1.

Discussion of value->development of the value chain concept

2. Compare between value and supply chains
3. Conclusion: suggestions regarding the need for synchronizing value and supply chains to
optimize business performance

Value chain concept was developed and popularized by Michael Porter. Originally meant the combo of
activities that work together in a firm to provide value to customers (defined as amount customers were
willing 2 pay for what a company provides). Nowadays it’s used to describe the linkage between
multiple firms’ value creating processes.

- Primary focus of value chains is on the benefits to the customers, interdependent processes that
generate value and funds flows created.
- Ex: Person walking in desert, dying of thirst. They wouldn’t care how much money water was. =>
Value is subjective (dependent on context)
o Value is created when needs are met through the provision of resources, services, or
products (usually during a form of transaction or exchange)
- Value is an experience that flows from the customer (opposite of supply chains). Can be
measured by the degree to which customer needs are met exceeds the price paid.
- A key distinction in defining value is whether the exchange is B2B or B2C (to customers or other
businesses)
o 3 forms of value that occur in B2B transactions
 Technical (resource value)
 Value that’s intrinsic to the resource. Ex: Water to the thirsty man
above has intrinsic value regardless of source, etc
 Organizational
 Built upon context of exchange. Branding, reputation, etc build this
value.
 Personal
 Derived from personal experiences + relationships involved in the
exchange. Manager motivation, preferences, trust, etc create value for
the individuals that make exchanges on behalf of firms.
- There are competitive forces affecting market value by making the lowest price a deciding factor
in evaluating an exchange.
- Consumer level: value has been described by 3 concentric rings:
o Product value (resource value)
o Service value (customer service, warranty, etc)
o New service/quality battleground. Achieved by providing enhanced service. The
experience surrounding the exchange add its own value. Ex: McD has added value to its
burgers by having Ronald McD, happy meal toys and such (burgers have remained the
same)
- For firms, the capability of providing value to customers creates profit=>shareholder value. The
upstream (value) impacts of value creation is shareholder value
- “Non value added waste” needs to be reduced or eliminated for profit margins to rise.
Innovations and marketing strategies help improve customer perceptions of the product. =>
better bsn performance
- Supply chain management developed in the 1980s as a new philosophy to manage the total flow
of goods from suppliers to the ultimate user and evolved to consider a broad integration of
business processes along the supply chain.
o Original focus: management of supply chain as though it were one entity rather than a
group of disparate functions
o Was later refined by Walmart.
o Is now commonly used to encompass every effort involved in producing and delivering a
final product/service from supplier’s supplier to customer’s customer.
 Primary focus: cost and efficiencies of supply + flow of materials between
sources and final destination.
- Supply and value chain similar:
o They complement each other in that products/serv flow one way while value and
money flow opposite
o Overlay same network of companies
o Made up of companies that interact to provide goods/serv to customers
- Supply chain: downstream flow of goods from supplier to customer
- Value chain: Value from the customer flows to the supplier
- => Supply chains focus on supplier and producer processes, cutting waste and improve
efficiency. Value chains focus on improving value to the customer. However, the distinction is
often blurred in literature and management
o Recent survey shows that notion of value chain may be misnomer. Only resources move
along the chain of linkages between firms. Value is a metaphysical perceived quality
=>value surrounds movement of resources and accrues to both parties. =>Value chains
operate in both directions
 Suppliers get value from payment, stability, financial resources, etc
 Customers get value from product
- Creating a value chain requires alignment between what the customer wants and what is
produced

- There has been increasing interest in value chains. A number of significant trends driving the
need for operations oriented analysis from a value chain perspective:

o Increasing competition and the primacy of strategy – Increasing competition +

globalization => companies want to find alternative ways to be competitive
o Evolving governance models for the extended enterprise – The information era has
increased general interest and bsn research in alternative value chain n bsn models.
 o Globalization of supply n protection – Firms now need to model global value chainsas
the predominant mode of bsn in many industries bc of globalization
o Many benefits already wrung out of manufacturing and the suppl chain
o Trends in management discourse

- Value is highly influenced by larger econ and social environment. The consumer confidence
index is a highly important measure of the confidence people have in the economy and
therefore, how much they’ll spend. When trends take hold, companies will also be swept along
in the sudden creation or destruction of value.
- => In this environment, companies must sync the flow of supply and the flow of value from
customers with changing tastes and preferences in order to generate max revenue.