Difference Between Value Chain and Supply Chain

Many a times value chain and supply chain are used interchangeably. The root of this confusion is overlapping of the two concepts.?Although, they are similar on macro level, yet they are not the same on micro level.

Supply Chain?stands on the foundation of smoothening processes involved in procuring raw material, manufacturing or production and delivering goods to the consumer. Therefore, the idea of supply chain sprung from the operational management perspective.

The soul of Value Chain?lies in providing value to the end customer, thereby gaining a competitive edge. Thus, the idea of value chain comes from the backdrop of business management.

The value of a product greatly depends upon the perspective of end user. It is obvious to say that the supply chain directly touches the organisation, whereas value chain touches the end consumer.?This is the reason why some products charge higher price than the other products offering similar features. The difference lies in value chain.?

Through this blog, we will try to explain differences between the two terms – Supply chain and Value chain, which have been used interchangeably for quite some time now.

Here we go …….

What is Supply Chain:

Supply chain – Supply chain is integration of various processes including raw material procurement, production / manufacturing, and logistics.?What it means is, from procurement to warehouse in, to process, to finished good creation, to warehouse out to delivery, entire series of process comes under Supply Chain.

Supply chain acts as a link between various channel partners like suppliers, manufacturers, wholesalers, distributors, retailers, and customers.

What is Value chain:

Value Chain – Value chain refers to the range of activities involved to add value to the product at every step to eventually deliver a quality product to consumer as per consumer’s requirement or wish.

“The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use. Considered in its general form, it takes the shape as described in Figure 1. As can be seen from this, production per se is only one of a number of value-added links. Moreover, there are ranges of activities within each link of the chain. In the real world, of course, value chains are much more complex than this. For one thing, there tend to be many more links in the chain. In addition to the manifold links in a value chain, typically intermediary producers in a particular value chain may feed into a number of different value chains.”

Source: Kaplinsky, R. and M. Morris (2001) A Handbook for Value Chain Research, prepared for the International Development Research Centre (IDRC), p.4-6 (emphasis added) (Accessed 04/07/20)

In other word, value chain emphasises on offering beyond the cost?of the product.

Activities that make the value chain network effective include:

• Inbound logistics
• Operations
• Outbound logistics
• Sales and marketing
• Services

Differences between supply chain and value chain can be derived on various basis, some of which are:

Concept:

Supply chain is mostly physical. In case of product, it starts with obtaining raw material, transforming it to finished good through proper process, and deliver them to consumer and take returns, if situation calls.

Value chain starts with the need analysis of consumer. It then advances and finds ways to add value to the product throughout the supply chain in the form of features, quality, or functions and ends at strong customer support, which a consumer will appreciate.

Process:

Supply chain is concerned with operational process and mostly logistical. It thinks about how to manufacture a product and send it to the customer efficiently at low cost.

Value chain is related to business management process. It starts with knowing what consumer values and figuring out how to inject that quality in the product.

Thus, supply chain deals at physical sphere, whereas value chain deals with physical as well as emotional sphere.

Activities:

Supply chain activities involve getting raw materials, transform it to make goods, and delivering it to the customer.

Value chain activities involve knowing about the customer’s requirement, producing goods, marketing & advertising to create demand, delivering the product to the customer and getting feedback from customers. These processes are called Primary Activities as per Porter’s Value chain model.

?Beyond primary activities, there are Supporting Activities that are also associated including human resource, technology, infrastructure etc.

Porter’s Value chain diagram

Order:

Supply chain is about production.?It is one step after the another. That is why it is linear.

Value chain has no order. It means, at any stage, value can be added or enhanced depending upon the customer’s feedback.

Objective:

Objective of supply chain is to provide a product at good quality and minimum cost.

Objective of value chain is to enhance customer experience and create competitive edge.

Maya Angelo said, “people will forget what you said, people will forget what you did, but people will never forget how you made them feel”.

Value chain emphasises on that feeling or experience, instead of merely providing a product.

Steps involved:

Value chain has more steps than the supply chain.

In supply chain manufacturer is finding ways to get desired results.

In value chain, manufacturer is analysing if the desired result makes positive impact on the customer or not.

Where supply chain concentrates on how to produce a good with standard quality and low price, value chain concentrates beyond that.

Value chain thinks of product innovation as per customer’s need, designing of product, its marketing after production, selling and delivering it to customer.

Value chain also decides how much price will the customer be ready to pay for this enhanced experience.

Let us compare the two chains on various factors again:

So, what do we get out of this discussion?

Key Takeaways:

• Value chain can enhance profitability of a company by incorporating ways to add features or characteristics that a customer will appreciate, this might be new features, better quality.
• The supply chain focuses on logistics and production and ends at customer whereas value chain starts with customer in mind, taking his needs and requirements in account, and increase value as the product moves through supply chain.
• A robust customer care support can enhance value and bring a competitive edge.
• Supply chain is a subset of value chain.
• Supply chain is physical, whereas value chain is physical as well as emotional.?

Conclusion:

In today’s competitive world, manufacturers are focussing more on value chain than mere supply chain. Manufacturers are in constant search of ways and tools to imbue more value to the product.

At this junction, an effective ERP solution like BatchMaster ERP can be of great help.

With its impeccable CRM, Formulation, laboratory modules, Quality Control and Costing modules, BatchMaster enhances value of the product.

Simultaneously through Inventory, Finance, Sales & Procurement, MPS/MRP like modules, it ensures robust and smooth supply chain.

If you are a manufacturer who is looking for an ERP system that can focus on value chain, connect with experts at BatchMaster?and unleash innumerable possibilities of enhancing value of your product and get a competitive edge.