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A Supply Chain consists of series of activities in which a product or a material is transferred from one point to the final point (Clemmer, Jim, 1990). In a value chain, instead of just transferring products, certain values are added to it at various stages in order to provide maximum satisfaction to customers.
The primary focus in supply chains is on the costs and efficiencies of supply, as well as the flow of materials from their various sources to their final destinations. Efficient supply chains reduce costs.
The Supply Chain and the value chain are related to each other even though they move in opposite directions. The Supply Chain consists of a flow of products and services in one direction, whilst the flow of Demand and cash in the other direction represents the Value chain (J. Ramsay,2005). This means that the primary difference between a supply chain and a value chain is a shift in focus from the supply base to the customer.
The Supply Chain focuses on integrating supplier and producer processes, improving efficiency as well as reducing waste.
While the value chain focuses on creating value in the eyes of the customer. In order for a company to initiate a profitable value chain, alignment between what the customer wants, (demand chain) and what is produced via the supply chain is required. Another characteristic of a value chain is that it focuses on innovation in product development and marketing whilst the supply chain is primarily focused on reducing costs in order to obtain operational excellence and resource efficiency.
Although it is important to maintain the objectives of the supply chain (i.e. Reduced costs, maximum efficiency); the customer focus is also a vital key as customer demands have to be met in order to achieve maximum demand and ensure long-term sustainability. It is essential that both Value and Supply chain work in unison in order to obtain maximum efficiency whilst ensuring overall customer satisfaction as well as maximum cash flow.
Why Value Chains Now?
The growing interest in value chains in companies is because it helps provide the company’s with a distinct competitive advantage over its rivals (M. Porter, 1985). There are a number of trends that are now driving the need for operations orientated analysis from a value chain perspective. These trends are as follows:
Increasing competition and the primacy of strategy
The value chain is a strategic concept, companies struggle to compete in an environment of globalization and intense competition. This is when companies look to their value chain to formulate strategies to remain competitive in their respective industries.
Evolving governance models for the extended enterprise
The information era led by the recent focus of capital investment on internet technologies has increased the research of businesses to look for alternative value chains and business models to better there own benchmarks as well as create a better competitive advantage. This new growth of business models has created significant interest in value chains and has made it a primary use to create new models of products.
Globalization of supply and production
The huge growth in global sourcing and supply has begun the process of adding value worldwide (G. Gereffi et al, 2005). This leads to the need to model global value chains as the main mode of business in many industries.
Many benefits already wrung out of manufacturing and the supply chain
The Industrial Engineering and Operations Management together with management and operations improvement such as lean manufacturing and TQM have been improving the efficiency of manufacturing and supply chain operations for a long time. However, there is still a lot
Of work to be done, therefore many firms are turning to look at a broader view of the enterprise to continue improving its competitive advantage (A. Smith, 1937). Improving the operational and production capability of value added activities in the manufacturing process require the firm to shift its perspective outlook from supply chain to value chain.
Trends in management discourse
A final reason for the growing interest in value chains is the nature of management fashion trends in academic and management discourse. Management trends have a life cycle and right now the fashion has shifted to value chains as this has become one of the best methods for a company to operate with to create a better competitive advantage as compared to any other. Value chains have ultimately led to a lack of interest in supply chain management, this is also due to the fact that we are in the information era that has given the value chain an upper hand in finding better alternatives for better production. Value chains have started since the 1980s this has given it a long time to grow and it has certainly been adopted as more important than supply chain and operations by management. Value chains is set to rise in popularity as it has been labeled as a dynamic differentiator ( C.H. Fine et al, 2002).
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