Supply Chain or Value Chain?

Truck on freeway

[Originally published 12/2/13 as “Supply Chain or Value Chain – What’s the Big Deal?”]

Aren’t supply chain and value chain talking about the same thing?  Receiving something from upstream vendors, adding value using your processes, then sending product/service downstream for the benefit of the consumer while addressing timing, volume, and all other issues associated with making sure the process is seamless and cost effective.

 So what is the difference?

The difference is a matter of perspective – a paradigm!

In Supply Chain Management our goal is to optimize efficiencies, from supplier to consumer, based on constraints imposed by resource availability and cost, production and transportation logistics, and quality to assure deliveries of the right product — at the right place — at the right time — and at the right price.                                        

In Value Chain Management, all of the above apply.  The difference is the starting point of the measurement system: 

 WHAT ADDS VALUE FOR THE CUSTOMER!

 Feller, Shunk and Callarman (2006)1 say that “… the key difference between a value chain and a supply chain [is that] they flow in opposite directions” (p. 1).  When we begin our quest for efficiencies based on value to the customer (customer perceived value) the orientation of the endeavor changes.  Are we designing in complexity or features that have no value to the customer?  Are we purchasing based on cost and ignoring other important considerations?  Are we transporting, holding, inventorying, and handling in ways that add no value to the customer? 

When every step in the process is viewed through the lens of value to the customer we get a “reality check” perspective that helps determine what waste is.  Any process that does not add value from the customers perspective is waste, and to the extent possible should be eliminated.  Any process that adds value from the customer perspective should be retained, and provided in a manner that costs less than the value added – if the customer is willing to pay for it, it is added value.  “In common parlance, a supply chain and a value chain are complementary views of an extended enterprise with integrated business processes enabling the flows of products and services in one direction, and of value as represented by demand and cash flow in the other” (Feller et.al., p. 4).

 1Feller, A., Shunk, D., & Callarman, T. (2006).  Value Chains versus Supply Chains. BPTrends, 1-7. Retrieved from:  http://www.bptrends.com/publicationfiles/03-06-ART-ValueChains-SupplyChains-Feller.pdf