MIT Sloan Management Review

How have strategies for supply chain design changed in recent years? What are the forces most profoundly shaping them now? What kinds of models have emerged for companies to consider, choose among or learn from?

In this pair of twinned interviews, MIT professor and entrepreneur David Simchi-Levi and MIT professor Charles Fine two of the world’s leading thinkers on supply chain and value chain design offer answers to those questions and others.

Simchi-Levi notes that the focus on cost reduction in supply chain management is one of the “most critical mistakes a company can make,” and explores six emerging trends and forces that will bear on future supply chain design: globalization (long lead times); increasing logistics costs; increasing levels of risk; rising labor costs in developing countries; sustainability pressures; and marketplace volatility.

Fine describes the telling differences between thinking about supply chains and value chains, and discusses some of the alternative models for their design: the “integral” approach, in which all value chain participants collaborate in long-term, trusting relationships that focus on shared innovation in a positive-sum game; the “modular” approach, a zero-sum game in which suppliers are constantly chosen on price. (Fine also briefly explores an “open innovation” model.) There isn’t a “right” choice for all, Fine explains, but rather several right choices, depending on the maturity of a company’s industry and the opportunities or risks they present.

Both Fine and Simchi-Levi emphasize the dynamic nature of supply chain design. It’s not the individual forces and design considerations that matter most; it’s how they interact and continue to change.