Supply chain and value chain, what's the difference?
Any aspiring entrepreneur or experienced merchant will tell you that the business world is a jargon minefield. For example, consider the supply chain and value chain. Though they may sound similar and are closely related, they are distinct entities.
I define value as the usefulness of a product for its price. With that in mind, the difference between the supply chain and the value chain is that the supply chain tracks a product through its production lifecycle to the consumer. In contrast, the value chain examines the entire business (supply chain included) to reduce overhead costs, thus increasing value.
Even small organizations today source their materials from multiple supply chains. Larger organizations have dozens, and sometimes hundreds, of supply chains flowing simultaneously, creating a complex web that can hide many inefficiencies.
Given its enormous scale, these small studders in operations can snowball into big losses. These include wasteful packaging, overordering, high transportation costs, inadequate suppliers, and poor data tracking. In the end, it’s always the customer who has to suffer through long wait times to receive their purchases.
Thus, finding and eliminating these problems is every organization’s perpetual goal. No one ever gets it perfect, but every optimization is another step toward increasing value and outperforming the competition.
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Organizations and businesses can adopt better tools, information systems, and more accredited suppliers to cut costs and production time. And using emerging AI technology, analytics tools such as Microsoft Supply Chain Platform can accurately forecast demand fluctuations and even help mitigate transportation disruptions.
Improving the supply chain isn’t the only way to improve the value chain. Every business aspect, from logistics and operations to marketing and sales, has its own problems to solve. Again, inefficiencies can only be minimized, never eliminated, and the process is becoming even more complex with new business models.