What is value chain management and why is it important?

Posted by Dave Kravitt

value chain managementManufacturing value chain management (VCM) is the process of monitoring and managing all the components that comprise manufacturing, including procurement, production, quality control and distribution. It has gained prominence over the past couple of decades as business in general has gone increasingly global and the resulting competition has caused many companies to focus on their core competencies and outsource the rest.

Learn more about the 5 competencies your operations must achieve to remain competitive, reduce waste and shorten time-to-market.

The core-competency strategy was designed to help streamline operations and make them more profitable by moving less-efficient and non-core competency tasks and operations outside the enterprise. One unintended result, however, was the increasing diversity and complexity of external processes that lengthened the vendor-to-customer chain. In response, methodologies to help manage, standardize and optimize the value chain end-to-end were developed and value chain management was born.

Basic VCM includes the following:

  • Integrated supply chain planning & scheduling

  • Comprehensive resource management

  • Cycle time responsiveness

  • Supply chain-wide resource optimization

  • Vendor/customer information integration

What are the benefits of value chain management?

Proper VCM is key to optimizing business operations and maximizing profit. Companies can optimize value for themselves, their vendors and their end customers when they effectively manage the flow of production and sales from inbound logistics to operations, outbound logistics, marketing and sales and service.

The benefits of effective VCM include:

  • Improved bids and proposals Effective VCM improves your ability to capture, track and manage customer and marketing requirements to better estimate design, planning, procurement, production and service activities for more accurate cost estimates — all with complete traceability.
  • Better product planning, research, and development Good VCM includes developing a cross-functional team approach to planning, developing, delivering and servicing products focused on program performance, cost reduction and product quality. This enables you to more effectively plan and implement simultaneous projects while managing resource allocation, costs, scheduling and deliverables more efficiently.
  • Standardized processes VCM calls for repeatable and measurable business processes to better manage the product master data to ensure that customer expectations and commitments are met. Active VCM enables release and change processes to be better managed from concept to implementation. Standard, reliable and repeatable processes contribute significantly to reducing overall operational inefficiencies and waste.
  • Improved vendor management Synchronizing design and sourcing teams with vendors ensures that outsourced components and subsystems are managed to meet performance, quality, schedule and cost requirements while avoiding design flaws, excess inventory and waste.
  • Post-sales service and support Through VCM, you’re able to better manage and track in-service product configuration changes coordinated among field service, customer support and engineering resources.
  • Reduced costs Optimizing all the value chain components listed above can result in substantial end-to-end cost savings from streamlined processes, reduced inefficiencies and waste, better inventory control and improved product quality.
  • Improved profitability The ultimate result of a comprehensive and robust VCM program is enhanced revenues and better profit margins, contributing to greater overall success.

How does VCM compare to SCM? Read our related blog, What Are the Differences Between Value Chain Management and Supply Chain Management?


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Tags: Value Chain Management