Value Chains Versus Supply Chains by Andrew Feller, Dr. Dan Shunk, and Dr. Tom Callarman
Abstract The concept of a Value Chain has existed for twenty years but we find it still is an unclear concept. It has been suggested that the third generation supply chain is based on customer intimacy and is fully synchronized. In this paper, the authors discuss the need to relate the concepts of the value chain and the supply chain in a more comprehensive and integrative manner. We begin with a discussion of value and the development of the concept of value chain. We then discuss similarities and differences of the value chain and the supply chain, and conclude with suggestions regarding the need for synchronizing value and supply chains to optimize business performance. What is Value? The Value Chain concept was developed and popularized in 1985 by Michael Porter, in “Competitive Advantage,” (1) a seminal work on the implementation of competitive strategy to achieve superior business performance. 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. Porter linked up the value chains between firms to form what he called a Value System; however, in the present era of greater outsourcing and collaboration the linkage between multiple firms’ value creating processes has more commonly become called the “value chain.” As this name implies, the primary focus in value chains is on the benefits that accrue to customers, the interdependent processes that generate value, and the resulting demand and funds flows that are created. Effective value chains generate profits. To bring the concept of value into focus, consider for a moment a person walking in the desert, a person who