Supply Chain Management: From Vision to Implementation
Fawcett, Ellram, and Ogden
Chapter 1: Supply Chain Management and Competitive Strategy
Chapter Learning Objectives
1. Define supply chain management and identify how supply chain collaboration can
improve performance.
2. Discuss the extent to which supply chain strategies are being implemented.
3. Define strategic management and discuss how supply chain management supports the
development and execution of a winning competitive strategy.
4. Identify the four process steps involved in designing and implementing a supply chain
strategy.
Chapter Outline
1.1 The Theory of Supply Chain Management
SCM is the application of the economic theory of competitive advantage applied to the
company level. Companies seek to design business models that meet customer needs
better than competitors. Success depends on the ability to design, make, and deliver
innovative, high quality, low cost products and services that customers demand. Supply
chain management allows companies to focus on their unique skill sets, thereby allowing
members of a supply chain to specialize in those activities in which they have a
competitive advantage. Supply chain management requires a common understanding of
supply chain objectives and individual roles, an ability to work together, and a willingness
to adapt in order to create and delivery the best products and services possible.
Supply chains are broken into tiers based on the relationship of various members from the
“focus firm”. When designing a supply chain, you must consider both the downstream
movement of the physical material/product and the flow of information upstream from the
customer to the suppliers.
Supply Chain: Manufacturing Example
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Chapter 1: Supply Chain Management and Competitive Strategy
1.1.1 Supply Chain Management Defined
The Institute for Supply Management defines supply chain management as the
design and management of seamless, value-added processes across organizational
boundaries to meet the real needs of the end customer.
1.1.2 The Internal Value Chain
The internal value chain is made up of: Executive Management, Research and
Development, Supply Management, Operations, Logistics, Marketing, Human
Resources, Accounting, Finance, and Information Technology.
1.1.3 The Bullwhip Effect
Variation in demand is exaggerated as information moves upstream away from the
point of use. Variation in demand is exaggerated due to infrequent demand and/or
inventory level information exchange and order batching. Bullwhip effect costs can
be as high as 12 to 25%. Bullwhip can be effectively mitigated by: sharing point of
sale data, collaborative forecasting, and collaborative future product promotion
planning.
1.2
Supply Chain Management in Practice
SCM seeks to interconnect the value chains of various firms to make them align with the
overall system’s purpose of satisfying some customer demand. Different levels of
collaboration are seen in reality:
 Internal Process Integration: increase collaboration among the company’s
functional groups.
 Backward Process Integration: collaboration with 1st-tier and 2nd-tier (leading
companies) suppliers.
 Forward Process Integration: collaboration with 1st-tier customers.
 Complete Integration: collaboration from the “suppliers’ supplier to the
customers’ customer.”
The goal of supply chain management is to use technology and teamwork to build
efficient and effective processes that create value for the end customer. The goal is
compromised when processes, value chain elements, and/or companies work toward local
rather than global optimum. A couple of items of note:
1. SCM cuts across the entire organization, requiring the alignment of all functional
departments toward a single goal.
2. SCM requires that a firm be properly internally aligned before they seek to align
others in their supply chain.
3. At present, over 95% of all collaborative efforts target 1st tier buyers/suppliers.
1.3
Integrating Supply Chain Thinking into Corporate Strategy
Strategy is the basis from which a consistent allocation of resources is made to achieve
some objective. The objective for “for-profit” organizations is to make money; the best
way to achieve this objective may be to focus on satisfying the customer. Traditional
strategy often yields poor results because strategy is defined and measured in terms of the
competition. Competitive strategies become reactive—always responding to the actions
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of key competitors. Winning strategies help the company meet the real needs of
customers.
1.3.1
The Essence and Evolution of Strategic Management
The role of strategy is to plan the use of resources to meet objectives. There are a
number of different views of strategy:
 Contingency Theory - conceptualizes the relationship between the changing
environment, managerial decision-making, and performance. Contingency
theory states that managers need to recognize the implications of a changing
environment and use company resources to respond effectively.

Industrial Organization Theory -market forces constrained by the power of
suppliers, buyers, existing rivals, potential rivals, and providers of substitute
products/services should drive decision-making. Industrial Organization core
questions: (1) Where does market power exist? And (2) What are the sources of
that power?

Resource Based Theory - emphasizes management of internally sources to
establish a unique skill set. Unique skills/processes (core competence) lead to
competitive advantage, the ability to deliver distinctive products/services in a
way that adds value in the eyes of the customer
1.3.2
The Four Decision Areas of Strategy
Managers must consider four decision areas to develop strategies that effectively
use resources to satisfy customers better than rivals: environment, resources,
objectives, feedback.
 Environment

Internal – company culture, functional relationships, reward and
measurement system

External – competitive, economic, legal, and political environments
 Resources – all assets a firm can bring to bear, including: people, technology,
infrastructure, materials, and money. Success requires investment in knowledge and
processes
 Objectives – unifies decision-making throughout a company. Focusing on the
right objectives is the key to a winning business strategy.
 Feedback –input to the control mechanism, insuring the company strategy
adapts to a changing competitive environment.

Marketplace – custom expectations, company capabilities, and
competitor actions

General – exchange rates, government policies, technologies,
weather and other natural occurrences
1.3.3
The Influence of Supply Chain Thinking on Strategy
A valid business model must answer two questions: (1) What is our business and (2)
how do we do it better than anyone else? In turn, managers must ask who are our
customers and what is the real value that we offer them? In identifying how we add
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Chapter 1: Supply Chain Management and Competitive Strategy
value, managers are identifying unique organizational capabilities which are almost
always process based.
Supply chain strategy seeks to leverage the resources and skills of diverse
companies in the supply chain to deliver exceptional value to the end customer. In
so doing, it seeks to leverage the capabilities of other chain members to create value
for the end customer. With this in mind, managers must ask how their own strategy
and actions affects the ability of the supply chain to create value for the end
customer.
Supply chain thinking changes the nature of strategy in that the questions change
from firm-centric to chain-centric: (1) what is the overall supply chains value
proposition, and (2) how does our company uniquely help the chain deliver on its
value proposition? This requires managers to address (a) what valued capabilities do
other members of the chain possess; (b) how can we bring these complementary
competencies together in a way customers value; (c) what type of relationships
should we maintain with other members of the supply chain; (d) are any customervalued competencies are missing and if so, who is best positioned to develop them;
and (e) how much of the value-added process should we control?
1.3.4 A Look Ahead: A Process Road Map for Strategic SCM
This section explains the unifying theme of the text. Leading SC companies use and
entered a four step process that emphasizes assessment, planning, execution, and
learning. The text addresses these by addressing:
Who are we? - every company has its own unique culture and set of core values
that influence decision-making. This cultural foundation establishes the polices
principles that guide conduct and determine how the organization operates.
How do we fit? How should we fit? - addresses questions that must be answered in
order to develop and implement an effective supply chain strategy. These questions
include:
 What are the competitive rules?
 Who are our customers—both immediate and downstream?
 What are their real needs?
 How can these needs be met efficiently and better than by competing chains?
 What competencies, processes, and technologies are needed to meet these needs
and who has them?
 Where are the costs in the chain?
 Who possesses the power in the chain and what is the source of this power?
 Where are the opportunities to optimize the chain’s operations and
relationships?
Using the newfound understanding of how the supply chain works together,
managers are able to design chains to meet customer needs and insurer their firm’s
unique capabilities add value.
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How do we get there? - managers must articulate a compelling plan to implement a
supply chain strategy.
Chapter Review Exercises
1. Define Supply Chain Management. Explain how you would communicate the ideas
expressed in your definition in a way that could be operationalized.
The Institute for Supply Management defines supply chain management as the design and
management of seamless, value-added processes across organizational boundaries to meet the
real needs of the end customer. Supply chain management can be operationalized and a
number of different way. Correct answers would include some mention of systems thinking and
global optimum's versus traditional view of process management in terms of functional silos
and local optimum.
2. Imagine you have been assigned the task of developing a slogan to promote SCM at your
company. Suggest a slogan that would convey the meaning of SCM in a memorable way.
This question could be correctly answered in the number of different ways. Correct answers
would have some tie to collaboration across companies and the exploitation of complementary
core competencies.
3. Draw the supply chain for an apparel manufacturer selling cotton slacks.
Farmer
Cotton Mill
Apparel
Manufacturer
Import QualityControl
Warehouse
Retailer
Consumer
4. Explain one reason why companies have yet to achieve end-to-end supply chain integration.
A prerequisite of supply chain integration is that companies have their houses in order prior to
attempting a reorganization of the supply chain. Many companies have not properly aligned
their internal processes and measurement systems to allow this process to take place. Supply
chain integration is a long-term project that requires patience, trust, and visionary
management in order to accomplish.
5. What is strategy? Identify three strategy theories. What are the characteristics of each?
The role of strategy is to plan the use of resources to meet objectives. There are a number of
different views of strategy:
 Contingency Theory - conceptualizes the relationship between the changing environment,
managerial decision-making, and performance. Contingency theory states that managers
need to recognize the implications of a changing environment and use company resources
to respond effectively.
 Industrial Organization Theory -market forces constrained by the power of suppliers,
buyers, existing rivals, potential rivals, and providers of substitute products/services should
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Chapter 1: Supply Chain Management and Competitive Strategy

drive decision-making. Industrial Organization core questions: (1) Where does market
power exist? And (2) What are the sources of that power?
Resource Based Theory - emphasizes management of internally sources to establish a
unique skill set. Unique skills/processes (core competence) lead to competitive advantage,
the ability to deliver distinctive products/services in a way that adds value in the eyes of the
customer
6. What are the basic decision areas of strategy? Discuss how each decision area is affected by
SC thinking?
Managers must consider four decision areas to develop strategies that effectively use resources
to satisfy customers better than rivals: environment, resources, objectives, feedback.
1. Environment
 Internal – company culture, functional relationships, reward and measurement
system
 External – competitive, economic, legal, and political environments
 SCM thinking affects the environment by including the various companies within
the supply chain, necessitating alignment of both goals and measurement in
order to achieve ultimate customer satisfaction.
2. Resources – all assets a firm can bring to bear, including: people, technology,
infrastructure, materials, and money. Success requires investment in knowledge and
processes
 SCM changes the nature of resources by allowing managers to consider not just
their own company’s access to resources, but the overall chains access to
resources.
3. Objectives – unifies decision-making throughout a company. Focusing on the right
objectives is the key to a winning business strategy.
 SCM requires that objectives for all companies within the supply chain be
properly aligned to delivering on the value proposition to the end customer.
4. Feedback –input to the control mechanism, insuring the company strategy adapts to a
changing competitive environment.
 Marketplace – custom expectations, company capabilities, and competitor
actions
 General – exchange rates, government policies, technologies, weather and other
natural occurrences
 SCM requires collaboration and sharing of information throughout the entire
chain.
7. How might SC thinking help a company develop a uniquely competitive business model.
Identify and describe one example not discussed in the chapter.
SCM and helps companies develop uniquely competitive business models by helping companies
to address business problems in new and innovative ways. While Wal-Mart, Dell, Honda, and
Toyota are leaders in the supply chain movement, the emergence of nimble global competitors
in various industries suggest that continued evolution of supply chain strategy will be required
to maintain competitive position. An example of a company not discussed in this chapter would
be Amazon.com.
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8. What are the questions that a SCM analysis framework must answer to facilitate the
formulation and execution of a viable SC strategy? Why are these questions so important?
The questions that must be answered to a formulate and execute a viable supply chain strategy
are:
1. What are the competitive rules?
2. Who are our customers—both immediate and downstream?
3. What are their real needs?
4. How can these needs be met efficiently and better than by competing chains?
5. What competencies, processes, and technologies are needed to meet these needs and
who has them?
6. Where are the costs in the chain?
7. Who possesses the power in the chain and what is the source of this power?
8. Where are the opportunities to optimize the chain’s operations and relationships?
Determining the correct answer to these questions is necessary in order to correctly identify
those variables that will most impact the supply chain and its ability to deliver on its unique
value proposition.
Case: SCM – Latest Fad or Strategic Imperative?
1. Is supply chain management for real? or is it just another fad? Does the answer to this
question depend on how a company pursues SCM?
Supply chain management represents the next step in the natural evolution of
organizational structure. Companies that moved from hierarchical functional silos to flatter
structures based on lean and process flow. Therefore, it is natural that they would seek to
derive benefits by extending information and product flows beyond a single organization.
Organizations that achieve the correct buy in by top management and adopt a well
designed supply chain strategy have the opportunity to achieve improved competitive
position. Organizations that fail to achieve buy in, or haphazardly adopt a supply chain
strategy will fail to achieve any measurable gain.
2. What efforts would you make to assure that managers at Med-Tec did not treat SCM as
just another flavor-of-the-month management program?
To ensure that Med-Tec does not approach the supply chain management as a management
fad, senior management must have full buy in. Buy-in can be displayed by having senior
management develop and deliver a new vision based on the adoption of a supply chain
strategy. With this new vision, a new measurement system must be adopted to insure that
dysfunctional behavior based on local optima is eliminating. To prevent fatigue, senior
management must then use supply chain management themes whenever communicating with
employees.
3. Suggest a possible analysis framework Don could use to weigh the facts and determine
whether or not SCM is the right thing to do.
Any type of cost-benefit analysis would be appropriate for this decision-making process.
However, it should be realized that financial reward is only part of the benefit received through
implementation of SCM. You must therefore make an effort to quantify/recognize the
improvement to competitive position.
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