Supply chain or value chain?
Having worked in Supply Chain Management for 15 years, I face the same challenges most people do when being introduced to someone for the first time, forced to try and explain what I do for a living. How much detail do I go into? - enough so they understand, not too much so I sound condescending? And when talking to people who are not in the same field, how do I explain that Supply Chain isn’t just trucks and forklifts? Perhaps if I’m feeling bold – how do I even try and convey how exciting supply chain is?
In most settings, and even within most businesses, Supply Chain Management suffers from a lack of understanding of what it really
involves – and how it’s changed over the years. Not that we’re alone – after all, accountants just add numbers up on their calculators all day right? This isn’t helped by the fact that the different parts of the term ‘supply chain’ (a term that first surfaced in 1982 during a New York Times interview with Keith Oliver, a Booz Allen Hamilton consultant), are relatively different. Sure, they’re connected, but it’s that connection that has resulted in perhaps the most interesting evolution in our collective identity - the increasingly common use of terms ‘operations’, or ‘value chain’ to describe our function.
A quick search into the history of each term will tell you that ‘supply chain’ refers to the planning and management of a group of activities that link supply to demand, while ‘operations’ typically refers to more of an internal lens, often related to just manufacturing. ‘Value chain’ on the other hand originated in
Michael Porter’s bestseller ‘Competitive Advantage’ in 1985, and refers more to the process of having different parties in the continuum - from raw material to consumption, each adding ‘value’ to the product throughout its life.
More and more however, the terms are interchangeably used by
organisations to describe the amalgamation of functions like procurement, logistics, planning, manufacturing (or ‘source, make, plan, deliver’ if you prefer), sometimes including order management, asset management, S&OP, IBP, and various other interconnected activities.
As always it depends on what each organisation does, and in particular, how supply chain adds to its competitive advantage. In most cases though, new conventions in terminology reflect the change in value the function delivers to an organisation, and how increasingly connected supply chains are throughout the operating model.
If there is to be a worthy successor to ‘supply chain management’, the term ‘operations’ is a little problematic – as it’s also used to describe the opposite of ‘strategy’ – and in that light almost all functions can have an ‘operational’ aspect. ‘Value chain’ on the other hand might go a long way to better illustrating that the activities that make up what we now consider supply chain to be, are all interconnected, are at the core of what each organisation does - and are the main mechanism of adding ‘real value’ to whatever it is an organisation considers its purpose. About time if you ask me! It might also go a long way to attracting new talent to the field, in an age where most professions are reinventing themselves to compete for interest.
Ian Williamson is a Partner at KPMG New Zealand. He leads the firm’s Management Consulting Division in Auckland, and is a career supply chain practitioner.