Today, an order for a pair of sneakers could be placed through an order taker in India, manufactured in a plant in China, and sold at a retailer in the United States, with a later billing question addressed by a customer service representative in Africa. These simple shoes have traveled many miles — both real and virtual — before they even come out of the box.

Today's supply and demand chains involve complex and changing webs of relationships. Global supply chains have been redrawn with fast, flexible technologies. At the same time, business process outsourcing has transformed the way information and service are handled. Both have revolutionized the way companies are structured and operated, but these two areas have typically been considered separately — until now. In designing the new executive education program, Managing Global Supply Chains: Products and Services, Wharton Co-Academic Directors Marshall Fisher and Ravi Aron realized that the independent work they had done on supply chains and BPO was actually part of a bigger picture.

Integrating Supply and Demand Chains

"There is nothing that spans the entire gamut of the business and has an impact on the entire organization as much as supply chains," Aron said. "Usually when we talk about global sourcing, however, we are looking at physical goods. But demand management is also important."

Products and services are inextricably intertwined. "Even the sourcing of a physical good has a heavy service component," Aron said. "When you are talking about supply, you are talking about demand. If a customer buys a car or a pair of shoes, the retailer, which is serving as the last link before demand is realized, is looking for information."

Much of the information-intensive service work is now accomplished through BPO partners; and supply "chains" are evolving into supply webs, with flexible relationships with many partners. "Supply has to do with product sourcing," Aron said. "Demand is a combination of both information and a physical product. The supply chain is about the physical product, and BPO delivers technology-enabled services. They are directly related."

Tricky To Do Well

Both supply chains and BPO relationships are hard to get right. There have been many spectacular supply chain failures, resulting from mismatches between supply and demand. These lead to lost sales from understocking or excess inventories through overstocking. In addition, there are failures related to complex risks of partnerships and supply chains around the globe.

Outsourcing also has risks and complexities that are often underestimated. Aron points out that several studies have found that half the companies that have shifted processes offshore failed to generate the financial benefits they expected. Many also faced resistance from employees as well as consumer dissatisfaction. In early 2005, both the Boston Consulting Group and Gartner predicted that 50 percent of the offshoring contracts that companies in North America had signed between 2001 and 2004 would fail to meet expectations.

In a December article in Harvard Business Review, Aron and colleague Jitendra Singh note that a big reason for the failures is because managers focus on the costs and benefits of outsourcing without adequately understanding the underlying risks. By better appreciating both the operational and structural risks, companies can do a better job of making outsourcing decisions. Aron and Singh present a framework, used in the program, for analyzing which parts of the business should stay inside the firm and which can safely go outside.

Many new technologies and strategies have been developed for managing supply chains, including efficient customer response, quick response, accurate response, and mass customization. But technology alone won't improve the performance of either supply chains or business process outsourcing. Using these technologies and approaches effectively — getting the strategy right — is the crucial factor.

So is seeing the big picture. "There is a natural dovetailing of products and services," Aron said. "The process of ‘pick, pack, and track' involves management of products and services, supply and demand. Order fulfillment brings together the movement of these physical goods and movement of information-based services. And it is important to look at both of these issues together — and that is what differentiates this new program."

Related Links

• Managing Global Supply Chains: Products and Services

• Wharton Executive Education
  
  
• The Wharton School

This month's articles:

• Thought Leaders I
  Outsourcing and supply chain management are both part of a bigger picture of managing supply and demand.
  
  
• In the Classroom
  A Wharton professor examines strategies for successful mergers and acquisitions.
  
  
• Thought Leaders II
  The role of the CFO is expanding.
  
  
• Wharton School Publishing
  A new book examines what separates top-performing companies from the bottom of the pack.
  
  
• Education à la Carte
  Change your own thinking to change your organization.