Content History Definitions Benefits Advantages Disadvantages Managing The Value Chain
History Supply Chain - For a company, the supply chain is normally a big and wide concept that describes the means by which the company produces products or services to meet its customers’ needs. A value system includes the value chains of a firms supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firms buyers (and presumably extended to the buyers of their products, and so on). The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks
Definitions Kotelnikov (2001), A high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. John Del Vecchio, a value chain is "a string of companies working together to satisfy market demands." The value chain typically consists of one or a few primary value (product or service) suppliers and many other suppliers that add on to the value that is ultimately presented to the buying public.
Benefits Creating a Profit Cooperation Return on Investment Increasing Competition and the Primacy of Strategy Evolving Governance Models for the Extended Enterprise Globalization of Supply and Production Many Benefits Already wrung out of Manufacturing and the Supply Chain Trends in Management Discourse Improved Customer Service Cost Savings and Accelerated Delivery Times
Advantages A big advantage is that the value chain is a very flexible strategy tool for looking at your business, your competitors and the respective places in the industry’s value system. The value chain can be used to diagnose and create competitive advantages on both cost and differentiation. It helps in understanding the organization issues involved with the promise of making customer value commitments and promises because it focuses attention on the activities needed to deliver the value proposition. It can be adapted for any type of business – manufacturing, retail or service, big or small.
Disadvantages Many people are familiar with the value chain but few are experts in its use. Michael Porter’s book is excellent but it is a tough read. It’s also dated in its examples which can make some of the ideas more difficult to relate to and understand how things fit together in the Internet age. The value chain idea has been adopted by supply chain and operations experts and therefore its strategic impact for understanding, analysing and creating competitive advantage has been reduced. Business information systems are often not structured in a way to make it easy to get information for value chain analysis.
Managing The Value Chain How does your organization create value? How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs? The value thats created and captured by a company is the profit margin: Value Created and Captured – Cost of Creating that Value = Margin