How to Develop an Efficient Value Chain or System?

How to Develop an Efficient Value Chain or System  

The Value Chain concept was developed and popularized in 1985 by Michael Porter, in “Competitive Advantage.” Porter defined value as the amount buyers are willing to pay for what a firm provides, and he conceived the “value chain” as the combination of nine generic value added activities operating within a firm – activities that work together to provide value to customers.

The value chain and the supply chain are so closely related that it is essentially looking at the same flow from two different perspectives. The supply chain describes the flow of resources from the supplier to the customer. The value chain is the flow of value (as perceived by the customer) from the customer to the buyer. If the customer perceives no value in what the supply chain provides, there will be no demand. If the supply chain cannot deliver resources that the customer values (at the price the customer is willing to pay) there will be no flow.

Andrew Feller makes this distinction:

“Supply chains focus upstream on integrating supplier and producer processes, improving efficiency and reducing waste, while value chains focus downstream, on creating value in the eyes of the customer.”

- Value Chains Versus Supply Chains by Andrew Feller, Dr. Dan Shunk, & Dr. Tom Callarman - Business Process Trends - March, 2006

What’s Next?

In future posts, we will look at the following components of the Supply Chain Optimization Initiative - Link by Link: