Stanford GSB Sloan Program Strategic Management 13 Managing the Supply Chain JCI Automotive Systems Group February 14, 2003 John Roberts

The Question Not “make or buy?” But, instead, “How should we organize and manage the value chain?” what parts inside the firm? what parts outside? how to structure relations across stages, whether these involve boundaries or not? Value capture v. value creation February 14, 2003 John Roberts

Managing Internal Supply Integrated command and control incentives? Responsibility centers cost, profit, investment? allocation of decision authority trade outside? transfer prices February 14, 2003 John Roberts

Managing External Supply Arm’s-length v. Alliances Cost of managing v. benefits Information sharing important? Specific investments? physical, intellectual Balance of ST temptations and LT rewards share benefits limit numbers February 14, 2003 John Roberts

Two solutions in a system of complements Each of the traditional US and Japanese systems is an internally aligned, coherent choice in a system of complements Each made sense in terms of the competitive conditions and strategies block entry speed of product development February 14, 2003 John Roberts

Cultural embeddedness? The Japanese system was argued to be dependent on particular features of the Japanese culture, society and economy. This is apparently incorrect: a similar system was common in the US auto industry before its consolidation the Japanese auto companies have adapted it in their transplants non-Japanese firms in many industries have adopted it as competitive conditions changed February 14, 2003 John Roberts

A mistaken conclusion Some observers now argue that the Japanese model of close, long-term relations is inherently superior (in all contexts?) February 14, 2003 John Roberts

The correct lesson to learn Organizational design needs to be adapted to the technology, the strategy and the external environment A design that works well in one context may not in another Sorting out the sources of performance differences is thus complex February 14, 2003 John Roberts

Still … A large number of firms should think hard about boundaries and whether they are too much in a command and control mode Loosening coupling may be very valuable February 14, 2003 John Roberts