Supply chain

Supply chain effectiveness: strategy and integration
Brian Leavy

Brian Leavy is AIB Professor of Strategic Management at Dublin City University Business School. He can be reached at brian.leavy@dcu.ie

Over the last 20 years, there has been increasing interest in supply chain management as a potential source of competitiveness and value creation. This development has come in two waves.First, was the trend toward strategic outsourcing, as companies sought to become more agile by concentrating on core activities and contracting out much of the rest. In time, this spawned new multi-tier con®gurations, as outsourcing moved further back the value chain. In the current wave, as supply chains become more elaborate, the ability to manage them effectively is increasingly being viewed as astrategic capability in its own right. In spite of its growing signi®cance, however, supply chain management continues to fall short of its great promise. According to a recent survey by Booz Allen Hamilton, the business world is currently investing nearly US$20 billion annually in information systems designed to improve supply chain performance. Yet, almost 50 percent of companies continue to bedisappointed with the impact (Heckmann et al., 2003). Technology alone is not the answer. Strategy and management considerations are also crucial. Effective supply strategy is largely about resolving two fundamental questions ± what to outsource, and when to partner.

Supply chain effectiveness has never been more important to commercial success, and the gap between the best and the rest in manysectors continues to widen. Technology alone is not the answer. Effective supply chain management requires meeting two main challenges, a strategic challenge and an integration challenge. Deciding what to outsource and when to partner is at the heart of the ®rst, while the ability to align interests, develop partnership networks and manage complexity and risk across the extended enterprise iscrucial to the second. This article examines them both.

What to outsource
Advocates, like Quinn (1999), suggest that any activity should be considered for possible outsourcing, except parts or processes that are key to a ®rm's differentiation and competitive know-how. Companies need to be clear on the potential bene®ts and risks. In many industries, over the last decade, the reasons in¯uencingoutsourcing have been shifting as strategic needs have changed. The earliest moves were prompted by the search for lower input costs, as companies sought to farm out low-level production and services. More recently, companies have increasingly come to recognize the advantages of greater focus and resource concentration. Many now look to outsourcing strategic operations, like manufacturing andlogistics, to gain access to superior competencies, to transfer non-core assets and free up capital, to take advantage of the economies of scale in manufacturing and logistics at demand levels way in

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HANDBOOK OF BUSINESS STRATEGY 2006, pp. 331-336, # Emerald Group Publishing Limited, ISSN 0894-4318, DOI 10.1108/10775730610619025

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excess of the ®rm's requirements, and tomitigate the business risk in ®xed and working capital by sharing it with strategic partners (Chung et al., 2002; Kpoczak and Johnson, 2003). In the information technology (IT) industry, this has resulted in the rapid growth in the electronics contract manufacturing, and third-party logistics, sectors over the last decade. For some companies, like IBM and Nortel, strategic outsourcing has been the keyto transforming their fortunes. IBM sees its recent strategic alliance with Lenovo as allowing it to retain personal computing at the heart of its overall e-business strategy without the former drag on margins (IBM, 2004), while Nortel's radical move from ``vertical'' to ``virtual'' was driven by a management ``epiphany'' that the ®rm's traditional business model could no longer scale fast enough...