What is a value chain?

A 'value chain' refers to the full life cycle of a product or process including material sourcing, production, consumption and disposal/recycling process.

World Business Council for Sustainable Development (WBCSD)

A value chain assessment can be similar to a Life Cycle Assessment (LCA) however an LCA focuses on the environmental aspects of a product only whereas value chain assessments can be more broadly applied to services and may include social issues too.

Mapping and managing your value chain is all about extending your line of sight and influence beyond the traditional areas of focus (such as procurement) and looking to limit risk and add value at each stage.

It looks both upstream to your suppliers and materials, and downstream to your customers and reuse/disposal, to identify key risks and opportunities for your business.

Figure 1. The difference between supply chain and value chain

The difference between supply chain and value chain

The model can also apply to professional services (such as banking, insurance and consultancy) as you are able to influence your own and your clients' value chains through the advice and services you provide.

Figure 2. Map your value chain for your product or service

Value chain diagrams

Why map and manage your value chain?

In an age where information moves at lightning speed and reputation can make or break your business, having a good understanding of the risks and opportunities throughout your entire value chain is invaluable.

The world's leading businesses are responding by increasing transparency and their own accountability. They are collaborating with suppliers, consumers, NGOs and competitors to raise social and environmental standards, and to innovate and create shared value.

Better understanding & managing your value chain can:

  • Lower current and future risks to your business (operational, reputational and regulatory).
  • Provide a point of difference and a competitive advantage.
  • Realise opportunities for innovation.
  • Fuel top-line growth and enhance productivity through efficiencies.
  • Create new markets for products or services.
  • Reduce resource consumption and waste.
  • Improve relationships and resilience through greater security of supply.
  • Create shared value with communities (enhancing social licence to operate).
  • Improve access to finance and lower-cost insurance.
  • Enhance stakeholder relationships – investors, customers, suppliers, regulators and NGOs. You can understand each other better so you do business more easily.