Value chain management, or VCM for short, refers to the process of integrating all of an organization’s resources, beginning with its vendors. The information, materials, labor, facilities, logistics, and other resources are fed to a time-responsive, capacity-managed solution to maximize financial resources and minimize waste.
VCM also includes monitoring and managing all the manufacturing process components, including procurement, production, quality control, and distribution.
- What Are the Components of Value Chain Management?
- What Are the Benefits of Value Chain Management?
- How Does Value Chain Management Differ from Supply Chain Management?
- Key Takeaways
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VCM covers several business aspects, which we’ll discuss in greater detail below.
What Are the Components of Value Chain Management?
Performing VCM means ensuring:
- Integrated supply chain planning and scheduling: Using capacity management tools, such as finite capacity scheduling (FCS) solutions, lets a company develop schedules that it can easily optimize in terms of timing and cost.
- Complete resource management: Capacity limitations that cause delays are unavoidable. As such, companies should use a scheduling system that analyzes and sets all resource elements across steps to account for potential issues.
- Cycle time responsiveness: While offering products of the same quality as your competitors can increase sales, there are times when delivering at the earliest time works better. Companies should thus measure their cycle time performance, which starts when a customized product order is placed until its delivery to the customer.
- Chain-wide resource optimization: In the past, VCM just focused on speeding up the manufacturing process and staying on budget. Today, companies also have to eliminate waste to add value.
- Information integration: VCM will only work if information, from operational (i.e., capacities and workloads) to strategic (i.e., vision and mission), is shared across all the supply chain participants. Information sharing should be fully accessible and interactive, suggesting using a Web-based database.
What Are the Benefits of Value Chain Management?
VCM provides organizations several advantages, including:
- Improve bids and proposals: Since VCM allows companies to capture, track, and manage customer and marketing requirements, they can better estimate design, planning, procurement, production, and service activities to produce more accurate and traceable cost estimates.
- Enhance product planning and research and development (R&D): The more projects there are, the better. To plan for and implement multiple projects simultaneously, however, companies need to take a cross-functional team approach to planning, developing, delivering, and servicing products that focus on program performance, cost reduction, and product quality.
- Standardize processes: Effective VCM requires repeatable and measurable business processes to meet customer expectations and commitments. Standard, reliable, and repeatable processes significantly reduce operational inefficiencies and waste.
- Improve vendor management: The design and sourcing teams and vendors should work as one. That way, all outsourced components and subsystems will meet all the performance, quality, schedule, and cost requirements while avoiding design flaws, excess inventory, and waste.
- Enhance post-sales services and support: VCM enables companies to better manage and track in-service product configuration changes. These modifications should be communicated to all field service, customer support, and engineering resource providers.
- Reduce costs: If a company optimizes all the value chain components, it will enjoy end-to-end cost savings due to streamlined processes, reduced inefficiencies and wastes, better inventory control, and improved product quality.
- Increase profitability: Effective VCM enhances a company’s revenue and ensures better profit margins, contributing to its overall success.
How Does Value Chain Management Differ from Supply Chain Management?
Businesses today have to do everything they can not just to survive but thrive. They employ two of the most popular processes—VCM and supply chain management (SCM)—to help with that. So how do the two differ?
VCM, as defined earlier, focuses on helping companies remain competitive and profitable. SCM, meanwhile, prioritizes looking for ways to meet customer needs most effectively. The two also differ in terms of where data analysis begins.
In VCM, companies use customer data (e.g., preferences, reviews, past purchases, etc.) to develop plans. They often think of ways to innovate products and integrate the new steps required into the existing development process. The plans should also include supplier alignment and sourcing.
In SCM, companies begin planning by looking for material suppliers and logistics providers that can optimize costs while improving quality. These components are included in the production process plans. In addition, sales and marketing strategies targeting customers with specific requirements are a must.
Here’s a diagram that distinguishes VCM from SCM.
Whatever business strategies organizations employ to remain profitable and competitive, they need to think about their customers first and foremost. VCM, in particular, aims to provide customers with the best value for their money.
- VCM is the process of integrating all company resources beginning with vendors to maximize financial resources and minimize waste.
- VCM has several components, including Integrated supply chain planning and scheduling, complete resource management, cycle time responsiveness, chain-wide resource optimization, and information integration.
- VCM can help companies improve bids and proposals, enhance product planning and R&D, standardize processes, improve vendor management, enhance post-sales services and support, reduce costs, and increase profitability.
- While sometimes used interchangeably, VCM and SCM have distinct differences.