Supply Chain Vs Value Chain – What Do You Need to Know?

Supply Chain Vs Value Chain – What Do You Need to Know?

Starting a business necessarily requires new entrepreneurs to engage with every aspect of business, from the logistical elements of building a company to the direct development and marketing of a product. As such, it is incumbent on them to learn widely about the business world, and the effective strategies to creating both competitive advantage and success with consumers. To this end, it is important to understand two key concepts: the supply chain, and the value chain.

What is a Supply Chain?

A supply chain is simply the route of a product from genesis to production and then on to customer. It is a term often used to describe any system by which something travels from idea or raw material to finished product in a customer’s hands, but this usage of the term is somewhat vague and ill-fitting.

Specifically speaking, the supply chain describes the operational necessities of creating and distributing a product. It includes all of the necessary steps the product might take, from initial product design and development to materials sourcing, order fulfilment and logistics. 

The ‘operational’ focus is key here, as every step in the supply chain is catered to fulfil the essential goal of customer satisfaction. This satisfaction may be derived from the speed of delivery, as with same-day delivery courier options, or via post-delivery operational support through customer service portals.

What is a Value Chain?

The term ‘value chain’ is a newer term, having been coined in the late 20th century to describe the mechanisms behind competition and company growth. The value chain is the linear set of processes and systems that enable a business to build a competitive advantage in their field or industry.

This is because every step in the value chain is designed to add value to a product or material. The value chain describes the business side of a product’s journey; raw materials are bought from a supplier, and value is added to them through manufacture, change or expense in service of a refined product or service. This product or service is then marketed to customers, creating market value.

Supply Chain Vs Value Chain

So how do we understand the key differences between the supply chain and the value chain? First, it is necessary to understand both as concepts, and concepts which can be applied to practically every business. There are naturally both business and operational aspects to the development and launch of a product, and so both concepts can co-exist as ways of understanding a business’ approach.

Where they differ is with regard to their aims. Each concept puts a magnifying lens on different parts of the business. The supply chain gives you a framework for understanding logistics, and the value chain gives you a framework for understanding profitability. With a deep understanding of both concepts, you are more likely to intuit a successful business model.