The supply chain and value chain are two closely related concepts that describe different aspects of how goods and services are produced, delivered, and consumed. While both are important to understanding the overall process of delivering value to customers, they have distinct focuses and purposes.
Supply Chain
A supply chain refers to the entire network of entities, activities, and processes involved in the production, transportation, and distribution of goods and services. It encompasses all stages of a product's lifecycle, from the sourcing of raw materials to the delivery of the finished product to the end consumer. The primary focus of a supply chain is to manage the flow of materials, information, and finances efficiently and effectively to minimize costs and ensure timely delivery.
Key components of a supply chain include:
- Suppliers: Provide raw materials, components, or services needed for production.
- Manufacturers: Transform raw materials into finished goods.
- Distributors: Transport and store finished products, making them available to retailers or customers.
- Retailers: Sell products directly to consumers.
- Customers: Purchase and consume the products.
In real life, supply chains are significantly more complex than the generic case. The following is an example illustrating the complexity associated with a NASA program called Mars Science Laboratory Curiosity Rover.
Source: US Space Industry Deep Dive
Value Chain
A value chain, on the other hand, is a conceptual framework developed by Michael Porter in 1985 to analyze the activities and processes within an organization that contribute to creating value for customers. It focuses on understanding how a company can maximize its competitive advantage by optimizing the value creation process. A value chain is divided into two main categories: primary activities and support activities.
Primary activities are directly involved in the production, sale, and after-sale service of a product, and include:
- Inbound logistics: Receiving, storing, and distributing raw materials and components.
- Operations: Transforming inputs into finished products.
- Outbound logistics: Collecting, storing, and distributing finished products to customers.
- Marketing and sales: Promoting, selling, and delivering products to customers.
- Service: Providing customer support, maintenance, and other after-sales services.
Support activities provide the necessary infrastructure for the primary activities and include:
- Procurement: Sourcing and purchasing raw materials, equipment, and other inputs.
- Technology development: Investing in research and development, as well as adopting new technologies to improve products and processes.
- Human resource management: Recruiting, training, and retaining employees.
- Infrastructure: Managing the company's organizational structure, legal and financial aspects, and other administrative functions.
Value Chain Can Be Applied to Sectors of an Economy
Porter's Value Chain can also be applied to components of the economy. The concept can be adapted to different industries and sectors, including manufacturing, services, and even public sectors. The key is to understand the unique characteristics and value-creating activities of each sector and adapt the value chain model accordingly. The following article provides details on the space economy value chain and different interpretations.
Related But Different
The supply chain focuses on the efficient flow of materials, information, and finances from the initial sourcing of raw materials to the delivery of finished products to customers. The value chain, meanwhile, concentrates on the activities within an organization, sector, or industry, that create value for customers. Both concepts are essential for understanding and optimizing the overall process of delivering value to customers.