Risk & Assurance

An Insight Into Value Chain Management

Overview

Value Chain Management has evolved over the last few years tremendously. Earlier its logistics concentrated mainly on logistics, optimising mechanised aspects and on the manual elements of the process. Now it focuses on automation, digitalisation of the process and coordination of the elements engaged in the VCM. It has gained significance in the last few years because of the globalisation of business and competition across the globe. In this article, we shall discuss the whole concept of value chain management in detail.

Definition Of Value Chain Management

Value Chain Management is known as the integration of all resources like information, material, logistics, labour etc. that optimises financial resources and reduces waste. Elram and cooper defined VCM as an integrating philosophy to handle total flow of a distribution from the supplier to the customer. It generally involves surveillance of many factors as it flows through the value chain from the supplier to the customer.

Evolution Of Value Chain Management

During the year 1960’s the VCM was primarily emphasised upon utilising space in warehouses, enhancing logistics and mechanising process. Information management was handled manually, and it was an arduous task to transport freight as different modes of transport were used for transporting products to their destination.

Later on, the process of computerising data was followed and a few years later after digital revolution use of computers by the planners in the supply chain allowed optimisation of the logistical process and to innovate as well.

By the year 1990, there was a radical transformation of many industries and value chain management was one among them. Businesses adopted a holistic approach of value chain management process. They started investing in software solutions that ensured transparency.

How Can Value Chain Management Function Effectively?

The VCM is about managing the sequence of integrated activities and information about product flows through the whole value chain. This process must function effectively. There are a number of requirements that needs to be fulfilled in order for value chain management to function successfully. These are:-

• Investment in technology: Technology investment is an essential factor because technology contributes immensely in manufacturing and distribution. Advanced technology plays a major role in increasing the productivity of an organisation.
• Coordination: Coordination is extremely important to enhance efficiency in an organisation. Coordination and collaboration with other groups or individuals can help in achieving a common goal.

Benefits Of Value Chain Management

There are several benefits of value chain management. Let’s take a look at those benefits one by one-

• Better flow of materials and products

Whenever value chain management is put into effect, the flow of products and materials are enhanced significantly. Unwanted delays are avoided, and the products can be traced through the supply chain.

• Return on investment

A business, whether it’s a producer or a supplier, would want a return on investment for joining the value chain process. It would take some time, but it’s critical to understand that the positive outcome of the value chain rests upon the fact that the members must work towards a common goal like the increasing value of the product for customers. Improvement in communication between the members of the value chain and suggesting novel ideas which benefit customers can help an organisation in getting a higher return on investment.

• A consistent flow of information

Implementation of value chain management ensures a seamless flow of information concerning the products. It removes the obstruction to the flow of information.

• An uninterrupted flow of finances

Supply chain management not only improves the surge of the products but also improves the flow of the finances. VC management plays an ideal role for companies to overcome the challenges posed by the weak links that hinder the processes and helps to find out the solutions to the problems.

Therefore, value chain management can help the companies to improve on the flow of finances, products and information. The companies can alleviate risks that may pose a threat to their business and with effective implementation of the process, they can assess their processes. It can also aid them in evolving in the market.

Essential Elements Of Value Chain Management

A value chain consists of the following essential elements:-

• Inbound logistics which includes functions like receiving, managing inventory etc.;
• Process of converting raw materials into final products;
• Outbound logistics which consists of the process of distributing the final product to the customers.
• Marketing and sales strategies;
• Activities to provide better consumer experience like customer service, repair, refund etc.

Apart from these, there are other components that strengthen these above-mentioned elements. They are called support activities which include procurement of raw materials, technological development, Human resource management etc.

Difference Between Supply Chain Management And Value Chain Management

Supply chain management and VCM are terms often used interchangeably. However, it is vital to know that both are two different terms that can contribute to one’s organisational success. The differences between the two are discussed below:-

1.  The basic difference between Supply chain management and VCM is that supply chain is the management of parties involved in fulfilling the customer’s request whereas value chain is a kind of activity that is related to each other performed by the chain value participants.
2. Both supply and value chain ultimately ends with the customer receiving their goods, supply chain emphasises on how a customer’s need can be fulfilled whereas value chain emphasises on the fact that how the organisation can be competitive and profitable.
3. Although both have a common goal of satisfying the customers with their products, they take a little different path to get there.

Conclusion

Today, a lot of companies globally have realised the significance of Value Chain, and now they are aspiring to make their value chain digital and modern. In order to achieve this, companies need to come up with new strategies that go beyond the age-old strategies of mechanising processes and enhancing logistics.