Value Chain and Supply Chain are similar concepts and hence confused by many. Though similar, Supply Chain and Value Chain are not identical. Let’s see what’s the difference is between the two.
Supply Chain, as you know, refers to the flow of material from suppliers to the customers (or as some might say, from suppliers’ suppliers to customers’ customers), and the flow of information in both the directions. It is about ensuring that goods and services are produced and delivered in the most efficient and cost effective manner. Supply Chain deals with efficiency. It asks the questions like what should be done to reduce distribution costs by x percent or to reduce lead-time by x amount. It deals with issues in integration with supply chain partners to improve the flow of information and improve efficiency. The keyword here is “efficiency”.
Value Chain, on the other hand, deals with more strategic decisions pertaining to the supply chain. It deals with long-term decisions about structuring the supply chain in a way to get competitive advantage in the market. Value chain asks how does one get maximum value for the company and its supply chain partners. A typical Value Chain decision would be whether to source components from low-cost Asian supplier or to manufacture components locally close to the market in the West. These decisions have long-term implications to the supply chain. Value Chain deals with gaining competitive advantage in the market using your supply chain. Decisions pertaining to forward and backward integration fall in domain of Value Chain.
Mandating your suppliers to send Advanced Shipment Notice of raw material shipped and deploying systems to improve efficiencies using ASNs is a Supply Chain activity. Deciding on whether to manufacture or buy locally or buy globally is a Value Chain activity. In short Supply Chain is tactical, Value Chain is strategic.
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