrated in a supply chain. Value chain, in contrast, are all those activities that are involved in adding or enhancing the value of a product in each step till it gets to the final customer.

2. Origin

Supply chain is a part of operations management, while value chain is a part of business management.

3. Focus

In supply chain, materials and products are transferred from one place to another, while the primary focus of value chain is offering value for the product, in terms of its price or service.

4. Main objective

The key objective of supply chain is to offer complete satisfaction to the customers, but this is not the case with value chain, which mainly seeks to provide value-added products to customers.

5. Order of activities

Supply chain starts with product request and concludes when product is delivered to the consumer. On the other hand, value chain commences when request is made by customer. Here, customer needs are examined after which it goes back to production to determine what changes can be brought in the product to fulfill their requirements.

Supply chain vs value chain – tabular comparison

A tabular comparison of supply chain and value chain is given below:

Supply chain vs Value chain
Meaning
Collection of processes and activities pertaining to procurement, logistics, product development and delivery The processes through which value is added to products
Origin
Operations management Business management
Focus
Transfer of materials Offering value for the product
Main objective
Attaining customer satisfaction Obtaining competitive advantage
Order of activities
Starts with product request and ends with supply of product to customers Starts with customer requests and ends with the product

Conclusion – supply chain vs value chain

Supply chain and value chain are processes carried out by organizations that pertain to the production and inclusion of value to the products so that good quality products are provided to customers at a low cost, while fulfilling their needs. The supply chain involves activities pertaining to product development, sales and distribution, while value chain is a step ahead and is related to how value can be generated or added to the product. In supply chain, product is followed from the supply to consumers, while in value chain, the customers are the point of origin, where customer needs are examined and then, it is analyzed if the production is taking place accordingly, and how it can be altered to fulfill customer needs.

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