There is often some confusion about the difference between the traditional supply chain and what has come to be known as a “value chain”. In reality, the two usually overlap and can even be the same “chain”. The difference lies in the high-level view of the process, but it can be argued in most cases – if not all – that a supply chain that isn’t also a value chain is a sign of poor business practices.
Today we look at creating a value chain for business, and how effective auditing is just as important as ownership for each link in the chain.
What’s the Difference?
The traditional supply chain is essentially, although not always completely, about logistics. Materials and products move through the chain from one location to another, e.g.; from producer or material supplier to the consumer, with multiple stops along the way. While there may be (and likely are in most cases) product transformations from the beginning to the end of the supply chain, adding value is not the overall primary purpose in this case.
The idea of a value chain also involves movement through the various links in the chain, but logistics is more of a mechanism within the process, rather than the point of the process. In a value chain, the point is to add value for the customer at every point along the chain until it reaches them. Any stops along the way that don’t increase the value of the product are considered superfluous and should be targeted for elimination or change.
The end goal is to transform a supply chain into a value chain, so that the product the customer receives has as much value as can be reasonably added. There are only two ways to add value to a product: increase the function and/or quality without a necessarily corresponding price increase, or decrease costs without any measurable decrease in quality or function. The majority of the time, the second option is more viable.
Developing Your Value Chain
Using the assumption that it’s easier to increase value by lowering costs, how do you lower those costs? The simplest (not necessarily the easiest) and most effective way is to control your supply chain completely from end to end. Up-front costs of acquiring or creating the links in your chain will ultimately be outweighed by the cost savings and greater efficiency that result from doing so.
Once you own your supply chain, the next step is to create a more unified process among the various siloed components of the chain. Each step should be checked to ensure that its processes are adding measurable value, and that any duplication is eliminated throughout the chain. The most efficient and effective way to do this is by using an auditing system that is uniform from end to end, and enables administrators to see the formerly siloed pieces as cogs operating the same machine, distinct but part of a bigger whole.
Software like Compliance Checkpoint offers this type of end-to-end auditing with real-time results for the best analysis possible. When you have control from one end of the chain to another you can improve the quality and efficiency of the processes through auditing, thus lowering the cost of and increasing the profit on the product.
