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What is supply chain? Also explains the difference from value chain

Many of the products distributed around the world are made by manufacturing companies called “manufacturers.” However, manufacturers are not responsible for everything from purchasing raw materials to processing, manufacturing, and assembling parts. For products from major manufacturers, there is a subcontracting structure with three to five layers, such as Tier 1, Tier 2, and Tier 3. This is commonly called a “supply chain. 

In this article, we will explain the supply chain. We will also explain the difference between value chain and value chain.

What is supply chain?  Also explains the difference from value chain

Table of contents

  1. What is supply chain?
  2. Example of overall supply chain picture
  3. Importance of supply chain management
  4. Differences from value chain
  5. Thinking about supply chains and value chains

What is supply chain?

Supply chain is a word coined by combining the words “supply” and “chain,” and is a word often heard in the manufacturing industry . Supply means “supply.” Providing means giving something to someone based on need.

In the manufacturing industry, business is based on providing products to a continuous market. And we need to get supplies to deliver the product. In the case of a general manufacturing industry, companies that manufacture and process raw materials first supply processed products to companies that manufacture parts, and then companies that manufacture parts supply the parts to manufacturers or secondary/tertiary recipients. To do. Once the product is completed by the manufacturer, it is then supplied to the shipping department, which then supplies it to the distribution department, retail store, and then to the consumer.

In this way, the manufacturing industry relies on “continuity of supply,” and ultimately the product is in the hands of the consumer. Since these supply processes are connected like a chain, they are called a supply chain.

Example of overall supply chain picture

  • Secondary raw material supplier supplies raw materials to primary raw material supplier
  • Secondary raw material suppliers supply raw materials to processors
  • Processor supplies parts to manufacturer
  • Manufacturer supplies product to wholesaler
  • Wholesalers supply products to retailers
  • Retailer supplies product to consumer

Importance of supply chain management

The reason you often hear the word supply chain in the manufacturing industry is the importance of ” supply chain management .”

In the manufacturing industry, orders are placed with suppliers based on production plans such as, “I want to bring this many products to the market, and by when will I need this many parts to produce that amount.” Upon receiving the order, the supplier orders raw materials, etc. from a subcontractor and begins manufacturing the parts. Many parts are then collected by the manufacturer, the product is made, and then delivered to the distribution department, which then delivers it to the wholesaler according to the sales plan. The products are then sold on store shelves and finally placed in the hands of consumers.

If this major flow is disrupted, it is natural that we will not be able to introduce sufficient quantities to the market, making it impossible to execute our business strategies and achieve sales targets. Also, if you misjudge the market forecast and manufacture too many products, inventory will swell and put pressure on your business. This means that the company will not be able to generate the profits it had planned for.

In order to avoid these problems, supply chain management manages and optimizes the flow of products as a whole, ensuring that each vendor and consumer receives supplies of raw materials, parts, and products at the right time, and avoids delays. We need to ensure that products can be delivered to consumers without any problems.

Supply chain management is said to have been first used in 1982 by KR Oliver and MD Webber of Booth Allen Hamilton, a consulting firm headquartered in McLean, Virginia, USA.

Since then, many supply chain management software have become popular. In recent years, consumer needs have been diversifying due to the development of the Internet and mobile technology, and companies are now having to adapt from the traditional high-volume production of small variety products to high-mix low-volume production. Therefore, in modern times, there is a strong demand for “mass customization” that captures the needs of each consumer, and supply chain management is becoming increasingly important in order to ensure a smoother supply of products.

Differences from value chain

Along with supply chain, the term ” value chain ” is often heard . This is called a “value chain,” and focuses on the “value” that each creates through the entire process, from processing raw materials to manufacturing parts, purchasing parts to manufacturing products, and shipping products to selling them in stores. What we did was the value chain.

By understanding throughout the supply chain, “Which processes are creating added value? Which processes are causing problems?”, we can improve the quality of the products themselves and the support provided by manufacturers, and improve the quality of products for consumers. Our goal is to create better products.

For example, Net Protections provides a “deferred payment payment service” when purchasing products through mail order or online shopping. Based on the concept of “providing payment services with the highest versatility and highest quality,” the company conducts value chain analysis and strengthens it through the following seven items.

  • Credit screening
  • Payment request/collection
  • Contact center management
  • Sales & Marketing
  • System construction/development/maintenance
  • General management
  • human resource management

By performing value chain analysis, you can understand your company’s so-called “strengths” and “weaknesses.” By optimizing your supply chain with this in mind, you can differentiate yourself from other companies and transform into a company that can earn higher profits.

By the way, in value chain analysis, the supply chain is divided into main activities, which involve turning raw materials into products and delivering them to customers, and support activities to support them. The main activities are purchasing/logistics, manufacturing, shipping/logistics, sales/marketing, and services, and the supporting activities consist of procurement, technology development, human resources management, and infrastructure management.

Thinking about supply chains and value chains

Supply chains and value chains are not just concepts for the manufacturing industry. Supply chains always exist in all industries, including companies like Net Protections that handle intangible products, retail, and service industries, and the value chain concept also applies. If you are a business person reading this article, please think about what supply chains and value chains are in your industry.

Understanding the supply chain and value chain makes it possible to optimize each, and is an essential element in generating more profits and customer satisfaction.


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