Strategic supply chain management SSCM
Lecture 1
Why do we care about strategy theories?
Theories are relationships or laws that enable managers to predict
and control their environment.
• A good suppliers fit allows supply chain practices that
allow good outcomes
Generally speaking: theories are Laws
What do we mean by laws?
• Mechanisms
• Relationships between variables
• Success Factors
• Process models
• Contingency factors
• 2 x 2 matrices § Etc.
Matrix: If demand characteristics are predictable and lead
time is short, we should use continuous replenishment.
Who?
What do we mean by organizations when talking about theories?
Many different types of relationships could be considered:
• Supply networks
• A supply chain
• A Dyad relationship (a buyer and a supplier)
• A Triad relationship (a buyer, supplier and customer)
• A Team (managers, board, employees)
• Production, manufacturing, service operation
• Business models: For profit, not-for profit, social enterprise
,Where does SCM get theories?
VRIN: Valuable, rare, non-imitable and non-substitutable resources are a
source of sustained competitive advantage.
Transaction cost economics – buy or make question – CLASSIC THEORY
Firm boundaries (level of vertical integration) are explained by transaction costs (Williamson, 1985).
Transaction costs:
Governance costs associated with acquiring inputs for operating a business (cost of searching,
negotiating, bargaining, contacting, etc.)
Company should integrate activities into the company when outsourcing (external governance costs)
are larger than the costs of doing the activity in-house and using internal governance structure.
• Transactions high in uncertainty, frequency, and with transaction specific investments (IT
systems) are more efficient in-house.
• Small breweries are less likely to engage in Purchasing collaboratively due to fears of sharing
important information. However, they are open to do so in marketing activities.
Fisher’s theory of creating an appropriate SC based on product type
Functional products: Milk or canned tomatoes do not need a
responsive chain as margins are low so we need to save up on costs.
• They address a basic need and can have a relatively long lead
time
• It involves economies of scale, low-cost transportation and
inventory storage. The whole supply chain works together to
minimize costs
Innovative products have very variable demands (jewelry,
technology).
• Because of the variable demand having too much of them can kill our profits if they don’t get
sold. Losing sales if too much demand and no inventory.
We look for market mediation ton ensure that the variety of products reaches the market of
customers that want to buy. So the retailer needs to send signal about the product’s demand.
• Here the retailers need flexible suppliers who are flexible and can deliver fast as they will be
advised about demand at the last moment -> expensive
• For these products we need to have short lead times and responsive supply chains.
Mismatch? People buying big amounts of toilet papers and the company trying to refill fast.
,If a supply chain is built around functional products it cannot change production, warehousing and
transportation very easily to act like a responsive supply chain.
• Many companies have both functional and innovative products in the same category ->
different supply chains need to be created (coffee, apparel t-shirt for events etc).
Hau Lee’s extension on Fisher’s model
Focus here is more on supply and demand
uncertainty and the strategies to be used to tackle
this.
• Risk hedging is designed to reduce the risk of
shortages
• High demand and supply uncertainty - Agile
supply chain is needed
Conclusion- we covered
• The what’s and why’s of theory
• How management theories were adopted by supply chain people and adjusted to fit our
needs
• Stand alone supply chain theories that have emerged from supply chain researchers and
practitioners
• Theories are constantly applied in new setting, tweaked, created and destroyed.
Integration theories
What are the strategies for integrating different tiers & performance?
Theories about supply chain tiers and their relationships (Multi tiers scm and Arcs of integration)
Supply chain complexity – How to manage it?
Why do we care about integration?
The trend towards outsourcing and global sourcing
has resulted in more complex supply chains
• Our supplier has their own supplier and
that supplier has another supplier as well ..
Paper of Mena looks at triad relationships:
• Buyer – supplier and supplier-supplier.
, Craft beer example: 3 players
Customer: brewery
Raw material: Farming barley
Supplier- malt producer: converting Barley into Malt
Multi-tier supply chain
The “Open MSC” represents a traditional supply
chain where information and product flows are
linear and there is no direct connection between
the buyer and the supplier’s supplier, giving the
supplier in the middle a mediating role
Example: raw material -> plant -> final customer (final customer doesn’t know what the farmer does)
• Plant has the specifications of the customer and contracts with the farmer and pays for the
grain based on commodity prices with a quality premium. Customer buys as many bags as
needed from the plant
The “Closed MSC” occurs when the buyer and the supplier’s supplier have established a formal link
and are directly connected to each other.
This means both firms have regular contact with
each other, share information and manage their
mutual relationship either formally (i.e., through
contracts) or informally through regular
interaction. In this case, the mediating role of
the supplier practically disappears
Example: the customer interacts with the supplier’s supplier
• Customer contacts the farmer to grow crops in a certain way and is in frequent contact with
them to ask how the crops are doing, how much they expect the yield to be etc.
The “Transitional MSC” is when the buyer and the supplier’s supplier stretch out to each other and
begin building a link and initiating a move toward a “Closed MSC.”
For instance, a buyer may insist on providing an
assurance or training function to the supplier’s
supplier if there is a need to guarantee products
are supplied to a particular standard.
Example: requiring the beer to have a bio
certificate so the customer offers training to the farmer.
Lecture 1
Why do we care about strategy theories?
Theories are relationships or laws that enable managers to predict
and control their environment.
• A good suppliers fit allows supply chain practices that
allow good outcomes
Generally speaking: theories are Laws
What do we mean by laws?
• Mechanisms
• Relationships between variables
• Success Factors
• Process models
• Contingency factors
• 2 x 2 matrices § Etc.
Matrix: If demand characteristics are predictable and lead
time is short, we should use continuous replenishment.
Who?
What do we mean by organizations when talking about theories?
Many different types of relationships could be considered:
• Supply networks
• A supply chain
• A Dyad relationship (a buyer and a supplier)
• A Triad relationship (a buyer, supplier and customer)
• A Team (managers, board, employees)
• Production, manufacturing, service operation
• Business models: For profit, not-for profit, social enterprise
,Where does SCM get theories?
VRIN: Valuable, rare, non-imitable and non-substitutable resources are a
source of sustained competitive advantage.
Transaction cost economics – buy or make question – CLASSIC THEORY
Firm boundaries (level of vertical integration) are explained by transaction costs (Williamson, 1985).
Transaction costs:
Governance costs associated with acquiring inputs for operating a business (cost of searching,
negotiating, bargaining, contacting, etc.)
Company should integrate activities into the company when outsourcing (external governance costs)
are larger than the costs of doing the activity in-house and using internal governance structure.
• Transactions high in uncertainty, frequency, and with transaction specific investments (IT
systems) are more efficient in-house.
• Small breweries are less likely to engage in Purchasing collaboratively due to fears of sharing
important information. However, they are open to do so in marketing activities.
Fisher’s theory of creating an appropriate SC based on product type
Functional products: Milk or canned tomatoes do not need a
responsive chain as margins are low so we need to save up on costs.
• They address a basic need and can have a relatively long lead
time
• It involves economies of scale, low-cost transportation and
inventory storage. The whole supply chain works together to
minimize costs
Innovative products have very variable demands (jewelry,
technology).
• Because of the variable demand having too much of them can kill our profits if they don’t get
sold. Losing sales if too much demand and no inventory.
We look for market mediation ton ensure that the variety of products reaches the market of
customers that want to buy. So the retailer needs to send signal about the product’s demand.
• Here the retailers need flexible suppliers who are flexible and can deliver fast as they will be
advised about demand at the last moment -> expensive
• For these products we need to have short lead times and responsive supply chains.
Mismatch? People buying big amounts of toilet papers and the company trying to refill fast.
,If a supply chain is built around functional products it cannot change production, warehousing and
transportation very easily to act like a responsive supply chain.
• Many companies have both functional and innovative products in the same category ->
different supply chains need to be created (coffee, apparel t-shirt for events etc).
Hau Lee’s extension on Fisher’s model
Focus here is more on supply and demand
uncertainty and the strategies to be used to tackle
this.
• Risk hedging is designed to reduce the risk of
shortages
• High demand and supply uncertainty - Agile
supply chain is needed
Conclusion- we covered
• The what’s and why’s of theory
• How management theories were adopted by supply chain people and adjusted to fit our
needs
• Stand alone supply chain theories that have emerged from supply chain researchers and
practitioners
• Theories are constantly applied in new setting, tweaked, created and destroyed.
Integration theories
What are the strategies for integrating different tiers & performance?
Theories about supply chain tiers and their relationships (Multi tiers scm and Arcs of integration)
Supply chain complexity – How to manage it?
Why do we care about integration?
The trend towards outsourcing and global sourcing
has resulted in more complex supply chains
• Our supplier has their own supplier and
that supplier has another supplier as well ..
Paper of Mena looks at triad relationships:
• Buyer – supplier and supplier-supplier.
, Craft beer example: 3 players
Customer: brewery
Raw material: Farming barley
Supplier- malt producer: converting Barley into Malt
Multi-tier supply chain
The “Open MSC” represents a traditional supply
chain where information and product flows are
linear and there is no direct connection between
the buyer and the supplier’s supplier, giving the
supplier in the middle a mediating role
Example: raw material -> plant -> final customer (final customer doesn’t know what the farmer does)
• Plant has the specifications of the customer and contracts with the farmer and pays for the
grain based on commodity prices with a quality premium. Customer buys as many bags as
needed from the plant
The “Closed MSC” occurs when the buyer and the supplier’s supplier have established a formal link
and are directly connected to each other.
This means both firms have regular contact with
each other, share information and manage their
mutual relationship either formally (i.e., through
contracts) or informally through regular
interaction. In this case, the mediating role of
the supplier practically disappears
Example: the customer interacts with the supplier’s supplier
• Customer contacts the farmer to grow crops in a certain way and is in frequent contact with
them to ask how the crops are doing, how much they expect the yield to be etc.
The “Transitional MSC” is when the buyer and the supplier’s supplier stretch out to each other and
begin building a link and initiating a move toward a “Closed MSC.”
For instance, a buyer may insist on providing an
assurance or training function to the supplier’s
supplier if there is a need to guarantee products
are supplied to a particular standard.
Example: requiring the beer to have a bio
certificate so the customer offers training to the farmer.
