Professor Bowon Kim

KAIST Business School

Supply Chain Management
A Learning Perspective
Lecture 2
Coursera KAIST: SCM101
2014 Bowon Kim
Management Capability
Capability is the firms ability to do something
effectively.
Hayes and Pisano (1996) defined capabilities as the
activities a firm can do better than its competitors.
Without capability, the firm cannot enjoy competitive advantage.
Reference
Bowon Kim & Chulsoon Park (2013): Firms integrating efforts to mitigate the tradeoff
between controllability and flexibility, International Journal of Production Research, 51:4,
1258-1278.
Controllability versus Flexibility
Narasimhan et al. (2005) posited four performance
capabilities: new product development, flexibility,
efficiency, and market-based performance.
Kim (2005) developed a framework that further
separates various firm capabilities into three categories:
controllability, flexibility, and integrating capability.
Controllability versus Flexibility
Controllability is the firms ability to control its
processes.
Its primary objective is to achieve superb efficiency that
minimizes cost and maximizes accuracy and productivity.
It often requires the ability to meet the specification exactly as
demanded by the customer, thus enabling the firm to tightly
control its processes.
Controllability versus Flexibility
Flexibility is the firms ability to cope with uncertainties,
both internal and external.
It refers to the firms ability to change or react, incurring few
penalties in time, effort, cost, or performance, as well as to
respond effectively to changing circumstances.
Over time, it is clear that the interest in manufacturing
flexibility has evolved from that of an intra-firm to an inter-
firm relationship.
Tradeoff between Capabilities
Short-term relationship between capabilities
Is there any relationship between these capabilities?
Skinner (1969) first postulated a trade-off relationship between
competitive priorities, i.e., operations performances.
A case at 3M, where the company was struggling with the conflicting
relationship between efficiency and flexibility
Another empirical evidence a clear inverse relationship between cost
and flexibility.
Key questions
First, is there an inherent tradeoff relationship between controllability and
flexibility?
Second, does the firms integrating effort enable it to overcome such a
tradeoff relationship, making it possible to improve both controllability
and flexibility simultaneously?
Tradeoff between Capabilities
Controllability
Flexibility
R
1
F
1
F
2
C
1
C
2
Integrating Capability
Controllability
Tradeoff
Relationship
Flexibility
Integrating Capability
Integrating capability is firms ability to integrate and coordinate diverse
functions and parts of its value chain, embodied in overall operations
effectiveness and new product innovation.
Firms ability to integrate various activities, both internal and external to the
firm, in order to achieve optimal coordination between supply chain partners.
Relevant concepts: experimentation, cross-functional teamwork, group
problem solving, customer as well as supplier integration into the product
development process
Because the integrating capability is driven by a firms ability to integrate and
coordinate diverse functions and parts of its supply chain, it is often embodied
in overall operations effectiveness and new product innovation, involving a
wide-ranging integration requiring cross-functional capabilities.

Dynamic Changes of Capability
Long-term dynamics of capability
Firm A in 1970s

Firm A in 1980s

Firm A in 1990s

Firm A in 2000s

Firm A in 2010s

Strategic choice made by the company

C
1970
C
1980
F
1980
F
1970
Controllability
Flexibility
Chain of Capability
Basic
capability
Process-level
capability
System-level
capability
Performance
Overall knowledge
and experience in
- Process
- Manufacturing
- Safety
- Engineering
- Work ethics
Individual function
Individual process:
- Assembly
- Process quality
- Welding
- Cutting
Responsiveness
(quick delivery)
Lead-time
Overall quality
Design
NPD capability
Increased revenues
Increased profits
Customer satisfaction
Customers can observe
the firms system-level
capability only.
Chain of Capability
B
a
s
i
c

P
r
o
c
e
s
s

S
y
s
t
e
m

C
h
a
i
n

o
f

c
a
p
a
b
i
l
i
t
y

Customer Satisfaction!
Continuous Growth!
High Performance!
System level
improvement
Group implement skills
Individual technical skills
Trust/Mutual goals
Internalization
of the innovation process
P
e
r
f
o
r
m
a
n
c
e

Basic
Capability
General knowledge/experience in
-Management
-Engineering, safety
-Work ethics; culture
Process
Capability
Technical knowledge, skills
Specific function-oriented
Process control
E.g., welding, marking, cutting,
System
Capability
System-level integration capability
E.g., flexibility, responsiveness,
Integrating process knowledge
Incremental versus Radical Improvement
Time
Time
Relative
Level
Relative
Level
Incremental Improvement
Radical Improvement