Value chain vs. supply chain: What are the differences?
Although value chains and supply chains can be interchangeable, they are separate approaches to producing goods. Learn more about value chain vs. supply chain.
The process of sourcing, manufacturing, transporting, storing and distributing a product can be complicated, and carrying it out successfully relies on many interdependent areas working together seamlessly as part of a chain. Two types of chains that many mix up when discussing this chain of operations are value chains and supply chains.
Although value chains and supply chains can be interchangeable, they are distinct and separate approaches to producing goods and benefiting consumers. One difference between the two is that, as indicated by the name, a value chain seeks to add value to a product.
Here's more about value chain vs. supply chain.
What is the supply chain?
A supply chain is a series of interconnected processes focused on creating products and supplying them to an end user or consumer. The four broad areas that make up most supply chains are sourcing, manufacturing, logistics and retail. Each of these areas consists of several key activities.
Sourcing activities in the supply chain include identifying vendors that can source specific raw materials, ingredients and parts for the final product as well as procuring the raw materials from the vendor and transporting them.
Manufacturing activities in the supply chain include receiving raw materials from suppliers; manufacturing finished products from ingredients, parts and materials; and giving the finished products to logistics providers for storage and distribution.
Logistics activities in the supply chain include picking up, transporting, delivering and returning products domestically and internationally as well as storing products as inventory until they are sent to retailers or consumers. Other logistics activities are fulfilling orders for specific products and distributing products to retailers or directly to consumers.
Retail activities in the supply chain include ordering products from manufacturers and logistics providers, receiving items and selling products to consumers.
The supply chain is primarily focused on the physical, direct operations of building products and delivering them to the end user. The goal is to do this in a fast, reliable and cost-effective way.
What is the value chain?
A value chain seeks to add value to a product through a variety of approaches. This addition of value benefits the product's end user and often improves a company's profitability.
Value chain activities can take many forms, depending on company priorities, consumer needs and brand positioning.
Product development activities in the value chain include gaining a deep understanding of consumer needs and market fit and conducting extensive research and development to define, prototype, and improve products.
Customer service activities in the value chain include providing relevant information so consumers can make an informed choice when selecting a product and offering after-sales care and support for consumers if they have questions or need to return products. Another customer service activity is including guarantees and warranties related to the function, reliability and durability of products.
Marketing and sales activities in the value chain include understanding consumer needs; telling consumers how their needs will be met by the product; promoting, advertising and selling products; and carrying out customer relationship management.
Supply chain activities in the value chain include ensuring that the right materials are in the right place in the right time to carry out the manufacturing of products as well as improving quality control and quality assurance. Another is ensuring product availability and adding value through order fulfillment and distribution, such as the collection of old products.
The value chain is primarily focused on creating a competitive advantage and consumer benefits for the end user. The goal is to carry this out in a consumer-centric, strategic way.
The differences between the value chain and the supply chain
The supply chain is always part of the value chain because adding value for a business or consumer relies on the foundational supply chain activities of sourcing, manufacturing, selling and distributing products.
However, a value chain goes further than a supply chain in terms of adding value and creating a competitive advantage.
Supply chains are mainly focused on the following:
- Optimizing the operational management of product sourcing, manufacturing, and logistics.
- Building and storing products.
- Distributing products in a fast and reliable way.
- Reducing product and operational costs to maximize profit margins.
Meanwhile, value chains are mainly focused on the following:
- Considering the consumer's perspective for every aspect of a product.
- Improving consumer satisfaction throughout the supply and value chain.
- Creating a competitive advantage that makes a consumer more likely to purchase a company's products.
Supply chains and value chains are both critical to satisfying consumer needs and improving a company's bottom line.
