Supply Chain Management (SCM) is a broad area that employs a variety of ideas and concepts to improve the efficiency and effectiveness of the movement of goods, services, and information from the raw material stage to the end customer.
There are many theories related to supply chain management. Some of the most widely used theories that are applied in supply chain management research are mentioned below:
Resource-Based View (RBV)
Originally proposed by Birger Wernerfelt (1984) and later developed and refined by Jay B. Barney (1991) and other scholars, the resource-based view of the firm has found considerable support in the business literature. The RBV theory focuses on how a firm’s unique resources and capabilities can provide a sustained competitive advantage in the supply chain. By leveraging these resources effectively, a company can achieve superior performance and differentiate itself from competitors. Various studies suggested that a resource-based view assists companies to develop agility, adaptability, and alignment regarding SCM.
In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational management and business ethics that addresses morals and values in managing an organization. The theory states that firms should consider the interests of all their stakeholders, not just their shareholders. Stakeholder theory can be used to explain how firms can build relationships with their suppliers and customers to improve their supply chains.
Institutional theory was introduced in the late 1970s by John Meyer and Brian Rowan to explore further how organizations fit with, are related to, and were shaped by their societal, state, national, and global environments. This theory states that firms are influenced by the institutions in their environment. Institutional theory can be used to explain how firms adopt certain supply chain practices because they are the norm in their industry or because they are required by law. Institutional Theory allows us to explore the factors that affect different actors across a supply chain and could help to identify where collaborative change in practices could be encouraged.
Transaction Cost Theory (TCT)
The transaction cost concept was formally proposed by Ronald Coase in 1937 to explain the existence of firms. He theorized that transactions via market mechanisms incur costs, particularly the costs of searching for exchange partners and making and enforcing contracts. Williamson’s transaction costs theory focuses on the design of ex-post contract governance structures to reduce various specific kinds of anticipated ex-post contractual hazards (transaction costs related to the governance, management, and enforcement of transactions/contracts). This theory states that firms choose to make or buy goods and services based on the costs of doing so. TCT can be used to explain how firms decide whether to outsource their supply chain operations.
Resource Tependence Theory (RDT)
Pfeffer and Salancik (1978) devised the resource dependence theory to explain how organizations’ behavior is affected by the external resources they possess. Resource dependence theory (RDT) suggests that, in the supply chain, member firms should be dependent and collaborate to seek higher performance gains in the long run instead of pursuing short-term benefits at the expense of others. This theory states that firms are dependent on their suppliers and customers for resources. RDT can be used to explain how firms manage their relationships with their supply chain partners.
The Network Theory of Affect, introduced by Bower (1981), attempts to account for the mood-congruency effect Network theory examines the relationships and interactions between various entities within a supply chain. It helps to understand how information flows, collaborations and partnerships among different actors influence the overall efficiency and resilience of the supply chain.
The Theory of Constraints (TOC)
Eliyahu Goldratt conceived the Theory of Constraints (TOC) and introduced it to a wide audience through his bestselling 1984 novel, “The Goal”. TOC is a management theory that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it. TOC adopts the common idiom “a chain is no stronger than its weakest link”. That means that organizations and processes are vulnerable because the weakest person or part can always damage or break them, or at least adversely affect the outcome.
General system theory originated in the 1940s in the work of the biologist Ludwig von Bertalanffy who initially sought to find a new approach to the study of life or living systems. System theory is currently one of the dominant theories in supply chain management studies. This theory applies in this study for simplifying complex organizational structures and identifying the organizational stakeholders. Systems theory brings together various components of a complex supply chain (that is the human, capital, information, materials and financial resources, etc.) to form a subsystem which is then part of a larger system of supply chains or networks. The theory argues that for a holistic perspective Systems theory must be employed to understand the internal and external factors that shape an organization’s supply chain performance. These are just a few of the many theories that can be used to explain supply chain management. The most appropriate theory to use will depend on the specific situation.
Even though there is no overarching theory to guide supply chain development. While many studies in the field of SCM cope with providing a conceptual definition of advancements in this field less attention has been paid to identification and solicitation of theories. This blog tries to explore and share some of the contemporary theories that are applied in supply chain management. However, additional rigorous theories are needed to help shed light on these new issues in the area of supply chain management.