Supply Chain Management and the Value Chain

Technological University Dublin ARROW@TU Dublin

Practitioner Journals National Institute for Transport and Logistics

2009-01-01

Edward Sweeney Technological University Dublin, [email protected]

Follow this and additional works at: https://arrow.tudublin.ie/nitloth

Part of the Business Commons, and the Civil and Environmental Engineering Commons

Recommended Citation Sweeney, E.: Supply Chain Management and the Value Chain. Supply Chain Perspectives, the Journal of the National Institute for Transport and Logistics, Vol. 10, Issue 2, September 2009, p.13-15.

This Article is brought to you for free and open access by the National Institute for Transport and Logistics at ARROW@TU Dublin. It has been accepted for inclusion in Practitioner Journals by an authorized administrator of ARROW@TU Dublin. For more information, please contact [email protected], [email protected].

This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License Dublin Institute of Technology ARROW@DIT

Articles National Institute for Transport and Logistics

2009-01-01 Supply Chain Management and the Value Chain Edward Sweeney Dublin Institute of Technology, [email protected]

This Article is brought to you for free and open access by the National Institute for Transport and Logistics at ARROW@DIT. It has been accepted for inclusion in Articles by an authorized administrator of ARROW@DIT. For more information, please contact [email protected], [email protected]. VOL 10 ISSUE 2 2009

Supply Chain Management and the Value Chain by Edward Sweeney

One well-known approach to Most organisations engage in activities required to collect, strategic thinking and strategy hundreds, even thousands, of store and distribute the out- formulation, based on the con- activities in the process of con- put. cept of the value chain, was in- verting inputs to outputs. These 4. Marketing and Sales are ac- troduced a quarter of a century activities can be classified gen- tivities that inform buyers ago by Professor Michael Porter erally as either primary or sup- about products and services, of Harvard Business School port activities that all businesses induce buyers to purchase (Porter 1985). The idea of the must undertake in some form. them and facilitate their pur- value chain is based on the According to Porter (1985), the chase. process view of organisations, primary activities are: 5. Service includes all the ac- the idea of seeing a manufactur- tivities required to keep the ing (or service) organisation as a 1. Inbound Logistics, which in- product or service working system, made up of subsystems volve relationships with sup- effectively for the buyer af- each with inputs, transforma- pliers and include all the ac- ter it is sold and delivered. tion processes and outputs. In- tivities required to receive, puts, transformation processes store and disseminate in- The support activities are pro- and outputs involve the acquisi- puts. curement, human resource tion and consumption of re- 2. Operations are all the activi- management (HRM), techno- sources, such as money, labour, ties required to transform logical development and infra- materials, equipment, buildings, inputs into outputs (products structure. A graphical represen- land, administration and man- and services). tation of Porter’s value chain is agement. How value chain ac- 3. Outbound Logistics, which shown in Figure 1 below. tivities are carried out deter- involve relationships with mines costs and affects profits. customers and include all the

Figure 1: Porter’s Value Chain (Porter, 1985) 13 SUPPLY CHAIN PERSPECTIVES

Jacobs (2003) notes that:

The value chain disaggre- gates a firm into its strat- geically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.

One implication of Porter’s the- sis is that firms need to examine each activity in their value chain architectures. This is in organisations. chains to determine whether or line with the strategic focus The relationship between this not they have a real competitive within firms on the identifica- chain and SCM has been the advantage in the activity. One tion of - and concentration on - subject of discussion in several consequence of this is that ac- ‘core competencies’. academic papers (e.g. Barney tivities which are not a source of 1997; Lazzarini et al. 2001). Sup- real competitive advantage are Oates (1998) defines core com- ply chains are in essence sets of often being outsourced thus petencies as ‘the central things activities representing succes- creating more virtual supply that organisations do well’. The sive stages of value creation. corollary of this is that activities Supply chain management regarded as ‘non-core’ are often (SCM) is, therefore, concerned being outsourced. Greaver with the management of these (1999) states that ‘non-core activities in a holistic manner. competencies take up time, en- The literature on SCM suggests ergy and workspace, and help that vertical interdependencies management lose sight of what between the activities require a is important in an organisation’. systemic approach to the man- Furthermore, the trend towards agement of material and infor- economic and business global- mation flows between firms en- isation has facilitated the out- gaged in the chain. On the other sourcing of various activities to hand, Porter’s original value overseas locations (offshoring). chain analysis was primarily an This is particularly the case in approach that described a set of relation to the off-shoring of sequential activities creating relatively labour-intensive ac- value within firms. tivities to lower labour cost lo-

cations. In short, key supply chain activities are increasingly being outsourced to third-party

14 VOL 10 ISSUE 2 2009

However, outsourcing of supply References chain functionality and the re-  Barney, J. B. (1997), Gaining sulting creation of more virtual and Sustaining Competitive configurations has had the ef- Advantage, Reading: Addi- fect of extending the value son-Wesley. chain beyond the boundaries of individual firms. As noted by  Christopher, M. (2005), Lo- Christopher (2005), ‘the supply gistics and Supply Chain chain becomes the value chain’. Management: Creating In other words, the distinction Value-Adding Networks, often traditionally espoused be- London: FT Prentice Hall. tween the value chain and the  Greaver II, M. F. (1999), supply chain has become incon- Strategic Outsourcing – A sequential. As succinctly sug- Structured Approach to Out- gested by Christopher (2005): sourcing Decisions and Ini- tiatives, New York: Amacon. Now the focus has wid- ened as the move to out-  Jacobs, D.G. (2003), sourcing non-core activi- "Anatomy of a supply ties in the value chain ac- chain", Logisticstoday, 44 celerates. Thus, we are (6), 60-2. seeing, in effect, the sup-  Lazzarini, S. C., Chaddad, F. ply chain become the R. and Cook, M. L. (2001), value chain. ‘Integrating Supply Chain and Network Analysis: The In conclusion, it is important Study of Netchains’, Journal that firms: of Chain and Network Sci- ence, 1, 7–22. 1. Identify those activities in the  Oates, D. (1998), Outsourc- supply (i.e. value) chain that ing and Virtual Organisation are sources of real competi- – The Incredible Shrinking tive advantage; Company, London: Century 2. Decide which activities are Business. best carried out in-house and  Porter, M. E. (1985), Com- which should be outsourced petitive Advantage: Creat- to third parties; and ing and Sustaining Superior 3. Manage the in-house and out- Performance’, New York: sourced elements of the sup- Free Press. ply (i.e. value) chain in an in-

tegrated and holistic manner

in line with the principles of Edward Sweeney is Director of SCM. Leaning in NITL

E-mail: [email protected]