Value chain, supply chain - what's the definition?

What came first the chicken or the egg? The supply chain or the value chain? It's all too easy to get the two muddled up.

In this case it's the supply chain that came first. It takes raw materials and converts them into a smooth manufacturing operation. That's why we call it a supply chain, because it's a chain of activities that produces an end product.

The value chain, meanwhile, is all about how good that product is. What’s its end value? And that means looking at not only the product, but also the value an end user puts on it as well as the cost of disposing the packaging. The goal of a value chain is to deliver maximum value to the end user for the least possible total cost.

And that’s when it gets a little more complex.

If something something costs less, does that make it better value? Altering packaging may reduce cost and delivery time but it may also force the supplier to hold more items on site which cannot be recycled, or have a shorter shelf life.

So, when talking value chain, a business needs consider the total impact of each decision and process along the way.

So how can we measure value-chain effectiveness? Companies consider how quickly information and cash flow through the chain alongside the product creation and distribution.


Technology has taken the value chain to a whole new level. Why? Because this complicated network of interactions is made easier with the tools of technology at your fingertips. It allows for better interplatform communications, more effective data translation and the growth of Internet-based e-business (See Holland's Pies Case Study).

It’s often about time management, getting an order out faster, completing a sale or electronic transfer of products from one channel to another. But in other cases, a very niche product with a longer lead time may carry more value for the end customer and therefore for the business.

Value-chain management doesn't make everything operate perfectly. But it can help you respond better to problems that will inevitably arise in the supply chain.


How do you manage your supply chain? Why not share experiences in our forums.