Journal of Operations Management 25 (2007) 573580

www.elsevier.com/locate/jom

Bridging organization theory and supply chain management:

The case of best value supply chains
David J. Ketchen Jr.a,*, G. Tomas M. Hult b,1
a

Department of Management, College of Business, Auburn University, Auburn, AL 36849-5241, United States
b
Department of Marketing and Supply Chain Management, Eli Broad Graduate School of Management,
Michigan State University, East Lansing, MI 48824-1122, United States
Available online 16 June 2006

Abstract
Rivalry is increasingly being contested at the supply chain level of analysis. Rather than competing firm versus firm, todays
organizations are battling supply chain versus supply chain. Within this context, best value supply chains are emerging as a means to
create competitive advantages and superior performance. While traditional supply chains often focus primarily on one key outcome
such as speed or cost, best value supply chains excel along an array of uniquely integrated prioritiescost, quality, speed, and
flexibility. We describe how key organizational theories help to distinguish traditional supply chains from best value supply chains. To
provide a foundation for future inquiry, we offer theory-based research questions that are focused on best value supply chains.
# 2006 Elsevier B.V. All rights reserved.
Keywords: Organization Theory; Supply Chain Management; Best Value Supply Chains; Strategic Supply Chain Management

A supply chain is a series of units that transforms raw

materials into finished products and delivers the
products to customers (Mabert and Venkataramanan,
1998). Some of the units in a chain are located inside a
single organizations borders while others cross such
borders in complex and evolving ways. Effectively
managing supply chains is vital to organizational
success. Indeed, there is a growing recognition that
modern competition is being fought supply chain
versus supply chain rather than firm versus firm
(Boyer et al., 2005; Ketchen and Guinipero, 2004).
The value of supply chain management is reflected in
how firms such as Wal-Mart, Toyota, and Dell have used

* Corresponding author. Tel.: +1 334 844 4071;

fax: +1 334 844 5159.
E-mail addresses: ketchdj@business.auburn.edu
(D.J. Ketchen Jr.), hult@msu.edu (G. Tomas M. Hult).
1
Tel.: +1 517 353 4336; fax: +1 517 432 1009.
0272-6963/$ see front matter # 2006 Elsevier B.V. All rights reserved.
doi:10.1016/j.jom.2006.05.010

their supply chains as strategic weapons to gain

advantages over peers. Meanwhile, failing to manage
supply chains effectively offers serious negative
consequences. For example, problems with contract
manufacturers led Cisco to write off $2.25 billion of
inventory in 2001 (Lee, 2004). In terms of stock price,
firms market value erodes by an average of 10%
following the announcement of a major supply chain
problem (Hendricks and Singhal, 2003).
Our contention is that best value supply chains are
the chains that are most likely to prosper within todays
competitive global landscape. Our paper has three main
goals related to best value supply chains. First, we
define best value supply chains and explain the
overarching differences between these chains and
traditional chains. Second, we describe how key
organizational theories help to distinguish best value
supply chains from traditional supply chains. Third, we
lay a foundation for future inquiry by building on these

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D.J. Ketchen Jr., G.T.M. Hult / Journal of Operations Management 25 (2007) 573580

key theories to offer research questions focused on best

value supply chains.
1. Best value and traditional supply chains
Traditionally, supply chain management has been
viewed predominantly as a process for moving materials
and goods. From this view, supply chain management has
been viewed as a support function that helps organizations implement their strategies. As shown in Table 1,
best value supply chains take an important additional
step. Their focus is on strategic supply chain managementthe use of a supply chain not merely as a means to
get products to where they need to be, but also as a means
to enhance key outcomes that drive firm performance
(Hult et al., 2004). In other words, strategic supply chain
management elevates supply chain management from a
function that supports strategy to a key element of
strategy. An emphasis on strategic supply chain management does not imply a need to use cutting-edge and
expensive equipment, nor to emphasize rich teamwork at
all stages in the chain. Instead, the emphasis is on
matching the chains approach to each problem to the
nature of the problem that needs to be solved. Beyond a
general focus on strategic supply chain management, best
value supply chains are further distinguished from other
chains by how they approach issues of agility, adaptability, and alignment, and by their ability to pursue
multiple priorities (often labeled competitive priorities in previous supply chain research).
1.1. Agility, adaptability, and alignment
The effectiveness of strategic supply chain management is closely tied to three attributes: agility, adaptability, and alignment (e.g., Lee, 2004). Agility refers to
the ability of a supply chain to react quickly to
unexpected or rapid shifts in supply and demand (Lee,

2004). One way to create agility is to develop cultural

competitiveness in the supply chain. Cultural competitiveness is defined as the degree to which supply chains
are predisposed to detect and fill gaps between what the
customer desires and what is currently offered (Hult et al.,
2002; cf. Hult et al., 2003). Cultural competitiveness
provides supply chain participants with a pattern of
shared values and beliefs that assert the importance of
certain elements (and omit others), which in turn drive the
chains approach to serving the end user. In particular,
cultural competitiveness can be achieved by emphasizing
a spirit of entrepreneurship, innovativeness, and learning
among supply chain participants (Hult et al., 2002).
Adaptability refers to a willingness to reshape supply
chains when necessary, without ties to legacy issues or
the way the chain has been operated previously (Lee,
2004). Adaptable supply chains rely on information
systems to identify shifts in the market, and then take
appropriate actions such as moving facilities, changing
suppliers, and outsourcing. Adaptability sometimes
requires developing more than one supply chain for the
same product in order to ensure distribution. For
example, the supply chain surrounding the Gap rely on
China for manufacturing and sourcing of Old Navy
stores, while Central American facilities supply Gap
stores and Italian facilities supply Banana Republic
stores. This approach is far more expensive than if all
three brands were served by one network, but it helps
differentiate the brands and provides insurance against
problems that might arise in any of the three regions
(Lee, 2004).
Alignment refers to ensuring that the interests of all
participants in a supply chain are consistent (Lee, 2004).
Most chain participants faced with taking an action that
benefits their firm versus one that benefits the chain will
choose the former (Narayanan and Raman, 2004). As a
result, incentives must be organized in such a way that
all parties interests are aligned. For example, contracts

Table 1
A comparison of best value and traditional supply chains
Issue

Best value supply chains

Traditional supply chains

View of supply chain

management

Strategic supply chain managementchains

are a strategic weapon

Chains are a method to move products in

order to support strategy

Agility

Strong ability to be proactive as well as

responsive to changes

Modest ability to respond to changes

Adaptability

Maintain a limited set of multiple chains to

ensure distribution

Often limited to single chains or a large

number of chains

Alignment

Interests of participants coincide (or is developed to

be synergistic)

Participants forced to choose between own

and chains interests

Competitive priorities

Total value across speed, quality, cost, and flexibility

Emphasize one of the four competitive priorities

D.J. Ketchen Jr., G.T.M. Hult / Journal of Operations Management 25 (2007) 573580

575

Table 2
How different theoretical perspectives help to distinguish best value and traditional supply chains
Theoretical perspectiveBest value supply chains

Traditional supply chains

Key articles in this Issue

Transaction cost
economics

Focus on total costs, not just transaction

costs, as the basis of make or buy
decisions
Short term costs play a secondary role if
the potential for long term, trusting
relationships exists

Focus on transaction costs as

the basis of make or buy
decisions
Opportunism undermines trust;
short term costs are a
primary consideration

Holcomb and Hitt;

Ireland and Webb
McCarter and Northcraft;
Morgan, Kaleka and
Gooner

Use reward structures and cultural

competitiveness to align members
interests
Potential for opportunism minimized

Interests of supply chain members

only partially aligned

Morgan, Kaleka and

Gooner

Agency theory

Strong potential for opportunism

Resource dependence Supply chain members recognize that

theory
dependence can create forbearance
and trust

Each member tries to avoid becoming Crook and Combs;

dependent on others and tries to make Ireland and Webb
others dependent on it

Institutional theory

Use industry recipes and best practices

to inform, but not dictate, supply chain
management activities

Rely heavily on industry recipes and

best practices to guide supply chain
management activities

Rogers, Purdy, Safayeni

and Duimering

Game theory

Mutual dependence and trust overcome

members temptation to pursue
self-serving behavior

Some members use free riding, hold

up, and leakage to benefit themselves
and to the detriment of the chain

McCarter and Northcraft

Network theory

A blend of strong and weak ties that

matches supply chain needs is created
in order to maximize supply chain
performance

Strong and weak ties formed on a

case-by-case basis rather than
strategically

McCarter and Northcraft;

Morgan, Kaleka and
Gooner

Social capital theory

Shared goals, values, and experiences

Mix of shared and firm-level goals,
create shared sensemaking and improved performance values, and experiences circumscribe
shared sensemaking and limit
performance

Strategic choice

Strategic decisions made with concern

for the chain as the primary driver. This
strategic supply chain management
opens the door to unique blended strategies
that transcend the firm

Strategic decisions made with concern Miles and Snow

for the firm as the primary driver. This
approach constrains firms to using a
generic strategy such as prospector
or low cost leader

Resource-based
view/knowledgebased view

Assume that unique resources exist at

the supply chain level, and that supply
chains can be inimitable competitive
weapons

Assume that unique resources reside Holcomb and Hitt; Miles

within firms. Supply chain management and Snow
is thus a tool to complement these
resources

can be written such that partners share risks, expenses,

and benefits equitably. After reducing costs across
certain supply chains, Wal-Mart executives split the
savings equally between their firm, the supplier (Procter
& Gamble), and the customer (Croxton et al., 2001).
Alignment of information is also vitalparticipants
must have access to needed data on flows and forecasts
in order to fulfill their responsibilities.
1.2. Competitive priorities
Best value supply chains attempt to build on strategic
supply chain management in general and agility,

Krause, Handfield and

Tyler; Ireland and Webb

adaptability, and alignment in particular in order to

do extremely well along multiple outcomes. Specifically, best value supply chains strive to excel along
multiple priorities often labeled competitive
priorities including speed, quality, cost, and
flexibility (Hult et al., in press). Thus, they focus on
the total value added to the user, not simply one of the
priorities such as cost or speed.
Speed (often referred to as cycle time) reflects the
time it takes from initiation to completion of a supply
chain process. The focus of speed is the ability to deliver
on time, according to a set schedule. Supply chains that
stress quality continually focus on improving their

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supply chain processes to increase product reliability

and customer satisfaction. Cost-driven supply chains
strive to create customer value by either reducing costs
or increasing benefits in the supply chain equation (i.e.,
value = benefits/costs). Flexibility refers to a supply
chains responsiveness to the consistent and changing
needs of its users. Flexibility includes both the degree
of flexibility in the supply chain process itself and the
product or service provided (Boyer and Lewis, 2002;
Ward et al., 1998; Youndt et al., 1996). Each of these
metrics is expected to influence crucial outcomes. For
example, not only does cycle time directly assess
supply chain functioning, cycle time has a direct
linkage to profit at the firm level (Handfield and
Nichols, 2002).
2. Organization theories and best value supply
chains
As a relatively new concept, the notion of best value
supply chains can become clearer and richer if
examined from a variety of important theoretical
perspectives. As shown in Table 2, in this section we
consider the implications for the best value supply
chain concept offered by nine prominent theoretical
perspectives that are used as a conceptual underpinning
in at least one of the articles in the special issue:
transaction cost economics, agency theory, resource
dependence theory, institutional theory, game theory,
network theory, social capital theory, strategic
choice, and the resource-based view/knowledge based
view. Prior to elaborating on the nine theories, it is
important to state that a number of other theories can
also help explain supply chain phenomena (e.g.,
behavioral theory of the firm, punctuated equilibrium,
industrial organization, contingency theory, evolutionary economics, population ecology). These theories,
along with the ones covered in the issue, should be
given careful attention in future research on supply
chains.
Transaction cost economics (TCE) offers a natural fit
with supply chain management research because it
centers on the make or buy decisionwhether a firm
should make a product within the confines of its
organizational boundaries or purchase it from an outside
provider (Williamson, 1975). The overarching goal is to
maximize performance by minimizing transaction costs
within and between organizations. Given the natural fit
and previous use of the TCE in supply chain research,
TCE was a popular theory in this special issue as well.
The articles by Holcomb and Hitt, Ireland and Webb,
McCarter and Northcraft, and Morgan, Kaleka and

Gooner all discuss TCEs implications for various

aspects of supply chain management.
According to TCE, managers should minimize
transaction costs through selecting their approach to
the make or buy decision. Transaction costs are the
expenses generated by identifying fair market prices,
negotiating, and carrying out economic exchange
(Williamson, 1991). Under some conditions, internalizing an activity minimizes such costs, while under
others, buying a product or service from another firm is
best. Supply chain managers must balance these
contingencies to find a suitable balance of relationships
across a chain.
Within traditional supply chains, short-term transaction costs are the overriding concern. This creates the
potential for opportunism, wherein one firm takes
advantage of another firm. For example, a supplier
might reduce the quality of its products in order to
increase its own margins. Given this context, trust
between supply chain members is often difficult to
establish and maintain. In contrast, the members of best
value supply chains focus on total costs, not just shortterm transaction costs, as the basis of make or buy
decisions. There is recognition that acting opportunistically has long-term implicationsa supplier that is
viewed as overly self-serving may find itself excluded
from supply chains unless it offers a product or service
that is very unique. This exclusion represents economic
costs that wise firms are unwilling to risk. As a result,
short-term costs are relegated to a secondary role, and
members devote their efforts to building long term,
trusting relationships that benefit all participants.
Overall, applying TCE ideas to best value supply
chains suggests the following questions for future
research: To what extent do best value supply chains
manage total costs as opposed to transaction costs?
What are the performance implications of this emphasis
on total costs? What formal and informal mechanisms
are used to prevent and punish opportunism within best
value supply chains?
Agency theory, which was discussed in this issue by
Morgan et al., also offers a natural fit with supply chain
management research. This theory centers on occasions
wherein one entity (the principal) delegates authority to
a second (the agent) to act on its behalf (Eisenhardt,
1989). Problems arise in these relationships because
agents often behave in ways that benefit them, not
principals. For example, stockholders delegate authority to top managers to run corporations. A chief
executive officer may exploit his/her role as an agent by
acquiring another firm in order to boost his/her own
compensation, regardless of the potential for the

D.J. Ketchen Jr., G.T.M. Hult / Journal of Operations Management 25 (2007) 573580

acquisition to add value to the company and enrich the

stockholders. Accordingly, principals must closely
monitor agents decisions, create reward structures that
reinforce desired activities, or both.
Supply chains are replete with relations involving one
firm delegating authority to another. As a result, conflicts
of interest often arise within traditional supply chains.
Participants must choose between a course of action that
benefits their firm versus one that benefits the chain as a
whole. Most managers in this situation will select the
former option because their primary loyalty lies with
their home firm. Best value supply chains recognize and
account for this tension. As discussed above, best value
supply chains leverage tools such as reward structures
and cultural competitiveness to ensure alignment among
participants interests. This removes the temptation to
take advantage of other supply chain members. Members
of best value supply chains also recognize that the
sequential nature of supply chains dictates that they are
agents in some links and principals in others. Thus,
opportunism in ones role as an agent can be punished by
other firms in the chain. Overall, applying agency theory
to best value supply chains suggests the following
questions for future research: What structures are most
effective at ensuring that all best value supply chain
members benefit from chain success? Do the insights
generated in a firms role as an agent help it be more
effective as a principal? If so, how?
Resource dependence theory (RDT) centers on how
some firms become reliant on others for needed inputs
such as goods and materials, and how firms can
manage such relationships (Pfeffer and Salancik,
1978). The asymmetric interdependence that exists in
these inter-firm relationships is critical to reduce
environmental uncertainty for some firms. As supply
chain members work together closely, they often
become more dependent on each other. Thus, RDT has
a high level of value in the supply chain context. The
articles by Ireland and Webb and Crook and Combs
discuss RDTs implications for key aspects of supply
chain management.
Within traditional supply chains, each member tries
to avoid becoming overly dependent on others for fear
of being exploited. At the same time, making others
dependent on ones own firm can create a position of
strength. In contrast, best value supply chains recognize
that taking advantage of resource dependencies can
have unintended and grave consequences. For example,
in recent years many aerospace manufacturers maneuvered to make their part suppliers highly dependent
on them, and then used this leverage to squeeze the
suppliers margins. This abuse eventually led the part

577

suppliers to begin bypassing the manufacturers and

selling spare parts directly to end-users. The result was a
dramatic drop in the manufacturers fortunes (Rosetti
and Choi, 2005). Thus, from the perspective of best
value supply chains, dependencies should be used to
create mutual forbearance and trust, not to drive
aggressive exploitation of one chain member by
another. At a broader level, considering RDT in the
best value supply chain setting suggests the following
questions: When should a firm within a best value
supply chain embrace resource dependency or be wary
of it? How do best value supply chains ensure that
dependent firms are not abused by firms on which they
depend? Should resource-sharing structures be enacted
to mitigate resource dependencies?
Institutional theory is the centerpiece of the article
by Rogers, Purdy, Safayeni and Duimering. This theory
emphasizes the role of environmental pressures, many
of them subtle and evolving, on firm activities
(DiMaggio and Powell, 1983). A foundational element
of institutional theory is that organizations become
homogeneous as a function of isomorphism over time.
Traditional supply chains tend to rely heavily on
industry recipes and best practices to guide supply chain
management activities. Copying what works for supply
chain icons such as Wal-Mart and Federal Express is
often seen as a prudent approach. In contrast, best value
supply chains use industry recipes and best practices to
inform, but not dictate, supply chain management
activities. Such chains recognize the potential folly of
mimicry. For example, attempting and failing to
duplicate Wal-Marts strategic supply chain management activities was one of the key blunders that led
Kmart into bankruptcy. Looking to the future, applying
institutional theory to best value supply chains suggests
the following questions: To what extent does a
formula for creating best value supply chains exist
in any given industry? Can such formulas be applied
across different industries and countries? How do
institutional forces shape the competitive actions of best
value supply chains?
Game theory uses mathematics and hypothetical
scenarios to draw conclusions about the likelihood of
decisions and actions (Axelrod, 1984). Game theory
plays a key role in the article by McCarter and
Northcraft. Although this theory has been criticized as
overly mechanistic, it can produce remarkable insights
and conclusions. For example, game theory suggested
that the United States and the Soviet Union would not
escalate from the Cold War to actual large-scale combat
because the complete destruction of each side would
almost certainly follow. This prediction held true for

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D.J. Ketchen Jr., G.T.M. Hult / Journal of Operations Management 25 (2007) 573580

decades until the dissolution of the Soviet Union in the

1990s.
Trying to predict others actions is a key element of
game theory. Within the supply chain setting, members
of traditional chains have reason to be suspicious of
each others motives. As discussed by McCarter and
Northcraft, some members use tactics such as free
riding, hold up, and leakage to benefit themselves and to
the detriment of the chain. The results include
protective behavior and suboptimal chain performance
along key issues such as speed, quality, cost, and
flexibility. In contrast, mutual dependence and trust
overcome members temptation to pursue self-serving
behavior within best value supply chains. The result is
not jointly beneficial suspicion as in U.S.Soviet
relations, but rather a positive sense of collaboration
that builds agility and adaptability at the supply chain
level. Looking to the future, applying game theory to
best value supply chains suggests the following
questions: How do best value supply chains avoid free
riding, hold up, and leakage? When should forgiveness be extended within a best value supply chain to a
member that has acted self-servingly?
Network theory describes, explains, and predicts
relations among linked entities (Thorelli, 1986).
Supply chains are, in essence, a form of network,
thus, network theory has the potential to reveal
interesting truths about chains. The articles by
McCarter and Northcraft and Morgan et al. feature
network theory. Strong and weak ties are key concepts
within network theory. As the names suggest, strong
ties involve firms that are tightly coupled and loose ties
involve firms with more tenuous links (cf. Granovetter,
1973). Each type presents certain advantages to supply
chains. Strong ties provide greater reliability, for
example, while loose ties enhance flexibility. Within
traditional supply chains, strong and weak ties are
formed on a case-by-case basis without much concern
for the overall network configuration. In contrast, best
value supply chains approach these issues strategically.
A blend of strong and weak ties that matches supply
chain needs (such as reliability and flexibility) is
created in order to maximize supply chain performance. Useful questions for future research from the
vantage point of network theory include: How
specifically do best value supply chains match strong
and weak ties to various contingencies relative to
traditional supply chains? What are the implications of
these differences for agility, adaptability, alignment,
and the competitive priorities?
Social capital theory centers on the softer side of
organizational activity. Social capital theory recognizes

that the firms composing supply chains are themselves

composed of people, and that the interpersonal skills
and relationships among these people (such as the
credits and trust they build with each other) shape
supply chain activities and outcomes (cf. Nahapiet and
Ghoshal, 1998). This theory plays a prominent role in
the articles by Ireland and Webb, and Krause,
Handfield, and Tyler. Within a traditional supply chain,
each person has conflicted loyalties between the firm
and chain. The resultant mix of shared and firm-level
goals, values, and experiences circumscribes shared
sensemaking and limits performance. In contrast, the
alignment among best value supply chain members
creates a context wherein shared goals, values, and
experiences create shared sensemaking and improved
performance. Key questions for the future include:
What roles do interpersonal relationships play in the
creation and maintenance of best value supply chains?
To what extent are best value supply chains better at
shared cognitive processes than traditional supply
chains?
Strategic choice theory stands in contrast to
externally focused approaches such as institutional
theory. Strategic choice contends that managers
decisions play a tremendous role in organizational
success or failure (Child, 1972). A central issue in
strategic choice theory is strategic renewal and
repositioning. A foundational assumption is that firms
can enact and actively shape their environment.
Strategic choice figures prominently in Miles and
Snows article. Within traditional supply chains,
strategic decisions are made with concern for the
firm as the primary driver. This approach constrains
firms to using a generic strategy such as prospector
(Miles and Snow, 1978) or low cost leader (Porter,
1980). Within best value supply chains, however,
strategic decisions are made with concern for the
chain as the primary driver. This strategic supply
chain management opens the door to unique blended
strategies that transcend the firm and provide the chain
with increased agility and adaptability. Some logical
research questions grounded in strategic choice
include: To what extent are best value supply chains
better at shaping their fates than traditional supply
chains?, and Are best value supply chains significantly
more likely than traditional supply chains to be able to
enact their environment?
Finally, the resource-based view examines how
certain assets and capabilities lay a foundation for
competitive advantage and superior performance
(Barney, 1991). The basic approach of the resourcebased view is viewing the firm as a bundle of resources,

D.J. Ketchen Jr., G.T.M. Hult / Journal of Operations Management 25 (2007) 573580

and asserting that resource heterogeneity exist among

firms. The closely related knowledge-based view targets
the role of wisdom as an asset and capability (Grant,
1996). The articles by Holcomb and Hitt, and Miles and
Snow feature these views. The traditional approach to
supply chains contends that unique resources reside
within firms. Supply chain management is thus a tool to
complement these resources. In contrast, best value
supply chains reflect the assumption that unique
resources exist at the supply chain level, and that
supply chains can be inimitable competitive weapons.
Relevant issues for future research include: What kinds
of unique resources are found at the supply chain level
of analysis? How can these supply chain resources be
protected from acquisition and imitation? To what
extent do these resources enable supply chains to excel
along the competitive priorities?, and Are supply chain
level resources more or less inimitable than firm level
resources?
3. Conclusion
Best value supply chains use strategic supply chain
management in an effort to excel in terms of speed,
quality, cost, and flexibility. Despite the value of this
concept to modern firms, little is known about how
prominent theories can help shed light on what
distinguishes these chains from others and makes
them exceptionally successful. This paper focused on
building bridges between organization theory and
supply chain management in order to help close the
gap between what we know about best value supply
chains and what we need to know. In particular,
applying insights from transaction cost economics,
agency theory, resource dependence theory, institutional theory, game theory, network theory, social
capital theory, strategic choice, and the resource-based
view/knowledge based view offers a rich depiction of
best value supply chains and provides important
questions that should be tackled within future
research.
Acknowledgement
We appreciate the comments of R. Duane Ireland on
an earlier version of this article.
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