Lock and key.
Paint and paintbrush.
Brick and mortar.
In each of these pairs, the items are quite different from each other — but together, they accomplish a goal. One on its own is not nearly as useful as the two together.
In ecommerce logistics, the supply chain and the value chain function like one of these pairs. Though often mistaken for each other, the two concepts are very different; but to create a successful ecommerce business, you will need to hone both of these systems.
In this article, we’ll cover what the value chain and supply chain are, how they differ from one another, and why they are both important to a thriving ecommerce business.
What is a value chain?
According to Michael Porter’s 1985 book Competitive Advantage: Creating and Sustaining Superior Performance, the value chain is the process of adding value to raw materials through a series of business activities, ultimately creating a product that satisfies a customer request.
Porter’s value chain consists of five key activities. Once a business identifies a customer demand or need, the business drives value into the final product through:
- Inbound logistics (receiving & warehousing)
- Operations (manufacturing & assembly)
- Outbound logistics (fulfillment & shipping)
- Marketing and sales (packaging, advertising, etc.)
- Service (customer support & warranties)
Each of these individual steps adds value to a product, and all of these components come together to help give a business a competitive advantage.
The importance of a value chain explained
For any business, the value it creates determines the profit it makes.
If your product is of value to consumers — that is, if it offers them something that they want, need, or would spend money to get — then some will buy it, and you can make a profit.
However, if your product does not offer consumers any value, then your product will not sell and you will not make any profits.
This makes a business’s value chain extremely important, as it directly affects a business’s profit margin. An optimized value chain helps businesses adjust their strategy to deliver greater value to customers at a lower cost, which maximizes value output while minimizing a business’s expenses.
What is a supply chain?
A supply chain refers to the network of businesses, individuals, activities, technologies, and resources that function together to produce finished goods and distribute them to the end consumer. Supply chains are concerned with operational functions such as:
- Raw material procurement
- Inventory distribution
- Inventory management
- Order processing
- Shipping and last-mile delivery
Collectively, all of these processes create a logistics system that transforms raw materials into finished products and transports them from the manufacturer to the business’s warehouses, retailer locations, wholesalers, stores, or end customers to satisfy a product request.
Many supply chains also include returns in case customers receive damaged or incorrect items or change their minds.
The importance of a supply chain explained
Your business’s supply chain connects every stage of a product’s life cycle— from the manufacturer or supplier to the consumer — and therefore directly impacts if and how you satisfy your customers.
In order to get accurate orders to customers or onto shelves at the right time and in pristine condition, you need a supply chain that operates smoothly, efficiently, and consistently.
An optimized supply chain has the power to not only transport product between stakeholders and locations effectively, but also to lower costs, speed up operations, and increase a business’s overall efficiency.
“Looking back at our 2019 month-over-month numbers, there’s a big difference between the months I was with ShipBob and the months I was with my previous 3PL.
A lot of entrepreneurs and companies underestimate the cost-savings and power of choosing your entire supply chain and partner network wisely. These choices will make or break your business.”
Courtney Lee, founder of Prymal
Value chain vs. supply chain: Differences and similarities
While the terms “value chain” and “supply chain” are sometimes used interchangeably, the two concepts differ in a few nuanced but important ways. Here are some of the key differences and similarities between value chains and supply chains.
Differences between a value chain and a supply chain
Ultimately, the supply chain is focused on conveyance — that is, how to physically convert raw materials into finished products, and how to physically transport materials and goods to the correct locations. The value chain, on the other hand, is focused on adding value to a product in whatever ways possible.
Because the supply chain and value chain aim to accomplish different goals, the two systems are mostly concerned with a different range of activities and processes.
|Supply Chain||Value Chain|
|Goal||Produce & distribute products to increase customer satisfaction||Increase a product’s value to create a competitive advantage|
|Processes||Operational Management Processes||Business Management Processes|
|Research & innovation|
Why is there confusion between value chain and supply chain?
Even though the supply chain and value chain are different systems, they are just similar enough to be confusing for most merchants.
This is partly because the two are concerned with many of the same ecommerce functions. Take the transportation of finished goods: the supply chain coordinates and executes transportation, while the value chain optimizes while the supply chain is invested in coordinates and executes transportation, the value chain seeks to improve transportation so as to minimize delivery time.
Both systems are also invested in storage, as the supply chain is concerned with where to store finished inventory, and the value chain deals with how to store materials to avoid damage so as to maximize value. Almost every supply chain activity listed in the table above is also involved in the value chain as well.
The supply chain and value chain are also easily confused because the two directly affect one another.
For instance, the supply chain’s performance affects the value chain in that the speed and efficiency of order fulfillment contributes to the value to a product. All else held equal, if a customer knows they can get the same product more quickly and cheaply from Company A than Company B thanks to Company A’s optimized supply chain, then Company A offers the customer more value.
Conversely, the decisions made in the value chain can affect the activities in the supply chain. For example, certain means of increasing value — like wrapping a product in custom packaging — will add steps to the fulfillment stage of the supply chain.
However, as complicated as the pair may be, both the supply chain and the value chain are indispensable to a business’s success.
How ShipBob can support your supply chain
Logistics play a huge role in both the supply chain and value chain for ecommerce businesses of all sizes.
Here are some of the ways that ShipBob’s global omnifulfillment platform can help you optimize your logistics for cost, efficiency, and speed, and establish the supply and value chains that your business needs to drive profitability.
Outsourced supply chain management
ShipBob offers merchants an outsourced supply chain management solution that allows them to save time and optimize their supply chain processes.
With ShipBob, you can delegate the time-consuming tasks involved with ecommerce fulfillment to the experts — including receiving, order processing, picking, packing, and shipping — to save time while maintaining quality control.
You can also leverage ShipBob’s global network of fulfillment centers for inventory storage and fulfillment, letting you sidestep expensive warehouse rentals. Plus, you won’t have to worry about warehouse management, as our team of professionals will keep your inventory organized and fulfillment operations running smoothly.
“At the scale we’re starting to operate at, keeping everything in-house would mean that we would be picking and packing orders all day! We have even bigger ambitions for our business going forward, including launching new products and increasing stock. So we wanted to free up our time to focus on growing our business, and knew it was time to outsource fulfillment to experts like ShipBob.”
Adelina Zotta & Connor Westby, Co-Founders of NutriPaw
Powerful supply chain technology
ShipBob’s proprietary software helps streamline and simplify several aspects of the ecommerce supply chain.
Our software integrates directly with major ecommerce platforms, enabling you to automate order processing, fulfillment and shipping with ease. Orders are instantly received as they’re placed in your store, after which they’re automatically sent to the fulfillment queue so our warehouse professionals can pick, pack, and get them ready for shipment.
This increases your supply chain velocity and ensures that orders get out the door faster and reach their final destinations on time.
Merchants also get real-time visibility into inventory levels, order fulfillment statuses, and supply chain processes through their ShipBob dashboard. This visibility lets you time replenishment correctly to avoid stockouts, forecast demand using our analytics tool, and provides up-to-date and transparent information that satisfies customers waiting for their orders.
“ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before. Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier. ShipBob is incredibly easy to use – that’s my favorite part about it.”
Will Kerr, Apparel Lead at Quadrant
Managed freight program
If you’re importing goods from China, ShipBob also offers end-to-end managed freight shipping services. Through Flexport’s Flow Direct LCL shipping program, ShipBob enables merchants to efficiently manage their supply chain with reduced time-in-transit and lower freight costs.
“In preparation for Black Friday Cyber Monday (BFCM), we decided to try out ShipBob’s new freight program FreightBob, which is an exclusive program designed to help merchants get freight from China to the US faster, then distribute the inventory to the proper fulfillment centers to ship out quickly.
The time-savings achieved on the shipment using the dedicated freight service were incredible. We not only cut down our shipping time from Hong Kong to LA significantly, but even saved money doing it.
Thanks to ShipBob’s freight program, we had no stress and were super well-stocked for the rest of the year and into 2022, without any kind of inventory issues that have plagued us in the past.”
Nathan Garrison, Co-Founder and CEO of Sharkbanz
Value chain vs. supply chain FAQs
Below are answers to the top questions about the value chain and the supply chain.
What are the 5 primary activities of a value chain?
The five primary activities of a value chain are inbound logistics, operations, outbound logistics, marketing/sales, and service.
How does a value chain add value to a company?
A value chain allows businesses to optimize their functions to yield more valuable products at a lower cost, so they can increase profitability. By constantly delivering greater value to the end user, it also enables them to gain competitive advantage.
What does the term supply chain imply?
The term supply chain implies the existence of a multifaceted network of suppliers, manufacturers, distributors, and individuals that coordinate with each other to transform raw materials into finished products and transport those products to the end customers.