Supply Chain or Value Network?

There are three basic functions in a typical business organization:  finance and accounting, sales and marketing, and production/operations, excluding support and infrastructure functions.  Stevenson describes all of the activities that are directly related to producing goods or providing services as part of operations.  He defines operations as activities that add value during the transformation process into which inputs are received and from which outputs are delivered.  Inputs and outputs can be products, services or information.  The people and assets involved in acquiring the inputs and performing and delivering the transformation make up the supply chain.  That a supply chain stretches beyond a lone enterprise has never been news to operations executives.  Organizations have always received inputs from a supplying entity and delivered outputs to a consuming organization or consumer.  Each organization provides an interdependent link in the value-adding transformation process, otherwise known as the supply chain.  This is seldom a single “strand” of activities, but rather an interdependent network comprised of many value-adding nodes, each of which receives many inputs and combines them in various ways in order to deliver numerous unique outputs for multiple consuming nodes.  Organizations that receive outputs (customers) pay for the value added in the transformation process.  The supply chain is more properly designated the value network through which many supply chains can be traced.  Material, money and data pulse among links in the value network, following the path of least resistance.

If each node in the value network makes decisions in isolation, the potential grows for the total value in one or more supply chain paths to be less than it could be.  In the best of all possible worlds, each node would eliminate activities that do not add value to its own transformation process such that it can reap the highest possible margin, subject to maximizing and maintaining the total value proposition for a supply chain.  This is the best way to ensure long-term profitability, assuming a minimum level of parity in bargaining position among trading partners and in advantage among competitors.

(This is an excerpt from my article to be published in the next edition of The Journal of Enterprise Resource Management.)

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About Arnold Mark Wells
Industry, software, and consulting background. I help companies do the things about which I write. If you think it might make sense to explore one of these topics for your organization, I would be delighted to hear from you. I am employed by Opalytics.

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