In recognising that there is a strategic as well as an operational way of thinking about supply chains, it is essential that practitioners recognise that what is appropriate in one context may be inappropriate in another (Cox, 1997b; 1998; 1999). Earlier it was argued that there are serious intellectual flaws in some of the lean thinking literature. Most of these flaws relate to the failure by its proponents to understand that the appropriateness of the use of this, or any other, approach must be based on an understanding of what business is actually about in theory.
Essentially business is about appropriating value for oneself; it is not about passing value to customers unless circumstances decree that this is the only (and it is normally the least desirable) option available to a company in order for it to sustain itself in business. In fact the theoretical ideal in business (from an entrepreneurial perspective) is to be able to put oneself in a position where neither customers, employees, competitors or suppliers can leverage value from you, while putting yourself in a position to leverage all of them. It has to be recognised, of course, that achieving such an idyllic business situation is rare and exceptional. Despite this, it is important to recognise that if one was in this position then ± assuming that customers value what we provide for them ± we would be in a situation of power over all others in our supply chain relationships. This must be the ideal position to be in, yet the concept of power is rarely discussed in supply chain writing ± except to deny it as important (Williamson, 1995), or to argue that power should not be used because lean approaches should be based on equity, trust and openness.
Both of these views are misguided. This is because most writers operate with an atheoretical understanding of the causes of sustainable business success, and focus their analysis on the description of what companies do, rather than have a theoretical understanding of what it is that allows companies to be successful in the first place. It can be argued that companies are only successful if they possess power over something or someone. This is because only by having the ability to appropriate value from relationships with others ± whether these are with customers, employees or suppliers ± can business success be sustained (Cox, 1997a). There must, therefore, be objective conflicts of interest between vertical participants in supply chains, just as there are between those competing horizontally in the markets that form around specific supply chain resources. This is because everyone in the chain is seeking to appropriate value for themselves from participation and, assuming economically rational behaviour, must wish to appropriate more of the value for themselves if they are able so to do. Because certain players in the chain recognise that they have limited power to appropriate value from others, is not the same as saying that they would not seek to leverage more value for themselves if circumstances allowed them to do so.
Why is this discussion important? The reason is that in understanding how to manage supply chains strategically and operationally it is essential that practitioners properly understand the power structures that exist in their supply chains. If they do not, then both practitioners and academics may well be guilty of recommending strategies and operational practices that are inappropriate for the supply chains in which they operate. This is because they may fundamentally misperceive the factors that are causal in the successful appropriation of value. Most of the proponents of lean and integrated supply chain thinking would appear to be guilty of this failing. They appear to be able to describe what Toyota and other car manufacturers have done without demonstrating a proper understanding of why what was done has allowed Toyota, and those who have successfully emulated them, to augment their power in the supply chains and markets they are involved in.
It would appear that the proponents of the lean approach have tended to over-emphasise the benefits of integrated supply chain management based on a limited number of longterm collaborative relationships as the basis for business success. Such writers do not seem to properly understand that the Toyota model is ultimately based on a transformation in the structure of power in the automotive supply chain, through the creation of hierarchies of structural dominance. A hierarchy of structural dominance refers to a situation in which there is a dominant player within a supply chain, who is able to own and control the key resources that appropriate value. From possession of these critically important resources, the dominant player is able to create a structured hierarchy of relatively dependent suppliers (supplicants), who provide no threat to the flow of value appropriation and must pass value to the dominant player (Shimizu, 1996). This type of structure ± in which the dominant player is able to direct, or obtain access to, all of the innovation that takes place in the chain ± is a supply chain structure of dominance and dependency. Clearly, such a structure is not based on the development of a structure of power equivalence, or even of interdependence, amongst the players in the chain, as lean writers seem to believe (Cox, 1997a; Watson and Sanderson, 1997).
Furthermore, there are other serious omissions in much of the lean thinking and integrated supply chain literature. It is regularly maintained that an integrated or lean approach is the way forward for all practitioners and that anyone can achieve what Toyota and others have achieved. The poverty of this thinking should be readily apparent. Just because other car companies have been able to replicate the power structures through which Toyota have been able to manage their supply chains, and have done so by outsourcing and retaining only the design, specification and assembly role, does not mean that everyone can do so. Clearly, the nature of the automotive supply chain ± with its standardised, regular and frequent flow of demand volume for production parts and materials ± must be one of the major factors that makes a hierarchy of structural dominance feasible for the dominant players in the chain to impose on relatively weaker participants.
This insight, about the structures of power within supply chains, can only lead one to the conclusion that practitioners need to, first, understand what the nature of their supply chains are, before they begin to attempt to implement particular strategies or operational practices within them. Clearly, the automotive supply chain has specific properties. It can be argued that, if these properties are replicated in other types of supply chains, then it may be possible to adopt the same approach to integrated supply chain management, based on the creation of hierarchies of structural dominance, as Toyota and other car assemblers. In service supply chains, where the same structural properties of power do not exist, then it is clearly the case that copying the practices of car assemblers is likely to be either a waste of time or, potentially, a recipe for disaster. Furthermore, it is never clearly understood by lean writers that the development of integrated supply chain management is a highly problematic process to implement. The reason for this is because in Western (as opposed to Japanese) culture most suppliers are basically opportunistic rather than deferential, and have little real incentive to tie themselves to one customer unless they are forced to do so.