Coursera KAIST: SCM101

Supply Chain Management

A Learning Perspective
Lecture 2

Professor Bowon Kim

KAIST Business School

2014 Bowon Kim

Management Capability
Capability is the firms ability to do something
effectively.
Hayes and Pisano (1996) defined capabilities as the
activities a firm can do better than its competitors.
Without capability, the firm cannot enjoy competitive advantage.

Reference

Bowon Kim & Chulsoon Park (2013): Firms integrating efforts to mitigate the tradeoff
between controllability and flexibility, International Journal of Production Research, 51:4,
1258-1278.

Controllability versus Flexibility

Narasimhan et al. (2005) posited four performance
capabilities: new product development, flexibility,
efficiency, and market-based performance.
Kim (2005) developed a framework that further
separates various firm capabilities into three categories:
controllability, flexibility, and integrating capability.

Controllability versus Flexibility

Controllability is the firms ability to control its
processes.
Its primary objective is to achieve superb efficiency that
minimizes cost and maximizes accuracy and productivity.
It often requires the ability to meet the specification exactly as
demanded by the customer, thus enabling the firm to tightly
control its processes.

Controllability versus Flexibility

Flexibility is the firms ability to cope with uncertainties,
both internal and external.
It refers to the firms ability to change or react, incurring few
penalties in time, effort, cost, or performance, as well as to
respond effectively to changing circumstances.
Over time, it is clear that the interest in manufacturing
flexibility has evolved from that of an intra-firm to an interfirm relationship.

Tradeoff between Capabilities

Short-term relationship between capabilities
Is there any relationship between these capabilities?
Skinner (1969) first postulated a trade-off relationship between
competitive priorities, i.e., operations performances.
A case at 3M, where the company was struggling with the conflicting
relationship between efficiency and flexibility
Another empirical evidence a clear inverse relationship between cost
and flexibility.

Key questions
First, is there an inherent tradeoff relationship between controllability and
flexibility?
Second, does the firms integrating effort enable it to overcome such a
tradeoff relationship, making it possible to improve both controllability
and flexibility simultaneously?

Tradeoff between Capabilities

Flexibility

F1

F2

R1
C1

C2

Controllability

Integrating Capability

Controllability

Tradeoff
Relationship

Flexibility

Integrating Capability
Integrating capability is firms ability to integrate and coordinate diverse
functions and parts of its value chain, embodied in overall operations
effectiveness and new product innovation.

Firms ability to integrate various activities, both internal and external to the
firm, in order to achieve optimal coordination between supply chain partners.

Relevant concepts: experimentation, cross-functional teamwork, group

problem solving, customer as well as supplier integration into the product
development process

Because the integrating capability is driven by a firms ability to integrate and

coordinate diverse functions and parts of its supply chain, it is often embodied
in overall operations effectiveness and new product innovation, involving a
wide-ranging integration requiring cross-functional capabilities.

Dynamic Changes of Capability

Long-term dynamics of capability
Flexibility

Firm A in 2010s
Firm A in 2000s
Firm A in 1990s

F1980

Firm A in 1980s

F1970

Firm A in 1970s
C1970 C1980
Strategic choice made by the company

Controllability

Chain of Capability

Basic
capability
Overall knowledge
and experience in
- Process
- Manufacturing
- Safety
- Engineering
- Work ethics

Process-level
capability
Individual function
Individual process:
- Assembly
- Process quality
- Welding
- Cutting

System-level
capability
Responsiveness
(quick delivery)
Lead-time
Overall quality
Design
NPD capability

Performance
Increased revenues
Increased profits
Customer satisfaction

Customers can observe

the firms system-level
capability only.

Chain of Capability
Customer Satisfaction!
Continuous Growth!
High Performance!
Internalization
of the innovation process

Chain of capability

Basic

Trust/Mutual goals

Process

Individual technical skills

System

Group implement skills

Performance

System level
improvement

System
Capability

System-level integration capability

E.g., flexibility, responsiveness,
Integrating process knowledge

Process
Capability

Technical knowledge, skills

Specific function-oriented
Process control
E.g., welding, marking, cutting,

Basic
Capability

General knowledge/experience in
-Management
-Engineering, safety
-Work ethics; culture

Incremental versus Radical Improvement

Relative
Level
Radical Improvement

Time
Relative
Level

Incremental Improvement

Time