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Summary

My greatest debt is to Emily Martell, an undergraduate at William and Mary. She was my research assistant for the last eight months of work on the book. Her love of learning, her ability to write good prose, and her extraordinary intellect redounded to my great benefit and to the benefit of anyone who reads this book. Emily contributed to a few of the topics – the Enron debacle among them – and read the new network chapter and some others, each with great care. She responded to requests for help with alacrity and skill. Both her research and her critique of the manuscript were exemplary. She not only identified glitches, she drew my attention to passages that were not sufficiently clear. (“Glitch” is an understatement. She saved me from a horrible blunder in Chapter 4.) Emily even corrected my prose. I am deeply grateful for her help, and blessed to have had her as a colleague. Any defects that remain can be put down to the fact that I did not give her enough time to read the entire manuscript.

I am also thankful for the input of Steven Williams of the Department of Economics, University of Illinois, Lauren Merrill of the Boston Consulting Group, and my longtime colleague Jerry Kelly.

Over the last eight years I have benefitted from the excellent research assistance of Jennifer Boardman, Anthony Guth, Sarah Turner, and Gefoffrey Zinden. They were students in William and Mary's Masters in Public Policy program and my research assistants during their time here. The fruits of their labor can be found in the gray boxes containing the snippets that complement the formal analysis.

A number of William and Mary undergraduates have contributed to the third edition by suggesting improvements to its predecessor. I'm happy to be able to publicly thank Fasil Alemante, Daniel Byler, Bryan Callaway, Jimmy Cao, Sarah Gault, You-Suk Kim, Shane Mangin, Ruoyan Sun, Richard Uhrig, and especially Theresa Long. I'malso grateful to Simon Fung who, as a student at the University of London, drew my attention to an error in the second edition.

I salute my Cambridge University Press editors, Karen Maloney and Stephen Acerra, and editorial assistant Kristina Deusch. Their encouragement and guidance are much appreciated.

Summary

This book is the revision of Supply Chain Management, originally published by Wiley in 2005. Since its first edition, I have successfully used it for MBA courses in operations strategy and supply chain management at KAIST. Over the years, however, I have been able to identify innovative new ideas as well as cases in supply chain management and tried to incorporate them into the book as emerging theories or best practices. As a result, it seemed necessary to make a full revision to the original book. At the same time, I also believed most of the core concepts and theories in the first edition would be still very much relevant and useful for effective supply chain management. Against this backdrop, I decided to write a revision, which could integrate the new ideas and cases with the existing ones, rather than to replace the existing with the new. This philosophy resulted in the second edition, which includes seven in-depth chapters in addition to the original chapters. Complementing the first edition in great detail, these in-depth chapters elaborate on innovative approaches and ideas as well as sustainable competitive capabilities for supply chain management from the learning perspective. I hope that as an integrated and independent volume, the book now can play an essential role in enabling the students to learn and experience effective supply chain management.

Summary

This chapter examines decision making by a community (or any group) in a simple model: the community must choose from a finite set of mutually exclusive alternatives. (The next chapter endows the model with much more structure by specifying individual utility functions and a production function – and resource constraints. The utility functions will have classical economic properties.)

We look at situations in which a groupmust make a decision that will be binding on all of its members. For example, a class has to determine a time for a review session, a town has to decide whether to build a new school, a nation has to elect a legislature. The resulting choice will have no other implications for personal consumption – in this chapter. Suppose for instance that X, Y, Z, etc. denote alternative ways of spending a fixed amount of government revenue, with the same individual tax burdens in each case. In this setting we can't rule out any ranking of the available options as a possible preference scheme for a member of the group. This makes it very difficult to induce truthful revelation of the hidden characteristic, which in this chapter and the next is the individual's true preference scheme. We want the individuals to reveal enough information about their preferences to enable the system to select the outcome that best reflects those individual preferences.

Clearly, one could write an entire book on the criteria for determining the alternative that “best” reflects individual preferences. Indeed, hundreds of volumes have been written on that theme. In this chapter we set that issue aside and simply determine which selection rules elicit truthful information about individual preferences. Aselection rule is essentially amapping from individual preferences into a social choice, and it must be defined for each possible specification of individual preferences.

VOTING RULES

Although this section examines voting procedures, you are encouraged to think of the candidates standing for election not as individuals seeking careers in government but as alternative packages of public projects. Candidate (or alternative) X may, for example, be a proposal to reduce expenditure on space exploration by a specific amount and to use the proceeds to fund research on the production of energy by nuclear fusion.

Summary

The battle that every morally well-disposed human being must withstand in this life, under the leadership of the good principle, against the attacks of the evil principle, can procure him, however hard he tries, no greater advantage than freedom from the dominion of evil. That he be free, that he “relinquish the bondage under the law of sins, to live for righteousness,” this is the highest prize that he can win. He still remains not any the less exposed to the assaults of the evil principle; and, to assert his freedom, which is constantly under attack, he must henceforth remain forever armed for battle.

The human being is nevertheless in this perilous state through his own fault; hence he is bound at least to apply as much force as he can muster in order to extricate himself from it. But how? That is the question. – If he searches for the causes and the circumstances that draw him into this danger and keep him there, he can easily convince himself that they do not come his way from his own raw nature, so far as he exists in isolation, but rather from the human beings to whom he stands in relation or association. It is not the instigation of nature that arouses what should properly be called the passions, which wreak such great devastation in his originally good predisposition. His needs are but limited, and his state of mind in providing for them moderate and tranquil. He is poor (or considers himself so) only to the extent that he is anxious that other human beings will consider him poor and will despise him for it. Envy, addiction to power, avarice, and the malignant inclinations associated with these, assail his nature, which on its own is undemanding, as soon as he is among human beings. Nor is it necessary to assume that these are sunk into evil and are examples that lead him astray: it suffices that they are there, that they surround him, and that they are human beings, and they will mutually corrupt each other's moral disposition and make one another evil.

Summary

Technology consists of knowledge, procedures, and devices, both conceptual and physical, and is also a mechanism used for problem solving. Innovation is often defined as new combination. Therefore, technological innovation is new combination of knowledge, procedures, devices, and problem-solving mechanisms. It has been touted as the biggest force driving economic development and prosperity. Technological innovation has also enabled the company to achieve highly sophisticated coordination with its supply chain partners. Since coordination is at the center of supply chain management, it is true to say that most of the recent development in SCM can be attributed to technological innovation, especially internet-based technology. As such, in this chapter, we review important technological innovations that have been closely related with improvements in operations and supply chain management. Our fundamental premise is that technology cannot be understood independent of organization, i.e., technology and organization must interact with each other and evolve together in order to accomplish an optimal result from technological innovation. It should be valid for supply chain management as well. We elaborate the premise from the learning perspective covered in Chapter 2.

Key Learning Points

Summary

It is already a beginning of the dominion of the good principle and a sign “that the Kingdom of God is at hand,” if even just the principles of its constitution begin to become public; for in the world of the understanding something is already there when the causes, which alone can bring it to pass, have taken root generally, even though the complete development of its appearance in the world of the senses is postponed to an unseen distance. We have seen that to unite in an ethical community is a duty of a special kind (officium sui generis), and that, though we each obey our private duty, we might indeed thereby derive an accidental agreement of all in a common good, without any special organization being necessary for it, yet that such a universal agreement is not to be hoped for, unless a special business is made of resisting the attacks of the evil principle (which human beings themselves otherwise tempt each other to serve as tools) by the union of all with one another for one and the same end, and the establishment of one community under moral laws, as a federated and therefore stronger force. – We have also seen that such a community, as a Kingdom of God, can be undertaken by human beings only through religion, and, finally, that in order for religion to be public (a requisite for a community), this Kingdom is represented in the visible form of a church, the founding of which therefore devolves on human beings as a work which is entrusted to them and can be required of them.

To erect a church as a community under religious laws, however, seems to require more wisdom (of insight as well as of good disposition) than human beings can be thought capable of; it seems that the moral goodness especially, which is aimed at through such an organization, must for this purpose be presupposed in them already. Nonsensical is in fact even the expression that human beings should found a Kingdom of God (as we might well say of them that they can establish the kingdom of a human monarch); God must himself be the author of his Kingdom.

Summary

This chapter investigates incentives in firms. We explore the hidden action problems of a modern corporation. Section 4.1 compares firms in several leading industrialized countries. Section 4.2 examines the relationship between two senior executives who share the firm's profits and is followed by a brief look at the relationship between the owner and employees in an owner-managed firm (Section 4.3). The rest of the chapter is devoted to the hidden action problem confronting a widely dispersed group of shareholders whose objective is to have the firm that they jointly own maximize the value of their shares. Can they rely on the board of directors to provide the appropriate incentives to the company's management team, even though it is extremely costly for the shareholders to monitor the management and the board members as well?

A BRIEF TOUR OF SEVERAL COUNTRIES

We are primarily concerned with the attempt of a firm's owners to obtain a satisfactory return on the capital they supply to the firm. The owners provide financing when they purchase shares in the firm. They also contribute passively every time the firm uses retained earnings to purchase equipment. Firms also borrow financial capital, and in many industrialized countries bank loans are a much more important source of finance than in the United States. All the suppliers of finance want management to function in a way that brings them a high return. However, a chief executive may act in a way that benefits himself or herself at the expense of the suppliers of capital. We refer to this as the agency problem.

DEFINITION: The Modern Corporation's Agency Problem

The firm's owners and creditors seek a high return on their investments but the daily decisions that determine that rate of return are made by the firm'smanagement team, and themanagersmay be assumed to have their own welfare at heart.

One striking difference between the pattern of ownership across countries lies in the role of the financial sector. US banks were prohibited from holding equity in corporations until the repeal of the Glass-Steagall Act in 1999.

Summary

Global supply chain management (G-SCM) is about managing business activities in the supply chain, which is configured and coordinated on a global scale. Thanks to ever-increasing globalization among small and medium-sized enterprises, as well as large multinationals, it has rapidly become an important issue in management. Despite its perceived importance, however, G-SCM remains an area that has not been systematically researched to give a sense of “integration” as an important management issue. In this chapter, we present an integrating framework, i.e., a process model of global supply chain management, which contains most of the key G-SCM issues and subjects in a systematic way so that individual study outcomes accumulate, rather than disperse. Moreover, the framework will help managers to plan their global supply chain strategy more systematically. After introducing the framework, we delineate its key elements in detail.

Key Learning Points

Summary

This chapter and the next investigate the extent to which an agent can be motivated to act in the principal's interest when the principal cannot determine whether the agent has in fact taken the appropriate action. Agents’ behavior is problematic because their goal is to maximize their own utility. The next chapter is devoted to the specific hidden action problem of motivating workers and management in a firm, with the top executives receiving most of our attention. This chapter examines a wide variety of other issues. In many of these the principal is a surrogate for society as a whole, and the principal's utility is maximized when the agents – the producers and consumers – are all motivated to do their part in contributing to an efficient outcome.

As with all hidden information problems, there are hidden characteristic elements as well as the hidden action element. In fact, some of the topics could have been presented as hidden characteristic problems. For instance, we could study resource allocation from the standpoint of inducing consumers to reveal their hidden preferences and firms to reveal their hidden production technologies so that an efficient outcome can be identified. However, the approach taken in the first section is that of inducing each individual to choose a bundle of goods and services at which his or her marginal rate of substitution equals that of the other consumers. Similarly, when discussing pollution abatement in Section 2, we begin with the fact that the adjustment cost of an individual firm – the firm's characteristic – is hidden from the government. If the firm were simply asked to report its adjustment cost we would have a hidden characteristic problem, belonging in Chapter 5. However, we instead look at an incentive scheme that harnesses the profit motive to induce firms to coordinate their actions so that the adjustment burden falls on the firms that can reduce pollution at the lowest cost to consumers.

Hidden action problems are complicated by the presence of uncertainty. If your car breaks down a week after you bring it home from the repair shop you do not know whether you are the victim of bad luck or shirking by the mechanic.

Summary

Introduction

One of the operational goals of production processes is to meet the quality criteria for the goods produced. These criteria concern, for example, a product's reliability, functionality or resistance to wear. If a product does not meet its quality criteria, it loses much of its value. The same holds for field problemsolving (FPS) projects. Executing a problem-solving project can also be interpreted as a production process. The deliverables of this production process are defined in the assignment (see Chapter 4). This chapter discusses the researchoriented quality criteria for the products of a problem-solving project.

Problem-solving projects can be evaluated on several criteria. We make a distinction between research-oriented criteria and change-oriented criteria. Research-oriented criteria concern the research aspects of problem-solving projects. They concern the quality of the conclusions you draw based on your research on the business system to be improved and its context. These criteria are relevant for description, diagnosis and evaluation. Research-oriented criteria are less important during problem definition, redesign and implementation. Change-oriented criteria, including relevance and the creation of support, are more germane to those latter activities. Change-oriented criteria are discussed in Section 3.9. The present chapter deals only with research-oriented criteria.

Many people say that the ultimate aim of research is to yield true conclusions (Goldman, 1999). Others doubt whether truth is a useful concept, or disagree about the meaning of truth (Lawson and Appignanesi, 1989). In any event, given the fallibility of our knowledge, we can never be sure whether a conclusion is true or not. Therefore, many authors acknowledge that the central aim of research is to strive for inter-subjective agreement (Habermas, 1981; Swanborn, 1996). Inter-subjective agreement refers to consensus between the actors who deal with a research problem. In problem-solving projects, intersubjective agreement is important. For example, inter-subjective agreement on a diagnosis is important in order to secure support for a solution.

Themost important research-oriented quality criteria are controllability, reliability and validity (Swanborn, 1996; Yin, 2003; Gibbert et al., 2008; for an alternative perspective see Guba and Lincoln, 1989). They are important because they provide the basis for inter-subjective agreement on research results. Controllability, reliability and validity pertain to research outcomes – that is, the claims about reality that are based on research. They apply tomeasurements, explanations, conclusions, interpretations, causal models and so on.

Summary

Introduction

In Chapter 2 we saw that student field projects in business and management can be based either on the empirical cycle, aimed at developing descriptive or explanatory knowledge, or on the problem-solving cycle, aimed at developing solutions for field problems. For the remainder of this handbook we discuss the methodology for the second type of project: the problem-solving project. It is a design-oriented and theory-informed methodology. There are, of course, other problem-solving strategies, and our methodology is not necessarily the best one for each and every business or organizational problem; it has a delineated application domain (see Section 3.5).

In this chapter we discuss first the foundations of this methodology and the types of field problems for which this methodology is appropriate. Then we discuss the nature of the problem-solving project, its basic set-up and the various modes in which student projects can be executed. We conclude by presenting the characteristics of professionally executed field problem-solving (FPS) projects, which are quite different from projects that aim to produce descriptive and explanatory knowledge.

Rational Problem Solving

This design-oriented and theory-informed methodology for business and organizational problem solving builds on the traditions of rational problem solving (Visscher and Visscher-Voerman, 2010). Systematic enquiry into problem solving, aimed at uncovering general principles, started with the work of Herbert Simon, Allen Newell and colleagues in the 1950s (see, for example, Newell and Simon, 1972). Their work strongly influenced research in cognitive science, artificial intelligence, management science and economics. A related stream of research developed on organizational decision-making, which had, in its formative years of the 1960s and 1970s, a predominantly rational orientation (see, for example, Simon, 1960). An especially representative example of this approach is the book by Kepner and Tregoe (1981). However, our design-oriented methodology differs from this rational problem-solving or decision-making approach in two significant aspects.

First, we see business problem solving not as a purely technical-economic activity. The issue is not to design a smart solution, but to realize performance improvement for a certain business system. This always involves organizational change, a change in organizational roles and routines, often with accompanying changes in perceptions and attitudes. With regard to organizational change, we follow Tichy (1983), who maintains that significant (in his words ‘strategic’) planned organizational change has to be managed simultaneously in the technical, political and cultural subsystems, using, respectively, technical, political and cultural interventions.

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Preface to the Third Edition

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Preface to the Second Edition

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Religion within the Boundaries of Mere Reason

7 - Voting and Preference Revelation

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Part V - Analytical Tools (Online)

Further Reading

Part Three - The Victory of the Good over the Evil Principle, and the Founding of a Kingdom of God on Earth

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Contents Summary

9 - Innovation and Technology

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CAMBRIDGE TEXTS IN THE HISTORY OF PHILOSOPHY

Part Four - Concerning Service and Counterfeit Service under the Dominion of the Good Principle or Of Religion and Priestcraft

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Part III - Infrastructural Dimension of Supply Chain Management

4 - Corporate Governance

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What Does It Mean to Orient Oneself in Thinking?

2 - Basic Models and Tools

10 - Global Supply Chain Management

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3 - Hidden Action

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11 - Quality Criteria for Research

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References

3 - Problem-Solving Projects

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