Supply Chain – From the Value chain perspective

We often seem to confuse supply chain, value chain, logistics and distribution, the purpose of this simple article is first to clear these fundamental concepts and then discuss supply chain from value chain perspective.While we discuss these terms, let us go from narrow to the broad concepts.

Distribution: Disbursement of finished goods and/or raw material, Work-in-process inventory to the channels of consumptions. This is done through channels of distribution and supported by the strategies of allocation of resources.

Logistic:  This is the process carried out to distribute various inventories to their point of consumption, point of division or point of selling etc, this involves selection of route, mode of transportation, method of delivery and cost-and-benefit analyses related to distribution of goods/services.

Supply Chain: The over-all activity of transportation, distribution, logistics and network formation for the delivery of products and services into and out of the organisation is termed as supply chain. The “supply” chain integrates both the upstream and downstream supply and delivery channels.

Value chain: Supplies coming into the organisation are “upstream channels” supplies going outside the organisation are “downstream” and whatever happens in between these two streams with the supplies (goods and services) within the organisation is “value chain”. Hence value chain is that sequence of activities which add “value” to the product. Each and every operation that add-up material/monetary value to the product/service is termed as “value-add” process.

Products generally have no added values when they flow into or out of the organisation, hence all that adds value to the raw material and makes it a “finished goods” is value chain and hence organisations place great value to this chain. Processes such as assembling, packing, fining, finishing, designing, mixing, cutting etc every process after which product has a rise in its value is a “value-added” process and hence inspection, quality checks, loading, unloading, transportation, in-transit losses are all the examples of non-value added activities.

Firms tend to adopt sophisticated automation methods such as ERP, MIS, AMTs, FMS, Robotics etc to minimise the non-value-added activities so that they can earn maximum yield on the product with minimum efforts.

Industrial engineers and supply chain professionals add great value to the firm by eliminating wastage and non-value-added activities by methods such as “time and motion” studies, network analysis, queuing model & business process re-engineering.