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Value Chain Management - Meaning, Definition, Differences with Supply Chain & Porter's VC | AIMS UK

Value Chain Management - Meaning, Definition, Differences with Supply Chain & Porter's VC

Value Chain Management is a concept that plays a crucial role in meeting market demands for specific products or services. It involves a collaborative effort from various players working together to enhance the value of a product or service throughout its lifecycle. This article will delve into the definition of value chain, value stream, and value stream mapping, as well as explore Porter's value-chain model. Additionally, we will discuss the differences between value chain and supply chain.

Value Chain

The value chain is a string of collaborating players who work together to meet market demands for specific products or services. The primary aim of a value chain is to increase the overall value of a product or service. It integrates various supply chain activities, such as determining customer needs, production, distribution, marketing, and after-sales service. By streamlining and optimizing these activities, the value chain can enhance the value proposition for customers.

Value Stream

A value stream represents the sequence of activities required to design, produce, and deliver a product or service to the market. It can be controlled by a single business or a network of multiple businesses. For a product value stream, it encompasses raw material suppliers, manufacturers, and distribution networks. On the other hand, a service value stream consists of suppliers, technology service producers, and distribution channels.

Value Stream Mapping

Value stream mapping is a two-step process that helps in visualizing and improving the flow of supply chains or value streams. The first step involves drawing a value stream map or flow of the current supply chain, highlighting the various processes and activities involved. The second step focuses on creating an improved and more effective flow for the product or service, eliminating any bottlenecks or inefficiencies.

Porter's Value-Chain Model

Porter's value-chain model emphasizes the systems involved in transforming inputs into outputs within a business. This perspective divides activities into two types: primary activities and support activities. Primary activities are directly related to the physical creation, sale, maintenance, and support of a product or service. They include inbound logistics, operations, outbound logistics, marketing and sales, and service.

  • Inbound logistics: Processes related to receiving, storing, and distributing inputs.
  • Operations: Activities that change inputs into outputs, creating value.
  • Outbound logistics: Activities involved in delivering the product or service to customers.
  • Marketing and sales: Processes aimed at persuading clients to choose the company's product or service over competitors.
  • Service: Activities related to after-sales service.

Support activities, as the name suggests, support the primary activities. Each support activity plays a role in multiple primary activities. The support activities include procurement or purchasing, human resource management, technological development, and infrastructure.

  • Procurement: Obtaining the necessary resources for the organization to operate, including finding vendors and negotiating favorable prices.
  • Human Resource Management: Managing the recruitment, training, motivation, and rewards of employees.
  • Technological Development: Activities related to managing and processing information.
  • Infrastructure: Support systems and functions that enable the company to maintain daily operations, such as accounting, legal, administrative, and general management.

Keywords

Value Chain, Value Stream, Value Stream Mapping, Porter's Value-Chain Model, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, Service, Procurement, Human Resource Management, Technological Development, Infrastructure

FAQ

Q1. What is the difference between a value chain and a supply chain?

A value chain refers to a string of collaborating players working together to meet market demands and enhance the value of a product or service. It integrates various supply chain activities such as production, distribution, and marketing. On the other hand, a supply chain encompasses the entire process from raw material sourcing to the delivery of the final product or service to customers. It involves the flow of goods, information, and finances.

Q2. How does value stream mapping contribute to improving supply chains?

Value stream mapping helps visualize a supply chain by highlighting the current processes and activities. By identifying bottlenecks, inefficiencies, and areas for improvement, businesses can optimize their supply chains for better flow and value creation. Through value stream mapping, companies can eliminate waste, reduce lead times, and enhance customer satisfaction.

Q3. How does Porter's value-chain model benefit businesses?

Porter's value-chain model provides a systematic framework for analyzing how businesses create value. By understanding and optimizing each activity within the value chain, companies can identify sources of competitive advantage and maximize their overall efficiency and effectiveness. This model helps businesses identify areas where costs can be reduced or value can be increased, leading to improved profitability and market position.

Q4. What are primary and support activities in Porter's value-chain model?

Primary activities are directly involved in the physical creation, sale, maintenance, and support of a product or service. These activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities, on the other hand, provide the necessary support and infrastructure for the primary activities to function effectively. They include procurement, human resource management, technological development, and infrastructure.