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Value chain vs. value stream: What are the differences?

By Paul Maplesden

In today's business environment, companies are always looking for a way to stand out and add value for both the company and the consumer.

Two ways of understanding a company's added value are value chains and value streams. These methods share similar names, but subtle differences exist between the two. Both can help organizations improve their customer service, the company's bottom line and supply chain operations.

Here's what supply chain leaders should know about value chains vs. value streams.

What is a value chain?

A value chain is the series of activities that comprise the lifecycle of a product or service, from inception through production to purchase by the consumer. Value chain analysis examines the productivity of a company's operations.

One of the main purposes of value chain analysis is to find out how a company can compete more effectively. Value chain analysis attempts to discover how value is created and where costs are incurred.

Supply chain activities that are often part of a value chain include sourcing high-quality parts, aligning product features with consumer needs, rectifying defects during the manufacturing process and fast delivery.

Several other business functions' activities are part of the value chain as well. These include the following:

• Marketing and sales. Value chain activities include understanding consumer pain points and needs as well as creating marketing materials that convey the features and benefits of products.
• Customer service. Value chain activities include providing information for consumers and establishing return policies that are well-received by customers.
• Procurement and purchasing. Value chain activities include sourcing the right external vendors and suppliers as well as optimizing the purchase and supply of products.
• HR management. Value chain activities include hiring and retaining staff who will meet business needs.
• Technology. Value chain activities include investing in technologies that will improve business operations and company interactions with consumers.
• Company infrastructure. Value chain activities include optimizing all the support functions in a business, so they are each adding as much value as possible.

What is a value stream?

While a value chain focuses on the big picture of a company's operations, value streams drill down into the details, providing deeper insight into specific business processes. A value stream defines the processes that result in a happy customer.

Company leaders carry out value stream mapping to better understand specific parts of the value chain. These findings can then help organizations improve aspects of their operations in various ways, such as making processes more efficient, which can then improve customer service.

Employees from different parts of an organization can all use value streams. Value streams are not limited to a "current state"; and can help define what a good "future state" would look like.

Value stream mapping is part of the Lean Six Sigma manufacturing approach. Lean Six Sigma focuses on understanding, measuring and analyzing specific parts of a process, then making changes if necessary.

The differences between value chains vs. value streams

The most important difference between value chains and value streams is that value chains focus on business operations as a whole, while value streams focus on specific processes within the company.

Company leaders usually conduct a value chain analysis to better understand high-level operations, while value stream mapping helps leaders understand how to add value and better interact with consumers.

Here's more about some of the differences between value chains and value streams.

Tools differences

Value chain tools are designed to carry out strategic analysis. They can help identify opportunities for competitive advantage, especially when it comes to cost and differentiation in the marketplace.

Value stream tools work on a more operational level. They are most beneficial for reducing waste and optimizing customer interactions.

Essentially, value chain tools help answer the question, "How do we compete?," while value stream tools answer the question, "How do we deliver value efficiently?"

Big picture vs. granular insights

Value chain analysis takes a bird's-eye view. It focuses on all the activities that go into the creation of a product or service.

Meanwhile, value streams dig into the details. The focus is on more granular activities in specific processes.

Metrics differences

Value chains tend to measure cost structures, opportunities for differentiation and competitive positioning metrics. Value chains analyze and track high-level, strategic outcomes.

Meanwhile, value streams focus on time, quality and efficiency as well as how to improve processes based on those findings. They also focus more on operational performance as well as reducing effort and waste.

Paul Maplesden creates comprehensive guides on business, finance and technology topics, with expertise in supply chain and SaaS platforms.