Is it Supply Chain or Value Chain?

In this week’s AMR Research First Thing Monday email (February 8, 2010) Kevin O’Mara discussed the term “Supply Chain” versus “Value Chain” and whether the latter may be more appropriate these days. Specific terminology like this is intended to enhance communication and define specific ideas, processes, or programs. This kind of hair-splitting, however, might have the opposite effect. I’m reminded of the transition from MRP to ERP as the suppliers tried to position their products as newer and more modern than traditional MRP which, at the time, was already decades old.

After the release of elaborate definitions by analysts and the expenditure of lots of marketing dollars by suppliers, the new term came into common use. The truth, however, is that ERP was just a new term for what already existed – an evolutionary descendent of the technology approach of combining business applications to include more of the enterprise in a synergistic, collaborative whole. It appeared for a time that “Supply Chain” might replace ERP as the standard term for this kind of system but it doesn’t seem to have gotten the attention and backing of a critical mass of marketers.

In any case, the APICS Dictionary (11th edition, available online for members at www.apics.org) defines the two terms this way:

SUPPLY CHAIN: The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.

VALUE CHAIN: The functions within a company that add value to the goods or services that the organization sells to customers and for which it receives payment.

Given these definitions, I believe that supply chain is a more appropriate term to describe the systems and processes. I don’t even object to using Supply Chain or Supply Chain Management (SCM) as a replacement for ERP to describe the systems we use to keep all this together and functioning effectively. Personally, I have been using the term “Enterprise Systems” to try to side-step the whole acronym debate.

Nevertheless, Supply Chain professionals are focused on enhancing the value-adding activities within the chain and eliminating those that do not add value.  Most people view that as a “Lean” focus because the term Just-In-Time is considered hopelessly passé.   Read more articles by Dave Turbide at www.daveturbide.com