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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

October 24, 2002

Are The Terms “Supply” and “Value” Chain Interchangeable, Because They Mean The Same Thing?

“ There Has Been Much Confusion concerning the Terms “Supply” and “Value” Chain Management, Which Has Lead to Much Disinformation About These Two Important Concepts”

Robert T. Yokl, President, The HCP Group, Ltd.

I recently read an editorial in a leading supply chain management magazine that stated that the terms “supply” and “value” chain management were interchangeable, because they mean the same thing.  I couldn’t believe what my eyes were telling me, so I read the editorial three times to make sure I was getting it right, then I shook my head in disbelief! This bit of disinformation about these two important concepts was meant to educate current and future supply chain professionals, but missed the mark by a thousand yards.  So that I can bring some light to the subject, here’s why “supply” and “value” chain aren’t interchangeable in any context or editorial.

A Definition: Supply Chain Management

I believe that the Institute of Supply Chain Management got it right when it defined Supply Chain Management as, “ the identification, acquisition, access, positioning and management of resources an organization needs or potentially needs in the attainment of its (organizations) strategic objectives.”  This definition then lends itself to the mastery of what I call the FIVE PILLARS OF SUPPLY CHAIN MANAGEMENT: procurement, logistics, inventory management, value analysis and revenue enhancement by supply chain managers, so that they can readily and nimbly approach each challenge that is thrown them by their executive management to meet their organization’s strategic objectives in a timely and professional manner.

A Definition: Value Chain Management

Value Chain Management on the other hand, as I see it, is defined as, “ the continuous study of the functional requirements of an organization’s products, services, technologies and their associated supply chains to insure that they are meeting their exact customer’s requirements at the lowest possible cost”.  This definition then lends itself to the mastery by supply chain managers of Strategic Value Analysis™ a function-oriented, systematic team approach for providing, designing or investigation the right functions (primary, secondary and aesthetic) for the millions of dollars of products, services and technologies and their associated supply chains that are required to operate any organization success-fully.  This enables them to drive out all waste and inefficiency in their organization’s supply chain in a systematic manner.

Why Split Hairs Over Words and Definitions?

I can just guess that some of you are reading this and seeing the semantics of my position as just “splitting Hairs” over words and definitions, when in fact words are important when defining exact opposite, yet complimentary concepts or abstractions such as supply/value chain management.  It would be like saying that “Just-in-Time” inventory management means the same as “Perpetual” inventory management. When we use these terms we are still talking about inventory management, but the management practices attributed to these inventory techniques are completely different, yet can be complimentary.

As we have discussed, there has been much confusion concerning the terms “Supply” and “Value” Chain Management, but there needn’t be if we understand that Supply Chain Management’s focal point is on the efficient and orderly movement of materials and supplies through an organization from acquisition to disposition.  Whereas, Value Chain Management is focused on the appropriateness of the products, services and technologies being purchased and their utilization in an efficient and effective manner by an organization.  These opposite, yet complimentary concepts, if used in tandem, will enable you to truly optimize your organization’s supply/value chain without any confusions.

 Copyright © 2002 The HCP Group, Ltd.

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply/Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Supply/Value Chain”.