Value Chain and Supply Chain Management

Value Chain

Definition of Customer Value:

The sum of benefits perceived by customer minus their costs, when acquiring or using a product (i.e., good and/or service)

Michael Porter, 1985, Competitive Advantage: Creating and Sustaining Superior Performance

Definition of Value Chain:

"A Value Chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product (i.e., good and/or service) for the market"

Michael Porter, 1985, Competitive Advantage: Creating and Sustaining Superior Performance

The ultimate goal of the value chain is to deliver the most value for the least cost in order to create a competitive advantage

Definition of Competitive Advantage:

Competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. These factors allow the productive entity to generate more sales or superior margins compared to its market rivals.

Michael Porter, 1985, Competitive Advantage: Creating and Sustaining Superior Performance

Primary activities:

Primary activities consist of five components, and all are essential for adding value and creating competitive advantage.

It is important to note that 3 out of 5 primary activities defined my Porter are exclusive to Supply Chain Management (inbound logistics, operations and outbound logistics) and customer service is shared with Marketing and Sales. A Supply Chain Management focus in creating value to it´s customers allow to create a competitive advantage.

Value creation:

Company creates six types of value in the products (i.e., good and/or service) they commercialize. Three of them are exclusive to SCM and one of them is shared with Marketing and Sales.

Value Chain and Supply Chain Management

Marketing focus on creating value trhough branding and customization according to customer expectations and needs.

Marketing and sales also works in customer service creating value to the customer, but a lot of issues are related to operations. Is at this point that supply chain management has to increase service levels in each of it´s areas to create value to the customer.

Supply chain management has to create value by delivering goods or services on the right moment, on the right place, on the right quantity and the right conditions (i.e., temperature, shelf life, packaging, documentation, certifications, quality). Accomplishing it better and at a lower cost than our competitors allows our company to create a competitive advantage.

Can you think of another way to create value? Would you like to add or modify the six types of value mentioned in this article? Let me know in the comments