“Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.” - Michael E. Porter, Harvard Business School Professor and originator of the Value Chain concept.
In this blog, we take a look at Value Chain Management, a vital strategic concept for manufacturers today.
What is Value Chain Management? Value Chain Management Definition
Manufacturing value chain management (VCM) is the process of monitoring and managing all the components that comprise manufacturing, including procurement, production, quality control and distribution.
This practice has gained prominence over the past couple of decades. As business in general has gone increasingly global, the resulting competition has caused many companies to focus on their core competencies and outsource other business activities.
This 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. The concept was originally introduced by Michael Porter in Competitive Advantage: Creating and Sustaining Superior Performance (1985). Since then, the concept has continually grown in importance.
Ultimately, the purpose of value chain analysis is to increase efficiency, delivering the most possible value to consumers at the lowest possible cost. Achieving this optimal value chain results in a significant competitive advantage.
This article focuses more specifically on VCM for manufacturers. If you’re interested in learning more about this concept, and some famous practitioners like Starbucks, Business News Daily provides a useful article here.
Examples of Value Chain Management Fundamentals
- Integrated supply chain planning & scheduling
- Comprehensive resource management
- Achieving more responsive cycle cimes
- 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.
Seven Important Benefits of Value Chain Management
- 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 are Value Chain Management and Supply Chain Management Different?
While VCM and Supply Chain Management (SCM) are closely related and often used interchangeably, they are distinct concepts.
While both ultimately end with the consumer receiving their goods, VCM focuses on how the organization will be competitive and profitable while doing so, while SCM focuses on how to efficiently and effectively meet customer needs.
Learn More About Implementing the Most Impactful Possible VCM Capabilities
PSGi has extensive experience working with manufacturing and distribution companies across North America (and beyond). We take pride in not only offering proven technological expertise, but a deep well of experience tackling ground-level business problems for manufacturing companies.
We offer a Business Process Review which includes a thorough evaluation of value chain and supply chain management practices. We look at not only how your software can capture these processes, but how it can help measure and determine optimal choices.
You can reach out to our team using the button below.