So what is the big deal about ensuring you understand the difference between your supply chain and value chain? Some of you may be thinking, we have the covid-19 pandemic wreaking havoc and it is all about survival. Well you are partially correct. It is not only about survival but also about looking at what opportunities the current crisis brings. Granted that under the current circumstances it is difficult to think of anything else but survival (Check out my article on Business Continuity Planning & Crisis management).
So for the moment we are only going to look at the survival aspect and the linkage to the topic of ‘why it is important to differentiate between your supply and value chains’.
Supply Chain and Value Chain definition
Supply chain: This represents ALL activities that go into producing a product or service, from your suppliers supplier to the product reaching the consumer. Whilst we focus on the forward process, bear a thought for what your return process looks like (reverse logistics).
So armed with this differentiation you can see how ‘survival’ and certainly continuous improvement can now be driven by focusing on all unnecessary or wasteful activities. This can be the start to driving down costs, which in a period of uncertainty and reduced income is critical.
Naturally to do the above you will first have to map out all activities (Value Stream Mapping is a useful tool that can be used and incorporates a process and data driven approach). Doing this will also support you in completing a list of forecasted expenses per line item. Understanding this will support you getting a view of your cash flow requirements and what you need to do to improve your cash flow. At a high-level, cash flow can be improved by considering different funding sources, increasing revenue, or reducing your spend.
Whilst it is tempting to look at the external funding options, I would advise that this must not be your only route. You must use this time and crisis to take a long hard look at what is within your control and how your supply and value chain functions. So I hope that this article has given you some insight into how you can start thinking about the difference between your supply and value chain, identify waste & non-value adding activities and take relevant steps to drive down expenses and hence improve your cash flow.
Dr Kenneth Moodley is an experienced supply chain and business professional with over 25 years’ experience. He has a demonstrated history of working with both big corporates (example: Unilever & The South African Breweries) and SMME’s (Productivity SA) in various industry sectors as a senior Supply Chain Specialist, Leader and Business Coach.