The difference between a value chain and a supply chain is that a supply chain is the process of all parties involved in fulfilling a customer request, while a value chain is a set of interrelated activities a company uses to create a competitive advantage.
The idea of value chain was pioneered by Michael Porter. Five steps in the value chain give a company the ability to create value exceeding the cost of providing its good or service to customers. Maximizing the activities in any one of the five steps allows a company to have a competitive advantage over competitors in its industry. The five steps or activities are:
- Inbound logistics: receiving, warehousing and inventory control
- Operations: value-creating activities that transform inputs into products.
- Outbound logistics: activities required to get a finished product to a customer
- Marketing and sales: activities associated with getting a buyer to purchase a product
- Service: activities that maintain and enhance a product's value, such as customer support
A profitable value chain requires connections between what consumers demand and what a company produces. Value chains place a great amount of focus on things such as product testing, innovation, research and development, and marketing.
The supply chain comprises the flow of all information, products, materials and funds between the different stages of creating and selling a product. Every step in the process, including creating a good or service, manufacturing it, transporting it to a place of sale and selling it is a company's supply chain. The supply chain includes all functions involved in receiving and filling a customer request. These functions include:
- product development
- customer service
The primary concerns of supply chain management are materials costs and effective product delivery. Proper supply chain management can reduce consumer costs and increase profits for the manufacturer. (For related reading, see: Job Description and Salary: Supply Chain Management.)