WI NT ER 2010 VOL. 51 NO.

2
SMR344

Steven A. Melnyk, Edward W. Davis,

Robert E. Spekman and Joseph Sandor

Outcome-Driven
Supply Chains
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 S U P P L Y C H A I N : M A N A G I N G F O R MU L T I P L E O U T C O M E S

Companies such as Wal-Mart Stores Inc.

have developed a demand-driven supply
chain, but every industry is different.
The key is to arrive at outcomes that
differentiate a supply chain from its
competitors — a blend that customers
find attractive and for which they are
willing to pay.

serves as a ve- hicle for

Outcome-Driven developing
sustaining
advantage
competitive
under
and

Supply Chains variety of performance

objectives.
In academic terms,
we could say that while
The supply chains of tomorrow must deliver the old supply chain was
varying degrees of six outcomes — the strategically decoupled
traditional cost-related benefit plus and price driven, the

responsiveness, security, sustainability, resilience new supply chain is

and innovation — depending on key customers’ strategically coupled

and value driven. More
needs.
simply put, the sup- ply
BY STEVEN A. MELNYK, EDWARD W. DAVIS, ROBERT E. SPEKMAN AND JOSEPH SANDOR
chain should be
designed and managed
to deliver specific
WHEN PROPERLY DESIGNED and operated, the traditional supply chain has
outcomes. So concluded
offered customers three primary benefits — reduced cost, faster delivery and
participants in
improved quality. But managers are increas- ingly recognizing that these
advantages, while necessary, are not always sufficient in the modern business world.
A new paradigm is emerging of a more sophisticated supply chain — one that also
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 €Outcomes should
be blended, where
feasible, without
overfocusing on
any single one.
€Supply chains’
design and
THE LEADING QUESTION management
should be tailored
How can supply chains be designed and managed not only to particular operat-
for reduced cost but also for multiple outcomes? ing conditions.

FINDINGS
€There are six basic outcomes, each with a correspond- ing set of specific design traits.

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SUPPLY CHAIN: MAN A GING FOR MU LTIPLE OUT COMES

the Supply Chain Management 2010 “order winner,” while

and Beyond research initiative, a four- delivery and quality are

year set of surveys and workshops on “qualifiers.”

which this article is based. (See “About Responsiveness is the

the Research.”) ability to change quickly in

We believe that supply chains should terms of volume, mix or

provide one or more of six basic location as a function of

outcomes: “cost,” respon- siveness, security, changing conditions.

sustainability, resilience and innovation. Typically, responsiveness

Cost. Reducing price (initially) and warrants a higher price.

Security is an outcome
cost (ulti- mately) are the key objectives.
that has recently garnered
This “cost” outcome is a combination of
monetary cost (the primary
performance criterion) and delivery
and quality

ABOUTTHE RESEARCH
This article is based in large part on the findings of the Supply Chain Management 2010
and Beyond research initiative, which since its inception in 2005 has carried out a large-
scale review of the supply chain management literature, developed a survey instrument
(questionnaire) for identifying major issues associated with the supply chains of today
and tomorrow, and completed four research workshops.
The questionnaire was originally constructed from the findings of the literature
review, but it was also seen as a living document in that it subsequently was modi-
fied as necessary to reflect insights gained from each workshop. The selection of the
survey participants was considered of primary importance to the success of the
study. Thus the research team selected recognized academic supply chain research-
ers and knowledgeable representatives from companies generally regarded as
leaders in the practice of supply chain management.
The workshops were designed to bring together all participants in a survey
group to review the survey findings, identify the current and future states of supply
chain management, and help uncover major gaps affecting the progress of supply
chains from current to future states. Because supply chain management is so
strongly influenced by practice and because it is an emerging field, the workshops
provided a valuable opportunity for participants to share their experiences in a struc-
tured environment. (The number of academic researchers was limited to a
maximum of one for every two practitioners; and to ensure active discussion be-
tween participants, each workshop was limited to a maximum of 40 people.) Each
workshop had a central organizing characteristic, which allowed the researchers to
focus on specific issues of importance to the project as well as to tailor some of the
content to the needs and interests of local hosts. (Workshops were held in Michi-
gan, Switzerland, Virginia and Alberta.)
Generally, the workshops reviewed the responses to the survey requests, identi-
fied the present and future states of supply chain management, and explored how to
reduce the obstacles to, and enhance the facilitators of, the supply chain of the fu-
ture. After each workshop ended, the research team reconvened in order to glean
insights about what was learned and to identify any unexpected results.

(secondary criteria). Using the

terminology of Terry Hill,1 cost is the

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a great deal of attention, with instances of tainted food Olay Regenerist line of skin creams.

products from China and tainted generic drugs from Once the desired outcome is

India. It implies that the supply chain’s products will not selected, it influ- ences critical supply

be contaminated or otherwise unsafe. chain characteristics and practices;

Sustainability differs from security, as it involves “green” some of these design traits are

— environmentally responsible — supply chains that summarized in the table “Supply Chain

eliminate waste, reduce pollution and contribute in a Outcomes and Key De- sign Traits” (p.

positive manner to improving the quality of the 37). But it is important to recognize that

environment through eco-friendly processes, while the traits must be present

subassemblies and finished goods. Carbon somewhere in the supply chain, they

footprint reduction along the supply chain is one need not manifest themselves in each and

example. every link. Actually creating and harness-

Resilience ensures that the supply chain can re- cover ing these traits in the right places,

quickly and cost-effectively from disruptions caused however, is a major management

by natural disasters (such as earthquakes), social undertaking, especially when the sup-

factors (employee strikes), medical emergen- cies ply chain is comprised of more than one

(epidemics such as H1N1 flu), economic setbacks company.

(the bankruptcy of a critical link in the chain) or For many managers new to supply

technological failures (a software crisis). chain manage- ment, this challenge is

Innovation. In recent years, many companies have made more daunting by the lack of

increasingly relied on their supply chains as a source of useful frameworks and guidelines, which

new products and processes or improvements in are necessary if managers are to answer

existing ones. Organizations’ key innovation tasks questions such as:

have been performed not only internally but also in ■ How do you design a supply chain for

collaboration with supply chain partners.2 For exam- ple, a specific desired outcome?

Lafley and Charan3 relate how Procter & Gamble Co. ■ When can outcomes be blended, and

obtained new antiwrinkle technology from a small French under what conditions should they not

cosmetics company, which led to P&G’s highly successful be?

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■ How do you turn your supply chain
into a com- petitive weapon?
We address these questions here.
BLENDING SUPPLY CHAIN OUTCOMES
TO ACHIEVE COMPETITIVE ADVANTAGE
While Company D appears to offer low-cost products or services to the
exclusion of all other outcomes, it lacks the versatility of Companies A, B
and C to respond to changing conditions.

Blending Supply Chain Outcomes

Some researchers and managers might “Cost”
Fraction of each outcome in
be tempted to regard the six basic company's overall blend

supply chain outcomes as mutually 1.0

exclusive. But in practice, effective supply
chains are often hybrids — reflecting Innovation 0.8 Resilience
various com- 0.6
binations of the six. Hau L. Lee4 in fact 0.4
Company A
concluded from his extensive study that 0.2
Company B
0
supply chains focus- ing on only one of Company C
Company D
the six outcomes were fatally flawed, as
they could not develop and maintain a
sustainable advantage over the Sustainability Security

competition. In par- ticular, Lee found

that supply chains offering low cost Responsiveness
alone were unable to respond
sufficiently to unexpected changes in
demand and supply.
Similarly, the SCM 2010 and Beyond
workshops indicated that such
“overfocused” supply chains often
cannot meet the requirements of the
newly emerging business
environment. In the figure
“Blending Supply Chain Outcomes to they are willing to pay. Consider the following propositions about
Achieve Competitive Advantage,” for blending outcomes, supported by the current results of the SCM 2010
example, it appears that Company D is and Beyond project:
overfocused on cost. It will likely
Blending outcomes means making trade-offs. When the supply chain
outperform any competitor as long as
manifests numerous out- comes, it is unlikely to outperform, on any
the customer demands the lowest price
single outcome, another supply chain that is more heavily focused on it.
above all else. However, the other three That is the price paid for having a sup- ply chain that is adaptable, and it
companies are more adaptable and helps the company differentiate itself in the marketplace. On the other
agile, as they offer a blend of outcomes. hand, a greater mix may position a supply chain for faster adaptation
when market conditions change.
The goal is to arrive at a blend that
differentiates a supply chain from its
When blending outcomes, it is important for at least one of them to stand
competitors — a blend that key
out. It might be tempting to try to build a supply chain that does a
customers find attractive and for which
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“decent”
job on Blending outcomes places greater emphasis
on the alignment of incentives within the sup-
every
ply chain. The flexibility gained by blending
outcom allows greater responsiveness to the
e but needs of critical cus- tomers, potentially
fails to resulting in a more competitive supply
chain. But the incentives needed to
excel on
ensure the appropriate actions and
any one performance can vary substantially for
of them. different outcomes. Incentives for cost
The reduction, for example, may conflict with
those for responsiveness and resilience.5
problem
with this
Blending outcomes complicates the perfor-
approac mance measurement process. Dealing with
h is that only one outcome makes it easier to
the design a simple and mutually
consistent set of metrics. When
compan
blending several outcomes, however, the
y may
measure- ment of performance
suffer becomes by necessity more complex —
from the reductions in performance along one
dimension might be necessary, for
curse of
example, to allow performance
me-
improvements in other dimensions. It is
diocrity, also important to choose performance
possibly measures with care. If the goal is, say, to
renderin develop a supply chain

g it a
weak
competi
tor.

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SUPPLY CHAIN: MAN A GING FOR MU LTIPLE OUT COMES
that delivers responsiveness
sustainability, a focus on measuring and
rewarding cost might cre- ate confusion
and frustration.
Under certain conditions, blending outcomes al-
lows for the leveraging of practices and resources.
Some combinations of outcomes are
complemen- tary, as the practices and
resources required to support a particular
outcome may also serve other desired
outcomes. For example, a cost-focused
supply chain, with its emphasis on waste
reduction and control, can more readily
be transformed into a sustainable supply
chain because many of the underlying
tools and processes are the same.
Similarly, the sharing of practices and
resources is also possible when blend- ing
responsiveness and resilience.
Responsiveness often demands buffers
with respect to capacity, lead time and
inventory, which also help increase resil-
ience to supply chain disruptions.
The same or similar outcomes may be achieved
by following different paths. Given the
diverse ways in which different companies
might achieve
Some researchers and managers might be tempted to
regard the six basic supply chain outcomes as mutually
exclusive. But in practice, supply chains are often
hybrids — reflecting various combinations of the six.
their supply chain objectives, there is no
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and outcome negatively affect the ability of
the supply chain to attain the other
outcome. Cost-oriented supply chains
regard slack as a form of waste —
something that must be eliminated or
reduced. But innovation demands slack
for success. Because fail- ure is likely to
occur during the innovation process,
slack provides safety in the form of
resources to complete the task without
jeopardizing other as- pects of the
business.
Cost-driven supply chains also typically
demand standardization of processes.
In such systems, the mantra is often
“Without standardization, there is no
opportunity for improvement.” Yet for
innova- tion truly to be successful, a
diversity of processes and approaches is
often needed.
Adaptability: Key to Success
By beginning with the outcomes and
designing the supply chain to deliver them,
the goal is not simply to align incentives or
metrics. Rather, it is also to align the
capabilities of the supply chain with the
mem- bers’ shared vision for competitive
success — based on a profound
understanding of key customers. Full
realization of this goal depends on a va-
riety of factors, including the following:
Critical supply chain drivers.
Compa- nies such as Wal-Mart,
Toyota and Dell have
developed supply chains that
are demand driven. But supply
chains can also be supply
driven, as when dealing in
one mono- lithic approach
 to a set of supply chain outcomes. For
instance, if one company wants to
skim the price-insensitive segments of
the market to recoup
innovation, and another company favors
a penetration strategy to gain large
market share at a lower margin, the
outcomes could be much the same. The
differing approaches may be inevitable,
even desirable, as each company should
address its unique customer base in an
optimal manner.
But while some outcomes can be
blended effec- tively, other outcomes
probably never should be. A primary
example involves innovation and cost
oil, gas, electricity and other products that
cannot be stored for long periods of time.
Supply chains can also be technology
its cost of driven. What works well in one indus- try
or context might not work in another.
Locations where the supply chain is deployed.
Most of the academic work done in
supply chain management has been
limited to developed econo- mies. Yet as
companies focus more on low-cost-
country sourcing and other strategies
that depend on emerging economies,
many of the traditional assumptions
regarding factors such as transporta-
tion, infrastructure, work force and
security must be revisited.
Countries’ cultural differences. Business

(es- pecially if the latter outcome is terms and practices that work well or are
pursued through the use of lean systems clearly under-
and other inventory-reducing
practices). Here the procedures for
attaining one

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 SUPPLY CHAIN OUTCOMES AND KEY DESIGNTRAITS
Certain characteristics and practices are essential to addressing a set of objectives that in turn may ultimately
lead to achievement of a particular outcome.

OUTCOME OBJECTIVE KEY DESIGNTRAITS

Cost Reduce product

costs, ensure timely
and reliable delivery
and maintain quality.

Responsiveness Respond to changes

■

P
Reduced use of slack in its three forms — inventory, lead time and capacity.
Standardization of products and processes where possible.
■ Emphasis on reducing waste and variance across the supply chain.

■ Modular supply chain design, involving close interaction and integration with immediate cus-
tomers and first-tier suppliers (other suppliers are expected to manage their own suppliers).

■ Close information linkages with critical customers and suppliers to monitor demand,
facilitate/improve forecasting and monitor state of supply.

or
in demand (volume,
mix, location) quickly ■ Excess capacity — redundancy — in the supply chain (especially on the upstream side).

and at reasonable ■ Supply planning to include not only production capacity but also logistics capacity.

cost. ■ Prequalified suppliers.

■ Emphasis on small-lot production.

■ Extensive supplier development and supplier assessment systems.

y
■ Information systems to coordinate production/information flows.

Security Ensure that supplies ■ Emphasis on visibility and transparency, provided through integrated information

coming through the systems (or, in extreme cases, vertical integration) throughout the supply chain.
supply chain are ■ Redundancy of resources in case of a problem with a supplier.
protected from dis- ■ Limited number of partners (fewer opportunities/entry points for a possible threat).
ruption because of ■ Mapping of the supply chain to identify possible weak points.
external threats. Pro- ■ Comprehensive and integrated supply chain planning and management.
tect product integrity ■ Emphasis on control through certification, extensive auditing or other means.
and consistency.

Sustainability Provide products ■ Visibility/transparency throughout the supply chain to ensure that all members are aware

through a supply of threats or opportunities.

chain that ensures ■ Greater emphasis on the Three Ps (product design, process, packaging).

p
controlled and mini- ■ Integrated supply chain planning and management, in recognition that design must begin
mal resource impact, with resource extraction and end with product disposal/renewal.
both today and in the ■ Use of broader performance measurement systems and measures (total cost of owner-

future. Ultimately im- ship, triple bottom line).

C
plement and maintain ■ Extensive supplier prequalification and assessment to ensure that the “right” suppliers

a “cradle to cradle” are selected and that they understand what is required.
perspective.i ■ Extensive use of audits and certification standards throughout the supply chain (ISO 14001).

■ Introduction of systems for product takeback (reverse logistics) and marketing waste.

t
Resilience Develop a system ■ Emphasis on visibility and transparency, provided through integrated information

that can identify, systems (or, in extreme cases, vertical integration) throughout the supply chain.
monitor and reduce ■ Acceptance of the need for excess resources (inventory, capacity, lead times).
supply chain risks ■ Mapping of the supply chain to identify possible weak points.

and disruptions, as ■ Integrated supply chain planning and management.

well as react quickly ■ A focus on possible threats not only to suppliers but also to logistics linkages.
and cost-effectively. ■ Presence of precertified/prequalified suppliers.
Offer the critical
■ Extensive use of contingency planning (“What if?” analysis).
customer “peace

o
of mind.”

Innovation Provide critical ■ Development and protection of intellectual property, due to cooperation with key suppliers.
customers with a ■ Deliberate presence of excess resources.
stream of products ■ Viewing suppliers as sources of “near innovations” — developed to solve problems in
and services that not other markets but that have to be refined before they can be used to address current cus-

N
only are new but also tomer needs.
address needs that ■ Close integration, especially with critical customers and suppliers, so as to innovate jointly.
competitors have ne- ■ Encouragement of a wide range of different perspectives and solutions.
glected or not served ■ Avoidance, during early stages of product development, of specific performance metrics
well. Provide new so as not to stifle innovation.

D
ways of producing,

o
■ Offering a wide range of supply chain structures ranging from purely modular to purely
delivering or distrib- integrated, depending on the type of innovation being pursued.
uting products.ii

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SUPPLY CHAIN: MAN A GING FOR MU LTIPLE OUT COMES

stood in, say, North America can become Our goal here has been to demonstrate
sources of confusion or be totally that one size does not fit all and that
misunderstood when applied in another future supply chains must first and
setting. This point was driven home foremost be tailored to the end-user. In to-
during the second 2010 and Beyond day’s world, it is typical that low cost can
workshop, held in Lausanne, readily be replicated and thus is unlikely to
Switzerland, in June 2007. Dur- ing the lead to competitive advantage over the
participant discussions the facilitators, long term. Supply chain manag- ers will
who were from the United States, succeed only if they understand the needs
stressed the impor- tance of of key customers and strive to maintain
collaboration. This term was alignment be- tween the supply chain’s
bothersome design and its
customers’ changing needs
and desires. To paraphrase
Supply chain managers will succeed only if they
Charles Darwin, it is not the
understand the needs of key customers and strive
to maintain alignment between the supply chain’s strongest that survives, it is the
most
adaptable to change.
design and its customers’ changing needs and desires.
Steven A. Melnyk is a professor of
operations in the Department of Mar-
to some of the European participants, see, with whom they
however, who equated it, as a result of interact and how they go
their history, with slavishly serving a about their daily routines.
hostile invader. Even when working Such behaviors reflect
with the British participants, the endur- companies’ core values,
ing truth of George Bernard Shaw’s which need to be aligned if
classic observation — that the United the supply chain is to
States and England are two countries succeed.
“separated by a common lan- guage”
— became apparent. Stage of product life. The
demands placed on the
Corporate cultures. A critical issue largely supply chain, as well as the
unad- dressed in studies of supply chain kinds of product attri- butes
management is that of corporate viewed as acceptable by the
culture or, as one participant put it, customer, change as the
“what people do when the boss is not product moves through
around.” This issue helps shape how various stages of evolution.
employees react in dif- ferent situations For example, the outcomes
and how they deal with changes. It of respon- siveness,
influences what supply chain members innovation and security

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may be critical during the introduction
and early growth stages, but less so as
the product matures and concerns for
cost and resilience become dominant.
We would expect supply chain design
and capability to adapt
changing factors.
keting and Supply Chain Management at Michigan
State University’s Eli Broad School of Management;
Edward W. Davis is Oliver Wight Professor of Busi-
ness Administration and Robert E. Spekman is
Tayloe Murphy Professor of Business Administration
at the University of Virginia’s Darden School of Busi-
ness; and Joseph Sandor is Hoagland-Metzler
Endowed Professor of Practice in Supply Manage-
ment at Michigan State University’s Eli Broad School
to these of Management. Comment on this article or contact
the authors at smrfeedback@mit.edu.

REFERENCES

1. T. Hill, “Manufacturing Strategy: Text and Cases,”

3rd ed. (McGraw Hill Higher Education, 2000).
2. D. Tapscott and A. Williams, “Wikinomics: How Mass
Collaboration Changes Everything” (NewYork: Penguin
Group USA, 2008).
3. A.G. Lafley and R. Charan, “The Game-Changer: How
You Can Drive Revenue and Profit Growth With Innova-
tion” (NewYork: Crown Business Publishing, 2008).
4. H.L. Lee, “The Triple-A Supply Chain,” Harvard Busi-
ness Review 82, no. 10 (October 2004): 102-111.
5. V.E. Narayanan and A. Raman, “Aligning Incentives in
Supply Chains,” Harvard Business Review 82, no. 11
(November 2004): 94-102.
i. W. McDonough and M. Braungart, “Cradle to Cradle:
Remaking the Way We Make Things” (NewYork: North
Point Press, 2002).
ii. C. Markides, “Strategic Innovation”
, Sloan Management
Review 38, no. 3 (spring 1997): 8-23; and C. Markides,
“Strategic Innovation in Established Companies” , Sloan
Management Review 39, no. 3 (spring 1998): 31-42.

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