C11 Planning and Controlling Basic Concept of Planning .docx

C1/1: Planning and Controlling Basic Concept of Planning
Pathways to Higher Education 2
Chapter 1: Basic Concept of Planning
Introduction
Planning: Its
Meaning,
Nature, and
Importance
Definition of
Planning
When you study and understand this chapter, you will be able
to:
• Know what we mean by planning.
• Be familiar with the nature of planning.
• Know the necessity and importance of planning.

• Understand and determine the main factors that affect the
planning effectiveness level.
• Distinguish and figure out the main steps to be followed in
planning.
• Acknowledge the planning subsystems.
• Figure out the different types of plans.
1.1 Introduction
In recent decades, the term “planning and controlling” has
become popularized widely in management circles. Most
managers
today – in business and service organizations – are at least
familiar
with this term and its general applications.
Planning and control are critical management activities
regardless
of the type of organization being managed. Modern managers
face
the challenge of sound planning and control in small and
relatively
simple organizations as well as in large, more complex ones,
and in
nonprofit organizations.
1.2 Planning: Its Meaning, Nature, and
Importance
1.2.1 Definition of Planning

There are many definitions for the term “planning,” each person
has
his/her own ideas concerning the meaning of the term
“planning.”
Among the most common definitions for this term are
• Planning is the process by which an individual or
organization decides in advance on some future course of
action (Omran, 2002, p. 68).
• Planning is the process of determining how the
organization can get where it wants to go (Certo, 2000, p.
126).
• Planning involves selecting from among alternative future
The Nature of
Planning
a)Contribution to
Purpose and
Objectives,

b)Primacy of
Planning,
courses of actions for the organization as a whole and for
every department or section within it. (Cook, Hunsaker,
Coffey, 1999, p. 16).
1.2.2 The Nature of Planning
The essential nature of planning can be highlighted by the four
major
aspects of planning: contribution to purpose and objective,
primacy
of planning, pervasiveness of planning, and efficiency of plans.
a) Contribution to Purpose and Objectives:
The purpose of every plan and all derivative plans is to
facilitate the
accomplishment of enterprise purpose and objectives. This
principle
derives from the nature of organized enterprise, which exists for
the
accomplishment of group purpose through deliberate
cooperation.
This was emphasized by koontz when he said:
“Plans alone can not make an enterprise successful. Action is
required; the enterprise must operate. Plans can, however, focus
on
purposes. They can forecast which actions will tend toward the
ultimate objective, which tend away, which will likely offset
one
another, and which are merely irrelevant. Managerial planning
seeks

to achieve a consistent, coordinated structure of operations
focused
on desired ends. Without plans, action must become merely
random
activity, producing nothing but chaos." (Koontz et al., 1980, p.
157).
b) Primacy of Planning:
Planning is the primary management function, the one that
precedes
and is the basis for the organizing, influencing, staffing, leading
and
controlling functions of managers. This can be shown in Figure
1.1.
Figure 1.1: Planning precedes all other managerial functions
Plans objectives
and how to
achieve them
What kind of
organization
structure
What kind of
people we need
and when
How most
effectively to lead

and direct people
By furnishing
standards of
control
c)Pervasiveness
of Planning
d)Efficiency of
Plans
Although all the functions intermesh in practice as a system of
action,
planning is unique in that it establishes the objectives necessary
for
all group effort. Besides, plans must be made to accomplish
these
objectives before the manager knows what kind of organization
relationships and personal qualifications are needed, along
which
course subordinates are to be directed and led, and what kind of
control is to be applied. And, of course, all the other managerial
functions must be planned if they are to be effective.

c) Pervasiveness of Planning:
Planning is a function of all managers, although the character
and
breadth of planning will vary with their authority and with the
nature
of policies and plans outlined by their superiors. It is virtually
impossible to circumscribe the area of choice where they can
exercise no discretion, and unless they have some planning
responsibility, it is doubtful that they are truly managers.
Recognition of the pervasiveness of planning goes far in
clarifying the attempt on the part of some students of
management to distinguish between policy making (the
setting of guides for thinking in decision making and
administration), or between the “manager” and the
administrator” or “supervisor”.
One manager, because of his or her authority delegation or
position
in the organization, may do more planning or more important
planning than another, or the planning of one may be more basic
and
applicable to a larger portion of the enterprise than that of
another.
However, all managers – from presidents to supervisors – plan.
The
supervisor of a factory crew plans in a limited area under fairly
strict
rules and procedures. Interestingly, in studies of work
satisfactions, a
principal factor found to account for the success of supervisors
at the

lowest organization level has been their ability to plan.
d) Efficiency of Plans:
The efficiency of a plan is measured by the amount it
contributes to purpose and objectives as offset by the costs and
other unsought consequences required to formulate and
operate it. A plan can contribute to the attainment of objectives,
but at too high or unnecessarily high costs. This concept of
efficiency implies the normal ratio of input to output, but goes
beyond
the usual understanding of inputs and outputs in terms of
pounds,
labor hours, or units of production to include such value as
individual
and group satisfactions.
The Importance
of Planning
a) To Offset
Uncertainty and

Change
Many managers have followed plans, such as in the acquisition
of
certain aircraft by airlines, where costs were greater than the
revenues obtainable. There have actually been some aircraft
with
which an airline was to make no money. Companies have
inefficiently attempted to attain objectives in the face of the
unsought
consequence of market unacceptability, as happened when a
motor
car manufacturer tried to capture a market by emphasizing
engineering without competitive advances in style.
Plans may also become inefficient in the attainment of
objectives
by jeopardizing group satisfactions. The new president of a
company
that was losing money attempted quickly to recognize and cut

expenses by wholesale and unplanned layoffs of key personnel.
This
result in fear, resentment, and loss of morale led to so much
lower
productivity as to defeat his/her laudable objective of
eliminating
losses and making profits. And some attempts to install
management
appraisal and development programs have failed because of
group
resentment of the methods used, regardless of the basic
soundness
of the programs.
The nature of planning can be figured out from these four
major aspects of planning:
a. Contribution to purpose and objectives,
b. Primacy of planning,
c. Pervasiveness of planning, and
d. Efficiency of plan
1.2.3 The Importance of Planning
The planning function has four important goals:
a) To offset uncertainty and change.
b) To focus attention on objectives,
c) To gain economical operation, and
d) To facilitate control.
a) To Offset Uncertainty and Change
Organizational planning has two purposes: protective and
affirmative.
The protective purpose of planning is to minimize risk by

reducing
the uncertainties surrounding business conditions and clarifying
the
consequences of related management actions. The affirmative
purpose is to increase the degree of organizational success.
Future uncertainty and change make planning a necessity.
Just as the navigator cannot set a course once and forget
about it, so the business manager cannot establish a goal and
let the matter rest. The future is seldom very certain, and the
further in the future the results of a decision must be
considered, the less the certainty.
b) To Focus
Attention on
Objectives
c) To Gain
Economical
Operation
Even when the future is highly certain, some planning is usually
necessary. In the first place, there is the necessity of selecting

the
best way to accomplish an objective with conditions of
certainty; this
becomes primarily a mathematical problem of calculating on the
basis of known facts, which course will field the desired result
at the
least cost. In the second place, after the course has been
decided, it
is necessary to lay out plans so that each part of the
organization will
contribute toward the job to be done.
Even when trends indicating changes are easily discernible,
difficult planning problems arise.
Ex: The manufacture of television sets is a case in point. The
change away from black and white to color television did not
take place overnight. The manufacturer had to determine what
percentage of production should be assigned to color sets
and what to black and white and how to retain efficient
production of both lines
b) To Focus Attention on Objectives
Because all planning is directed toward achieving enterprise
objectives, the very act of planning focuses attention on these
objectives. Considered overall plans unify interdepartmental
activities. Managers, being typically immersed in immediate
problems, are forced through planning to consider the future
and
even consider the periodic need to revise and extend plans in
the
interest of achieving their objectives.
c) To Gain Economical Operation
Planning minimizes costs because of the emphasis on efficient

operation and consistency. It substitutes joint directed effort for
uncoordinated piecemeal activity, even flow of work for uneven
flow,
and deliberate decisions for snap judgments.
The economy of planning is plainly seen at the production level.
No
one who has watched the assembly of automobiles in one of the
larger factories can fail to be impressed with the way that the
parts
and subassemblies come together. This implies extensive
detailed
planning without which the manufacture of automobiles would
be
chaotic and impossible costly.
Although every manager sees the imperative economy of
importance in other areas, it is occasionally left to chance and
too
great individual discretion.
d) To Facilitate
Control
Factors that may

Make Planning
Effective
d) To Facilitate Control
Managers can not check on their subordinate accomplishments
without having planned goals against which to measure. There
is no
way to measure control without plans to use as standards.
Read and think about this statement
“After I leave my office at five O’clock in the evening, I will
not care
what happen today, for I can not do anything about it; I will
only
care about what will happen tomorrow or the next day or next
year,
because I can do something about it.”
1.2.4 Factors that may Make Planning Effective
The research data indicate that under most circumstances
planning
is a positive force for organizational goal attainment. It is also
true
that a great many chief executives of large corporations view it
as
important. However, there are many factors that may make
planning
effective, among them:
a) Effectively done, planning can contribute to reduced

role ambiguity and role conflict. When policy planning
has been carried out, and clear role prescriptions have
resulted, individuals are more likely to know what they
are supposed to do and the probability that conflicting
forces will push them in two directions at once is
considerably reduced.
b) Closely allied to the first point, effective planning
tends to limit arbitrary actions by individual superiors.
c) Because role prescriptions are the ultimate result,
planning leads to a reduction of uncertainty within the
organization.
d) Planning produces a greater capacity to deal with
uncertainty in the environment external to a company, as
well as internal uncertainty. Effective planning makes it
much less likely that a company will be caught off guard
and suffers accordingly. Thus positive adjustment to a
sudden shift in market demand is much more likely if
such a shift has been forecast and new role prescriptions
established for dealing with this contingency.
e) The very process of planning tends to lead to decision
making that deals with more factors and takes more
considerations into account. Systematic planning
requires a look at a long list of variables which might
influence events. Without such a systematic
consideration of influences and alternatives, the

likelihood that something of importance will be
overlooked is very high. Thus, planning by its very nature
tends to force a manager to take into account factors that
might not otherwise be considered, and to tie plans more
closely to operative goals involving both task and
maintenance.
f) Planning is important in that it contributes to the
performance of other management functions. Typically
the tie between planning and control has been
emphasized, as shown in Figure 1.2.
Figure 1.2: Why planning is needed?
The benefits
and
importance of
planning
It enhances

the decision
making
process
It emphasizes
on the
organizational
objectives
It helps
angers to be
future
oriented
It helps in the
establishment
of
organizational
direction
It helps as a
measurement of
the
accomplishment
It pushes
managers to
coordinate
their decisions

Planning
Process
Being Aware of
Opportunity
1.3 Planning Process
How to set a plan? (Steps in planning process): The planning
process consists of the following steps that can be shown in
Figure 1.3.
Figure 1.3: Main steps in the planning process
1.3.1 Being Aware of Opportunity
Although preceding actual planning and therefore not strictly a
part of
the planning process, awareness of an opportunity is the real
starting
point for planning. It includes a preliminary look at possible
future
opportunities and the ability to see them clearly and completely,
knowledge of where we stand in the light of our strengths and

weaknesses, an understanding of why we wish to solve
uncertainties, and a vision of what we expect to gain. Setting
realistic objectives depends on this awareness. Planning
requires realistic diagnosis of the opportunity situation.
Being aware of opportunities in
light of:
- The market
- Competition
- What customers need want?
- Our strenghths
- Our weaknesses
Setting the objectives or goals:
- Where we want to be?
- What we want to accomplish?
- When we want to accomplish
that?
Identifying the alternative
courses:
What are the most promising
alternative to accomplish our
objectives (goals)?
Considering the planning
premises:
- In what environment we are
going to work?
- The internal environment
- The external environment

Comparing alternatives in light
of goals sought:
Which alternative will give us the
best chance of meeting our goals
at the lowest cost and highest
profits?
Choosing an alternative (the
appropriate one):
Selecting the course of action we
will pursue.
Formulating the supportive
plans:
Such as plans to:
- Buy equipments
- Buy materials
- Hire and train workers
- Develop a new products
Number zing plans by making
budgets.
Develop such budgets Such as:
- Volumes and price of sales.
- Operating experiences
necessary for plans.
- Expenditures for capital
equipments.

Putting the plans into action:
This means implementing the
plans.
Establishing
Objectives
Considering
the Planning
Premises
1.3.2 Establishing Objectives
The first step in planning itself is to establish objectives for the
entire enterprise and then for each subordinate unit. Objectives
specifying the results expected indicate the end points of what
is to
be done, where the primary emphasis is to be placed, and what
is to
be accomplished by the network of strategies, policies,
procedures,
rules, budgets and programs.
Enterprise objectives should give direction to the nature of all

major
plans which, by reflecting these objectives, define the
objectives of
major departments. Major department objectives, in turn,
control the
objectives of subordinate departments, and so on down the line.
The
objectives of lesser departments will be better framed, however,
if
subdivision managers understand the overall enterprise
objectives
and the implied derivative goals and if they are given an
opportunity
to contribute their ideas to them and to the setting of their own
goals.
An objective can be defined as the end point goal toward which
management directs its efforts and resources. (Sisk, 1993, p.
112).
The statement of an objective is in effect a statement of
purpose,
and when applied to a business organization becomes the
statement of that firm’s reason for existing.
However, there are four outstanding benefits that result from
the
statement of objectives, these are:
a) Objectives provide direction
b) Objectives serve as motivators
c) Objectives contribute to the management process
d) Objectives are the basis for management philosophy
e) Objectives serve as a guide for organizational consistency
Meanwhile, the objectives can be separated into four categories:

organizational, individual, internal, and external objectives.
1.3.3 Considering the Planning Premises
Another logical step in planning is to establish, obtain
agreement to
utilize and disseminate critical planning premises. These are
forecast data of a factual nature, applicable basic policies, and
existing company plans. Premises, then, are planning
assumptions – in other words, the expected environment of
plans in operation. This step leads to one of the major principles
of planning.
The more individuals charged with planning understand and
agree to
utilize consistent planning premises, the more coordinated
enterprise
planning will be.
Forecasting is important in premising; for example,
Determining
and Identifying
the Alternative
Courses

• What kind of markets will there be?
• What quantity of sales?
• What are the products and its prices?
• What are the technical developments required?
• What are the costs?
• What are the required policies?
• How will expansion be financed?
• What is the expected nature of political and social
environment?
Planning premises include far more than the usual basic
forecasts of
population, prices, costs, production, markets, and similar
matters.
• A difficulty of establishing complete premises and
keeping them up-to-date is that every major plan, and
many minor ones, becomes a premise for the future.
• As one moves down the organization hierarchy, the
composition of planning premises changes somehow.
Because the future environment of plans is so complex, it would
not
be profitable or realistic to make assumptions about every detail
of
the future environment of a plan.
Since agreement to utilize a given set of premises is important
to coordinate planning, it becomes a major responsibility of
managers, starting with those at the top, to make sure that
subordinate managers understand the premises upon which they

are
expected to plan. It is not unusual for chief executives in well-
managed companies to force top managers with differing views,
through group deliberation, to arrive at a set of major premises
that
all can accept.
1.3.4 Determining and Identifying the Alternative
Courses
Once the organizational objectives have been clearly stated and
the planning premises have been developed, the manager should
list
as many available alternatives as possible for reaching those
objectives.
The focus of this step is to search for and examine alternative
courses of action, especially those not immediately apparent.
There
is seldom a plan for which reasonable alternatives do not exist,
and
quite often an alternative that is not obvious proves to be the
best.
The more common problem is not finding alternatives, but
reducing
the number of alternatives so that the most promising may be
analyzed. Even with mathematical techniques and the computer,
there is a limit to the number of alternatives that may be
examined. It

Evaluating
these
Alternative
Courses
Selecting the
Appropriate
Course of
Action
Developing
Plans to
Pursue the
Chosen
Alternative
is therefore usually necessary for the planner to reduce by
preliminary examination the number of alternatives to those
promising the most fruitful possibilities or by mathematically
eliminating, through the process of approximation, the least

promising ones.
1.3.5 Evaluating these Alternative Courses
Having sought out alternative courses and examined their
strong and weak points, the following step is to evaluate them
by weighing the various factors in the light of premises and
goals. One course may appear to be the most profitable but
require
a large cash outlay and a slow payback; another may be less
profitable but involve less risk; still another may better suit the
company in long–range objectives.
If the only objective were to examine profits in a certain
business
immediately, if the future were not uncertain, if cash position
and
capital availability were not worrisome, and if most factors
could be
reduced to definite data, this evaluation should be relatively
easy.
But typical planning is replete with uncertainties, problems of
capital
shortages, and intangible factors, and so evaluation is usually
very
difficult, even with relatively simple problems. A company may
wish
to enter a new product line primarily for purposes of prestige;
the
forecast of expected results may show a clear financial loss, but
the
question is still open as to whether the loss is worth the gain.
Because the number of alternative courses in most situations
is legion and the numerous variables and limitations are
involved, evaluation can be also exceedingly complex.

Due to these complexities, the newer methodologies and
applications of operation research and analysis are helpful.
1.3.6 Selecting the Appropriate Course of Action
An evaluation of alternatives must include an evaluation of the
premises on which the alternatives are based. A manager usually
finds that some premises are unreasonable and can therefore be
excluded from further consideration. This elimination process
helps
the manager determine which alternative would best accomplish
organizational objectives.
1.3.7 Developing Plans to Pursue the Chosen
Alternative
After the appropriate alternative has been chosen, a manager
begins
to develop strategic (long range) and tactical (short–range)
plans.
Numberizing
Plans by
Budgeting

Putting the
Plans into
Action
1.3.8 Numberizing Plans by Budgeting
After decisions are made and plans are set, the final step to give
them meaning is to numberize them by converting them to
budgets. The overall budgets of an enterprise represent the sum
total of income and expenses with resultant profit or surplus
and budgets of major balance–sheet items such as cash and
capital expenditures. Each department or program of a business
or
other enterprise can have its own budgets, usually of expenses
and
capital expenditures, which tie into the overall budget.
If this process is done well, budgets become a means
of adding together the various plans and also
important standards against which planning progress
can be measured.
1.3.9 Putting the Plans into Action
Once plans that furnish the organization with both long-range
and
short-range direction have been developed, they must be
implemented. Obviously, the organization can not directly

benefit
from planning process until this step is performed.
The planning subsystem:
We can illustrate the planning subsystems in Figure 1.4.
Figure 1.4: Planning subsystem
Inputs
A portion of the
organizations
(1) People
(2) Money
(3) Raw material
(4) Machines
Organizational
Plans
Planning Process
(1) Stating
organizational objectives
(2) Listing alternative
ways of reaching
objectives
(3) Developing premises
upon which each
alternative is based
(4) Choosing best
alternative for reaching

objectives
Process
The Main
Types of Plans
and
Applications
a)Repetitiveness
dimension of a
plan
b) The time
dimension
c) The scope
dimension

d) The level
dimension
1.4 The Main Types of Plans and Applications
Before illustrating the main types of plans and applications, let
us
present the major dimensions of plans in Figure 1.5.
Figure 1.5: Major dimensions of plans
Where;
a) Repetitiveness dimension of a plan refers to the extent to
which the plan is used over and over again. Some plans are
specially designed for one situation that is relatively short-term
in nature. Other plans are designed to be used time after time
for long-term recurring situations.
b) The time dimension refers to the length of time the plan
covers. Strategic planning was defined as long- term in
nature, while tactical planning was defined as short-
termed.
c) The scope dimension refers to the proportion of the total

management system at which the plan is aimed. Some plans
are designed to cover the entire open management
system. This plan is often referred to as a master plan.
Other plans are developed to cover only a portion of
management system.
d) The level dimension refers to the level of the organization at
which the plan is aimed. Top level plans are those designed
for the organization’s top management, whereas middle
and lower level plans are designed for middle and lower
management.
Organizational
Plan
Upper Level
Management
Lower Level
Management
Level
Dimension
Scope
Dimension
Plans cover small
parts of system
Plans cover
entire system

Time
Dimension
Repetitiveness
Dimension
Plans cover
short-term
Plans cover
long-term
Plans used only
once
Plans used many
times
The Standing
Plans
a) The policy
b) Procedures

c) Rules
The Single
Used Plans
The plan’s four major dimensions are:
• Repetitiveness
• Time
• Scope
• Level
Based on the previous discussion about the plan’s dimensions;
we
can summarize the most common types of plans according to the
repetitiveness dimension in Figure 1.6.
Figure 1.6: Types of plans
1.4.1 The Standing Plans
Those include plans that are used over and over again because
they focus on organizational situations that occur repeatedly.
Examples for them are

a) The policy: is a standing plan that furnishes broad
guidelines for action, consistent with reaching organizational
objectives.
b) Procedures: are standing plans that outline a series
of related actions that must be taken to accomplish a
particular task.
c) Rules: are standing plans that are designate specific
required action. A rule indicates what an organization
member should or should not do and allows no room for
interpretation.
1.4.2 The Single Used Plans
Single used plans such as:
a) Program: is a single use plan designed to carry
out a specific project within an organization. The
project itself is not intended to remain in existence
over the entire life of the organization. Rather, it exists
to achieve some purpose. That if accomplished, will
contribute to the organization’s long- term success.

a) Strategies
b)Tactical or
Operational Plan
b) Budget: is a single use financial plan that covers a
specified length of time. It is a statement that
expresses the expected results in numerical terms. It
may be referred to as “a numberized program”.
Also, we can brief the most common types of plans according to
the

time dimension in the following;
a) Strategies:
The strategy is the process of achieving a fit between an
organization’s capabilities and its evolving environment to
achieve a favorable position within the competitive
marketplace.
Strategies pertain to those destiny-shaping decisions
concerning:
• The choice of technologies on which products are based
• The development and release of new products
• The processes for producing products and services
• The way they are marketed, distributed, and priced
• The way the firm responds to rivals
However, the planning process cannot and should not
cover every aspect of an individual’s job or an
organization’s activity. Planning should cover the key
elements of what is to be accomplished rather than the
details which are not critical to the achievement of overall
goals or objectives
b) Tactical or Operational Plan
This is concerned primarily with establishing short- term goals
and action programs. Organizations usually carry out formal
operational plans on a regular yearly basis however, there are
some
differences between the strategic and the tactical plans, and we
can show these differences in Table 1.1.

Table 1.1: Major differences between strategic and tactical
planning
Area of difference Strategic Planning Tactical Planning
• Individuals
involved
• developed mainly
by upper-level
management
• Developed mainly
by lower-level
management.
• Facts on which to
base planning
• are relatively
difficult to gather
• are relatively easy
to gather.
• Amount of detail
in plans
• Plans contain
relatively little
amount of
details
• Plans contain
substantial
amount of

details.
• Length of time
plans cover
• Plans cover long
period of time
• Plans cover short
period of time
Steps for
developing
strategy

Effective
planning
principle
How we can develop a strategic plan?
Strategic planning is a good example of the planning process.
Basically strategic planning includes developing alternative

courses
of actions and choosing one of them. Thus, developing strategic
plan
involves the following steps:
Step one: Determine the current domain of the enterprise in
terms of
the scope (i.e., determining the products and services it
offers and to whom).
Step two: What are the political, social, and economic trends we
have to consider? What product and/or technological
changes we anticipate will affect our organization?
Step three: Determine the current strengths and weaknesses.
This
means that management must analyze the
organizations operational, financial, and managerial
strengths and weaknesses.
Step four: Decide what target domain (or business) we want to
be in
and the best strategy for being there. This means, that
management must develop alternatives and analyze
each in light of the organization’s strengths and
weaknesses as well as the opportunities and threats it
will face.
Step five: Set specific objectives. Once you have developed a
new
strategic plan, it should be quantified in terms of goals
such as:
Ex.: Obtain a 20% share of the soft drink market within 5
years, and double advertising expenditures each year for the

next 5 years.
What are the main principles for having effective planning?
There are many, among the most important of them:
(1) Develop accurate forecasts
(2) Gain acceptance for the plan
(3) Make sure the plan is sound
(4) Assign responsibility for planning
(5) Be objective
(6) Keep the plan flexible
(7) Revise your long- term plan every year
(8) Make sure that the plan fits the situation
But
But
Causes of
failure
Why plans fail?

If managers know why plans fail, they can take steps to
eliminate the
factors that cause failure and thereby increase the probability
that
there plans will be successful. Plans fail when:
(1) Corporate planning is not integrated into the total
management system,
(2) There is a lack of understanding of the different steps of
planning process,
(3) Management at different levels in the organization has not
properly engaged in or contributed to planning activities,
(4) Responsibility for planning is wrongly vested solely in the
planning department,
(5) Management expects that plans developed will be realized
with little effort,
(6) In starting formal planning, too much is attempted at once,
(7) Management fails to operate by the plan,
(8) Management fails to grasp the overall planning process,
(9) Financial projections are confused with planning,
(10) Inadequate inputs are used in planning.
But

Key Points to
be remembered
Key Points to be Remembered
• Most managers – in business and service organizations today
are at least familiar with the term planning and its applications.
• There is no completely agreement among the people - even the
researchers – with regard the definition of planning, as each has
his or her definition that represents his/her opinion.
• Among the most common definition for planning: planning is
the
process by which an individual or organization decides in
advance on some future course of action.
• The purpose of every plan and all derivative plans is to
facilitate
the accomplishment of enterprise purpose and objectives.
• Planning is the primary management function, but it is
included in
the other managerial functions.

• Planning is a function of all managers, although the character
and breadth of planning will vary with their authority and with
the
nature of policies and plans outlined by their supervisors.
• The efficiency of a plan is measured by the amount it
contributes
to purpose and objectives.
• The nature of planning can be figured out from these major
aspects of planning:
(a) Contribution to purpose and objective.
(b) Primacy of planning.
(c) Pervasiveness of planning.
(d) Efficiency of plans.
• The importance of planning can be figured out from the
following
points:
(a) Planning offsets uncertainty and change.
(b) Planning focuses the attention on the objectives.
(c) Planning gains economical operations.
(d) Planning facilitates control.
• There are many factors affect the effectiveness of planning.
• There are many steps for developing any plan (planning
processes), they are:
(a) Being aware of opportunity.

(b) Establishing objectives.
(c) Considering the planning premises.
(d) Determining and identifying the alternative courses.
(e) Evaluating these alternatives.
(f) Selecting the appropriate course of action.
(g) Developing plans to pursue the chosen alternative.
(h) Number zing plans by budget.
(i) Putting the plans into action.
• There are many outstanding benefits that result from the
statement of planning objectives, these are:
(a) Objectives provide direction.
(b) Objectives serve as motivators.
(c) Objectives contribute to the management process.
(d) Objectives are the basis for management philosophy.
(e) Objectives serve as a guide for organizational consistency.
• There are many types of plans; this depends on the major
dimensions of plans.
• The major dimensions of plans are:
(a) Repetitiveness dimension.

(b) Time dimension.
(c) The scope dimension.
(d) The level dimension.
• Examples for plans: policies, procedures, rules, programs,
budgets, strategies, tactical.
• There are many steps for developing strategy, they are:
(a) Determine the current domain of the enterprise.
(b) Determine the different trends (Social, economical…..)
(c) Determine the current strengths and weaknesses.
(d) Decide the target domain.
(e) Set specific objectives.
• The main principles for effective planning are:
(a) Develop accurate forecasts.
(b) Gain acceptance for the plan.
(c) The plan must be sound.
(d) Be objective.
(e) The plan must be flexible.
(f) It must fit the situation.
• There are many reasons for planning failure, among the most
important of them:
(a) The plan is not integrated into the total management system.
(b) Management at different levels has not properly engaged in
or contributed to planning activities.
(c) Management fails to operate by the plan.

(d) Using inadequate inputs in planning.
(e) The failure of management to grasp the overall planning
process.
46 S U P P L Y C H A I N M A N A G E M E N T R E V I E W
· S E P T E M B E R / O C T O B E R 2 0 0 1 www.scmr.com
SUPPLY CHAIN
VS.
SUPPLY CHAIN
THEHYPE
& THEREALITY
ADVANTAGE TECHNOLOGY NETWORKS PRACTICE
PROCESS BALANCE PERFORMANCE
www.scmr.com S U P P L Y C H A I N M A N A G E M E N T
R E V I E W · S E P T E M B E R / O C T O B E R 2 0 0 1 47
A
n increasingly vocal and popular sen-
timent holds that the nature of com-
petition in the future will not be
between companies but rather

between supply chains. If this does,
in fact, represent the future, how
will these chains actually compete against each
other? And what can practitioners do now in
anticipation of this future?
In contemplating the much-ballyhooed supply chain vs.
supply chain (SC vs. SC) proposition, we first sought exam-
ples of this competition in action. Yet for as many examples
of SC vs. SC competition that we found, there were at least
as many places where the model didn’t fit. On the one hand,
we saw vivid examples where one company or a series of
companies had designed supply networks to act with singular
focus against other unique companies or groups of compa-
nies—for example, Brax, Perdue Farms, and Tyson Foods.
Yet more often, we found a different kind of competitive sce-
nario playing out, as in the automotive, aerospace, and per-
sonal computer (PC) industries, where many original equip-
ment manufacturers (OEMs) share common suppliers. (The
sidebar on page 49 gives more detail on these and other
examples where supply chain vs. supply chain competition
does—and does not—work.)
Although true SC vs. SC competition appears to apply to
relatively few situations, that vision of the future continues to
gain widespread acceptance. Why?
Recent business trends might offer part of the answer.
Shrinking product life cycles and innovative information
technology applications started a reaction that has raised the
performance expectations of supply networks. Specifically,

they need to deliver more value in new ways, to be faster to
market, to become more flexible in responding to demand
changes, and to reduce costs. To achieve these higher service
levels, many companies have turned to external suppliers to
provide them with capabilities that they themselves could no
longer provide. This increases the need for higher and deeper
levels of coordination (alliances)1 among these companies.
Similarly, many companies have chosen to build a supply
network that depends on external suppliers to help them cre-
ate a unique offering. By integrating the capabilities of others
into its supply network, a company can effectively create
unique value. That value is maximized when the supply net-
work acts in unison, almost as if it were one company in the
marketplace. Given these trends toward outsourcing and
integration, it’s not surprising that so many view the nature of
future competition as supply-chain based.2
Before examining the SC vs. SC vision in depth, a few
notes on terminology are in order. Although we use the term
supply chain throughout the article, supply network is proba-
bly a better term because it more accurately describes the
nature of supply relationships today (that is, nonlinear flows,
network-like systems, and webs of suppliers and customers).
The Delphi Study on “SC vs. SC”
To better understand the perceptions and expectations sur-
rounding supply chain vs. supply chain competition, the
Integrated Supply Chain Management (ISCM) Program at the
Massachusetts Institute of Technology (MIT) conducted a
Delphi study with more than 30 supply chain experts from
industry, academia, and consulting. The study found that the
great majority of respondents who answered the question (70
percent) agreed that supply chain vs. supply chain accurately

characterized the competitive future. (See Exhibit 1 on the fol-
lowing page.) Yet probing into that majority viewpoint, we
observed that the respondents interpreted the SC vs. SC con-
cept in distinctly different ways. Specifically, when asked,
“What does ‘supply chain competing against supply chain’
mean to you?” they offered a broad range of interpretations.
This lack of a common understanding and language can lead to
potentially damaging impact on a business. It presumes align-
ment within an organization but in reality reflects conflicting
priorities that would likely undermine a supply network’s abili-
ty to align and coordinate activities.
We segmented the responses into three different interpre-
By James B. Rice, Jr. and Richard M. Hoppe
The conventional wisdom is that competition in the future will
not be company vs. company
but supply chain vs. supply chain. But the reality is that
instances of head-to-head supply
chain competition will be limited. The more likely scenario will
find companies competing—
and winning—based on the capabilities they can assemble
across their supply networks.
James B. Rice, Jr. is director of the Integrated Supply Chain
Management Program at the Massachusetts Institute of
Technology.
Richard M. Hoppe, a former research assistant and Master of
Science in Transportation candidate at MIT, is now a consultant
with McKinsey & Co.

SC Vs. SC
tations, or scenarios, regarding the nature of competition and
the supply network. (See Exhibit 2 for a complete breakout of
the responses):3
1. Competing as SC vs. SC Literally. The nature of compe-
tition will be between groups of companies from across the
supply network competing as one entity, formally or informal-
ly. (Forty-one percent of the respondents held this view.)
2. Competing on Supply Network Capabilities. The nature
of competition will be between individual companies compet-
ing on their internal supply network capabilities (37 percent
of the respondents). From this point of view, competition will
be based largely on two capabilities:
� Internal supply network cost and/or service capabilities,
which refer to the effectiveness, efficiency, and respon-
siveness of the supply network. An example of this capabil-
ity is having the right configuration of products available.
� Internal supply network design, which refers to the sup-
ply network design used. Examples would include either a
vertically integrated or heavily outsourced design; build-to-
stock, build-to-order, or postponement production; or a
retail, direct, or distributor (or a combination of the three)
distribution channel. Dell’s competing against Apple in
the personal computer market arena, for example, is based
on competing supply network designs.
3. Competing on Supply Network Capabilities Led by a
Channel Master. The nature of competition will center on the

single, most powerful company of a supply network, which
will determine the terms of trade across the entire supply
network. The single most powerful company is sometimes
referred to as the channel master. Twenty-three percent of
the respondents held this view.
The data indicate that although just over 40 percent of the
respondents describe the future in literal terms, that number
is well below the 70 percent who concurred that the SC vs.
SC model characterized the future. (The sidebar on page 50
discusses the literal interpretation of supply chain vs. supply
chain.) The disparity is consistent with the definition and
language difficulties mentioned earlier. Perhaps the underly-
ing message here is that the question of how companies will
compete in the future is a complex one with multiple dimen-
sions. It’s not as simple or straightforward as the supply chain
vs. supply chain concept.
Analyzing the Three Scenarios
To better ascertain the validity of the three scenarios iden-
tified, we analyzed the feasibility of each and examined
instances where they would—and would not—work.
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vvss.. SSCC LLiitteerraallllyy
The Limitations
Closer examination of the SC vs. SC proposition reveals
some inherent limitations that help explain why it is not prac-
tical or valid for all conditions. In particular, certain realities
challenge the validity of literal SC vs. SC competition. The
first relates to the presence of common or overlapping suppli-
ers, a condition that makes it difficult for a supply network to
compete as a unit for several reasons:

� Common suppliers limit the ability to source unique
capabilities (products or services). Some can argue that it
is possible for a single supplier to provide unique value
offerings to different customers. Yet at the very least, a
common supplier is presented with a conflict of interest.
� Common suppliers limit the customer’s ability to foster
and develop unique capabilities within a particular suppli-
er. Ultimately, any investment in a supplier will provide a
“free” benefit for competitors using the same supplier.
� When common suppliers are used, it becomes difficult
to compete without compromising other supply network
participants’ business plans. The existence of common or
overlapping suppliers complicates the task of aligning
business strategies and sharing intimate business intelli-
gence. By responding to one customer’s requirements or
developing new capabilities for one customer, the supplier
effectively signals that customer’s proprietary business
intelligence to all other customers.
� Common suppliers inherently pose a barrier to open
information sharing with customers. Information shared
by one customer with a common supplier may be inadver-
tently disclosed to other customers, despite the supplier’s
EXHIBIT 1
A Supply Chain vs. Supply Chain Future?
80%
70%
60%
50%

40%
30%
20%
10%
0%
R
es
po
ns
e
R
at
e
Academia Industry Consulting All
Yes No
EXHIBIT 2
How Will Companies Compete?
(% of respondents)
Formal SC vs. SC (strategic
set of supply network
companies compete) 36%
Informal SC vs. SC

(group of supply network
companies compete) 5%
Most powerful company
determines competion
("Channel Master") 23%
Single company competes
on supply network design 14%
Single company competes
on supply network cost and/or
service capabilities 23%
best efforts and intentions. It may be unrealistic to expect
that an entire organization could completely protect its
knowledge of one customer’s activities from getting into
other customers’ hands.
Another inherent limitation to the SC vs. SC model is that
suppliers often compete with customers, making true collab-
oration extremely difficult. Two cases serve as illustrations.
Siemens sells circuit breakers both to panel board OEMs and
to an internal Siemens business that competes with those
same OEMs. Dell and Intel collaborate to market their prod-
ucts, but they also compete to get the consumer to purchase
a computer based on their respective brand and value-add.
Intel wants the customer to choose a PC for the Intel proces-
sor inside. Dell wants the customer to buy the PC for the
convenience, fast service, and reasonable cost it can offer.

The benefit of coordinating across more than three tiers in
the supply network is not clearly proven—one more reality
that limits true SC vs. SC competition. (In fact, the only
clearly demonstrable advantage relates to sole-source suppli-
er-customer relationships.) Data are difficult to use beyond
one tier upstream and one tier downstream for several rea-
sons. Demand data need to be aggregated, segmented for var-
Where It Works
Fashion vs. fashion. Apparel manufacturers use different sup-
ply networks to achieve different capabilities. Rather than
depend
on production operations in the Asia-Pacific, Spanish apparel
manufacturer and retailer Zara relies on a local supply network,
which it largely owns and controls. That network can design and
replenish hot-selling fashion products in the stores within three
weeks. Zara’s supply network entails a near-vertically
integrated
company that owns retail, product design, dyeing, and fabric
cut-
ting operations. Only the sewing operations are outsourced.
Poultry vs. poultry. Perdue Farms and Tyson Foods pit their
respective supply networks to compete against each other and
others in the poultry market. Being vertically integrated to a
large degree, they compete on their brand as well as on their
ability to mass-produce quality chicken products. They also
com-
pete on their ability to trace product through the supply
network.
Wool vs. wool. Brax, the innovative German fashion manufac-
turer and retailer, developed a unique line of men’s trousers
made

from Tasmanian wool that reinforced the company’s image of
selling products that “feel good.” The products flow through an
aligned and dedicated supply network of selected wool
producers,
bypassing the auction system, and through to Brax for
production.
This network helps establish longer-term relationships. And
this,
in turn, results in higher predictability of supply and higher
quali-
ty, which are integral parts of Brax’s go-to-market approach.
Chains of success. As part of the Chains of Success initiative
sponsored by the Agriculture, Fisheries, Forestry-Australia,1
sev-
eral specialty food producers2 structurally realigned into
“chains” with their distributors and retailers. Through informa-
tion technology and collaboration, they created aligned
networks
more responsive to customer requirements. This program is
designed to promote Australian food producers.
Where It Doesn’t Work
The U.S. automotive industry. General Motors’ supply net-
work can’t literally compete against Daimler-Chrysler’s because
the two companies share the same suppliers. This makes it diffi-
cult for both automakers to get unique value from a common
supplier. It also prevents them from leveraging supplier
capabili-
ties to their sole advantage. (It should be noted that Chrysler
did
create considerable advantage over GM and Ford in the late
1980s and early 1990s through closer collaboration with its sup-
ply chain partners.)

Dell, Compaq, and other PC manufacturers. The modularity
and universality of personal computer components results in an
overlapping of PC supply chains at multiple tiers. Every
comput-
er manufacturer uses pretty much the same components. They
seek to differentiate themselves through cost and customization
Airbus and Boeing. Both of these aerospace companies rely
on the same suppliers for avionics, engines, tires, seats, and
many other components. Therefore, the competition takes place
not on their supply network capabilities but on other capabili-
ties—principally product design and the ability to assemble
components cost efficiently.
Suppliers that are also competitors. It is increasingly com-
mon to find suppliers competing with their customers. This
makes collaboration more difficult, as the two companies may
be working toward competing ends. To cite one example, the
supplier may also be serving an internal customer that sells to
the same end market as its external customer does. Or the
retailer may compete with a manufacturer. To illustrate, Dell
hopes that customers will buy a Dell computer because of the
company’s product, price, and service. Intel hopes that cus-
tomers will buy the PC because of the specific Intel processor
and its capabilities.
Footnotes
1Agriculture, Fisheries, Forestry - Australia, “Chains of
success,” Food and Fibre Chains Programme,
www.supermarkettoasia.com.au.
2Miandetta Pty Ltd. (Australian specialty asparagus and pig
meat producer), Wood Fisheries (fish trawling and export
company), and Pacific
Foods (supplier of portion control meat cuts).

SC vs. SC: Where It Does and Doesn’t Work
For every example of supply chain vs. supply chain in action,
you can find at least as many instances where that model does
not fit.
SC Vs. SC
ious suppliers, and then adjusted for the latest bill-of-material
changes. Those supply networks that can use data beyond
one tier by necessity have inflexible and complex systems.
This limits customer procurement to a predetermined list of
products from predetermined suppliers for a predetermined
fixed bill of material. Given that each supplier will likely have
a different product design and bill of material for each SKU,
the complexity of making the demand data useful for suppli-
ers and sub-suppliers exceeds the potential benefits of
automating the data.
Yet another problem is that few supply networks have a
central control point that can coordinate the competitive bat-
tle against another supply network. Further, in some cases,
the industry structure may contribute to less-than-favorable
conditions for supply network-based competition. In indus-
tries with consolidated supply bases, a handful of suppliers
typically possess entrenched vested power. In such cases,
these suppliers may have little incentive to coordinate with
customers or with suppliers.
Finally, the high sunken costs and large investments in
technology dedicated to one supply network pose a signifi-

cant limitation to the SC vs. SC model. This is particularly
true if high asset specificity is required to service one particu-
lar supply network. In many industries, it is not uncommon
for a customer to set integration requirements that require a
substantial investment on the supplier’s part (for example,
Wal-Mart’s RetaiLink) or to require dedicated service (such
as Dell’s requesting a supplier to build a distribution center
next to a Dell plant).
The flexibility required for competitive supply networks
To gain a better understanding of thenature of supply chain vs.
supply chain
competition, it’s useful to examine the
concept’s literal meaning.1 By definition,
supply networks (to use the preferred ter-
minology) do compete against other supply
networks to a certain extent. Unless a
company is completely vertically integrat-
ed, it cannot successfully compete
alone. It needs to be part of a broad-
er supply network.2 As illustrated in
Exhibit 3.1, if the companies com-
peting in the networks (m) are com-
pletely disconnected (no overlaps) at
each tier (n) in an industry, these
networks do compete against each
other.
On the other hand, these networks
do not compete against each other
when all companies compete in each
of the different supply networks. As
seen in Exhibit 3.2, each network (m)
overlaps the other, with each compa-
ny at every tier (n) selling goods to

every tier (n+1) company. An exam-
ple of this would be modular and
commodity products being procured
efficiently from multiple members in
an open market.
Competition in an industry is gen-
erally somewhere in between these two
extremes, reflecting the distribution of
flows and relationships as seen in Exhibit
3.3. There are some overlaps and some
completely disconnected tiers within the
networks. In most cases, many of the poten-
tial links are eliminated, since there are
closer relationships with some companies,
depending on the nature of the product,
price, and capacity of the supply network.
Examples of supply networks in each cat-
egory are shown in the chart below. Note
that those under the heading “Completely
Disconnected Supply Networks” are primari-
ly vertically integrated, or historically or
geographically dispersed supply networks.
Supply Chain vs. Supply Chain: A Literal Look
EXHIBIT 3
Categories of Supply Networks
3.1 Completely Disconnected
Note: m=3 n=4

3.2 Completely Overlapping
Note: m=3 n=4
3.3 Partially Overlapping
Note: m=3 n=4
Footnotes
1This analysis uses concepts from a personal interview with
Thomas Malone, a professor at the MIT Sloan School of
Management and director of
MIT’s Center for Coordination Science.
2If the company is completely vertically integrated, it is, in
fact, the entire supply chain and it competes as such.
Completely Disconnected
Supply Networks
Vertically integrated manufacturers
like Perdue Farms vs. Tyson Foods
in poultry production.
Near-vertically integrated manufac-
turers-retailers such as Zara in
fashion apparel.
Automobile manufacturing supply
chains of the United States,
Germany, and Japan in the 1970s.
Completely Overlapping
Supply Networks
Compaq vs. HP (modular product

architecture and fragmented suppli-
er base create significant overlap).
Private-label apparel retailers that
source from contract manufacturers
in Southeast Asia.
Airbus vs. Boeing (overlap in
engines, electronics, avionics, tires,
seats, and other components).
Partially Overlapping
Supply Networks
PC vs. Mac supply chains in the
1980s (overlap limited mostly to
memory and software).
The Limited vs. branded apparel
products, such as Levi’s sold through
retailers.
Automotive supply networks of the
Unites States in 2000 with many
OEMs sharing common suppliers.
today is inconsistent with the kind of commitment and com-
plexity needed to utilize demand data across several tiers.
The explicit coordination costs and implicit opportunity costs
associated with this kind of complexity and inflexibility may
exceed the potential benefits of utilizing demand data across

several tiers. The conclusion: The
SC vs. SC concept, taken literally,
does not provide a universally valid
characterization of future supply
competition.
When SC vs. SC Applies
Despite the limitations noted, supply chain-based compe-
tition clearly takes place in certain limited instances. Here
are some examples:
� When the supply chain is a vertically integrated compa-
ny, either competing against another vertically integrated
organization or against supply networks made up of many
companies. In some instances, the organization may own
most of the supply chain, outsourcing only selected activi-
ties. The critical factor in all cases is that there are no
common suppliers shared with any competitors.
� When the supply network is composed of companies
that have sole-source relationships.
� When the industry is fragmented such that there are no
common strategic suppliers represented in more than one
supply network and most strategic suppliers are dedicated
to one supply network.
In some cases, these conditions will exist for one company
or set of companies but not for others. This results in a situa-
tion where one group competes as a supply network and
another group does not. A good example of this is Zara, the
highly integrated fashion clothing designer, producer, and
retailer. Zara competes against other companies that out-
source their design and production activities and that clearly
do not compete as a supply network. For these companies,
the key determinant of success may not be the degree of ver-
tical integration but rather their respective business models

(for example, maintaining tight control of the supply chain for
fast response or decentralizing the supply chain for low cost
and a low capital investment requirement).
Will a vertically integrated producer always outperform
the nonintegrated supply network? No evidence exists to
answer that question one way or the other. The best answer
may be that it depends on the situation. For example, if the
critical factor in a market were low cost and if there were
cost advantages to having integrated operations, then the ver-
tically integrated company would have a distinct competitive
advantage. If, on the other hand, fast cycle time and high
product innovation were the key market drivers, a noninte-
grated supply network might hold the competitive edge. In
short, there’s no universal answer to the question of which
supply chain model is always best.
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As suggested by the respondents to our Delphi study, this
scenario entails a single company or entity (this would
include cooperatives, joint ventures, and other legal entities)
competing based mainly on one of two factors: (1) the cost
and/or service capabilities of their internal supply network4 or
(2) internal supply network design. Increasingly, companies
are competing on network capabilities. They are expanding
the supply network by utilizing and integrating (not just
adding) the capabilities of other members of the supply net-
work, such as an upstream supplier or a downstream cus-
tomer, to offer a unique and compelling solution. This ability
to integrate capabilities from other supply network partici-
pants often can be leveraged for competitive advantage.

Companies are integrating additional capabilities from their
immediately adjacent upstream (suppliers) or downstream (cus-
tomers) supply network companies via joint marketing arrange-
ments, joint product development programs, and collaborative
initiatives such as just-in-time (JIT), vendor-managed
inventory,
and collaborative planning, forecasting, and replenishment
(CPFR), among others. These are among the compelling advan-
tages of integrating the capabilities:
� The benefits of one-to-one or next-tier coordination are
quantifiable.
� Successful one-to-one relationships add value.
� Data and information sharing is more immediate and
useful.
� Relationships with adjacent upstream or downstream
companies are more manageable and controllable than
those with more distant participants in the supply
network.
� It may be possible to develop unique added value by
working closely with one supplier, developing a unique
relationship, a unique product or service, a unique con-
tract, or a unique combination of these. It is harder to do
this with multiple companies in the supply network across
multiple tiers.
So, though it’s useful to consider various methods of coor-
dinating across multiple tiers of the supply network, the more
practical view of the future may be one of a single company
or entity competing on its own supply network capabilities.
Our analysis further supports this practical picture of sup-
ply network capabilities being leveraged as a single company
rather than as a group. This entails competing by focusing on
your company’s own capabilities (your “ecosystem,” as one
respondent termed it) rather than attempting to build extend-

ed relationships with distant members of the supply network.
It’s important that the ecosystem be developed not just by
adding capabilities but by integrating them into the business.
Integrated capabilities are not readily copied and can provide
some measure of competitive differentiation, whereas capa-
bilities that are just added offer little competitive differentia-
There’s no universal answer to the question
of which supply chain model is always best.
SC Vs. SC
tion. To illustrate, a company achieves little differentiation
when it offers a package tracking capability simply by direct-
ing customers to use UPS or FedEx. By contrast, it does
achieve differentiation by seamlessly integrating the UPS or
FedEx tracking capability into its own system. In this way,
customers would enjoy an enhanced service level over simply
using the UPS or FedEx system.
In short, the development of integrated supply chain capa-
bilities needs to be an important part of a company’s go-to-
market effort. Good examples of such capabilities can be
seen in the following activities: early supplier engagement on
product development, supplier and customer involvement in
critical decisions, and the commingling of supply network
operations between two adjacent-tier companies. (Exhibit 4
gives representative examples of how companies have
enhanced their supply network capabilities.)
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CChhaannnneell MMaasstteerr
Under this competitive scenario, the single most powerful
company of a supply network will determine the terms of
trade across the entire supply network. This dominant player
is sometimes referred to as the channel master.
The channel master uses its market power to coordinate
processes and activities among some of its suppliers and cus-
tomers. Examples include the supply networks of Dell
Computer, Procter & Gamble, and Wal-Mart.5 These chan-
nel masters range from being benevolent and working to pro-
vide benefits to the entire network (the “Lord of the Chain,”
as described by Christiaanse & Kumar)6 to being entirely
company-focused and transaction-oriented. In the latter case,
the channel master acts solely for its own benefit, regardless
of the potential detriment to the rest of the supply network.
In some cases, a company that is competing with a chan-
nel master is a supplier to, or a customer of, that channel
master. The nature of the channel master typically dictates
the nature of that relationship. Yet the value added by the
suppliers can somewhat offset the power exercised by the
channel master.
The Chrysler Corporation of the 1990s serves as a good
example of a Lord of the Chain-type of channel master. The
automaker considered suppliers to be an integral part of its
“extended enterprise” and worked aggressively to integrate
supplier capabilities into Chrysler’s business. Though Chrysler
did establish many of the rules of the game, its relationships
with suppliers were far more constructive and collaborative
than anything the automotive industry had seen in the past.

The channel master scenario is commonplace in today’s
marketplace and will likely remain a viable competitive sce-
nario for the future.
A Realistic Look at the Future
It’s clear that “SC vs. SC” does not universally characterize
the nature of competition and the supply network of the
future. Granted, it does describe some limited situations. But
as our study suggests, other competitive scenarios are likely
to be far more commonplace.
It’s important to note, too, that the three main competitive
scenarios identified are not mutual-
ly exclusive. Even today, we find
examples where a vertically inte-
grated company (Zara) competes
based on its supply network against
a channel master (The Limited)
and also against other retailers (like
The Gap) that are parts of intercon-
nected supply networks but that
compete based on their own supply
network capabilities.
In preparation for their competi-
tive future, companies may find
some value by recog nizing the
importance of language in describ-
ing their supply network and under-
standing the environment in which
they compete. Does your company
compete as a supply network, as a
channel master or under a channel
master, or as a lone company solely

based on your supply network capa-
bilities? What are the supply network capabilities that your
company has, and what unique set of capabilities is needed
for success in the marketplace? How can you integrate the
desired capabilities—through contracts, unique products
and/or services, or relationships? What new entities should
the company explore in order to integrate the needed capabil-
ities? What are the trade-offs between the explicit coordina-
tion costs and the implicit opportunity costs required for the
benefits of coordinating and integrating new capabilities?
Enhancement
Supplier integration
Supplier co-location
Selective and dedicated outsourcing
Company and Initiative
Bose Corporation’s JIT II initiative
gives suppliers purchasing responsi-
bilities. Suppliers have in-plant
offices and operate as Bose
employees.
Volkswagen’s Resende, Brazil,
plant is designed so that each sup-
plier can perform an operation as
vehicles move sequentially along
production line.
Apparel manufacturer and retailer
Zara is almost completely integrat-

ed, outsourcing only its sewing
operation.
Benefits
Enhances Bose’s ability to design
new products faster at lower cost
and with higher quality. Lowers
operating costs and improves ser-
vice levels.
Improves VW’s ability to reduce
capital plant requirements while
engaging suppliers in production.
Enhances Zara’s ability to cus-
tomize production rapidly by using
local small sewing operations.
Dedicated set of sewing suppliers
lets Zara act as though vertically
integrated.
EXHIBIT 4
Examples of Supply Network Enhancements
SC Vs. SC
These are the kinds of questions that companies have to con-
sider in developing their future supply chain strategies.

Looking ahead, we’re careful not to discount the possibili-
ty of new approaches being developed that would permit
coordination across multiple tiers of the supply network.
Many questions about governance across the entity including
control, authority, ownership, and benefits and cost sharing
need to be answered. In fact, we are currently undertaking
such a study.7
Much of the innovation affecting the nature of competi-
tion and the supply network of the future will relate to new
and different entities that will coordinate across the supply
network. These new entities will likely provide unique sets of
capabilities, enabled by new governance methods that work
equally well for each supply network participant. It’s possible
that the proliferation of collaboration initiatives and the blur-
ring of company l i n es may i n deed l ead t o this end.
Ultimately, we still envision competition based on the indi-
vidual company or entity and its assembled ecosystem of
capabilities—but, to borrow from the Beatles, not without a
little help from their friends.
Footnotes
1In this instance, we use the term alliance to connote a unique
arrangement with a company that entails one or more of the
following: a
unique relationship, a unique product or service, a unique
contract, or a
unique combination of these three.
2Consider this quote from Rob Rodin, CEO of Marshall
Industries: “It’s a supply chain vs. supply chain world today.
Companies don’t only compete with each other but with an
extended
web of suppliers.”

3The data in Exhibit 2 represent the responses from the 70
percent
of total respondents who agreed with the idea that competition
in the
future will consist of “supply chain competing against supply
chain.”
Totals add up to 101 percent due to rounding.
4We define the capabilities as being a company’s internal
capabilities
plus integrated capabilities (a set of unique products, services,
and/or
contractual agreements resulting from relationships with supply
network
participants).
5It is possible to have more than one channel master in a supply
net-
work. In these cases, the companies are not explicit competitors
although there is clearly a competition for control of the supply
network.
6Kuldeep Kumar and Ellen Christiaanse, “From Static Supply
Chains to Working Webs: Principles for Radical Redesign in the
Age of
Information,” Primavera Working Paper 99-14, Sept. 1999.
7A recent study by MIT has explored structures and entities that
could possibly provide necessary control and coordination of
multiple
tiers of the supply network. The researchers have introduced the
con-
cept of a “network master,” as an entity or entities that would
coordinate
the various information and material logistics flows and overall

system
benefits allocation.
Assigment 1
After reading the attached file. Write a 500-word-essay on the
importance of supply chain.
Assigment 2
Please answer the following questions:
· What is planning? What is control?
· What is the difference between planning a control?
Apply critical thinking
Assigment 3
Answer the following question using your opinion (just answer
in four lines every question) :
1- Computers are getting more both more poweful. In the near
future they will be "smart" enough to make some human
workers obsolete Computers will perform tasks better and at
lower costs. These people will be unemployable, and as the
machines continue to become more sophisticated. What are your
thoughts on this? Is it just science Fiction?
2- Computers are getting more sophisticated all the time. Before
long they will be "smart" enough to make some human workers
obsolete... last week we discussed about how technology will
cause and/or replace human works around the world. What will
happen to devolping countries? What will be the impact of said
technology in Ecuador?
3- Leadership is considerted to be one of the most important
management, but can it taught or you are born with that skill
comments would be highly appreciated. Provide your ideas. Is
leadership a skill that can be taught?

4- Does Black Friday put the worst excesses of materialism or
it's just a way of balancing overstocked goods?
5- Low prices VS Product quality/Are low prices the ultimate
reason of companies’ production or should quality of
products/services the final goal of all processes?

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