Home > Articles > Business & Management

  • Print
  • + Share This
This chapter is from the book

Enabling the Supply Network

As discussed before, although traditional value chain strategic thinking is based on the imperfect competition economic model, it neglects at least one element of this model: the influence of externalities. Buchanan defines externality as the cost or benefit that affects a party who did not choose to incur that cost or benefit.12 Whether casual or not, this made no real difference in the 1980s when the Five Forces Model was proposed or in the following decade. But since the new century, the business environment has seen the intensification of the effect of externalities which has determined shortened economic and business cycles, as mentioned before.

Given the expansion of players that influence the supply network of which a firm is a part, and because many of these players are influential enough to be considered stakeholders, there is a multiplying effect of externalities within the wise competitors. This massive effect of externalities is associated with the reduction of suppliers’ bargaining power, the reduction of barriers to entry in the markets, and the reduction of barriers to create substitute products or services, as explained previously, disabling any competition theory (perfect or imperfect) from explaining the new economy business environments.

Game Theory

The application of game theory was presented as an alternative to understand the brand new dynamics of supply networks. Game theory is a study of strategic decision making.13 Specifically, it is “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers” (Myerson 1991). Several types of games address dichotomies, such as the following:

  • Cooperative versus noncooperative, which refers to communication between the players
  • Symmetric versus asymmetric, which discusses the influence of each player’s strategy on one another
  • Zero-sum or nonzero-sum, which tests the dispute for resources
  • Simultaneous versus sequential, which defines the rules for each strategic movement
  • Perfect versus imperfect information, which discusses transparency and visibility

Some applications treated the decision-making process with uncertainty (Neumann, et al. 1944). Other applications include describing, forecasting, and explaining the patterns of the economic behavior of firms, markets, and consumers.14 The principle behind game theories is “the interactions between individuals or groups of people whose goals are opposed, conflicting, or at least partially competing” (Chinchuluun, et al. 2008).

Although several groups around the globe are studying game theory as applied to supply chain management and despite the fact every day a new algorithm is formulated to explain several interactions within internal and external players, the establishment of a coalition (connection between players) depends on fixed rules defined by logical restrictions. The premise is these rules define the interactions in the long term.

But don’t we all know the relationship between supply networks elements are subject to so many variables that cannot be modeled for the long term? Maybe game theory has found valuable applications for several interactions within any two very close elements in the supply network. But, how about the interaction between these interactions? And what if logical rules such as purchasing agreements, service level agreements, and contracts in clauses change? How do I measure the impact on the supplier of my supplier or on the customer of my customer?

The complexity of modern business environments is tremendous and the variables that qualify this complexity are always assuming new shapes. This is an ever-changing complexity that disables consistent forecasting efforts. So, how do we forecast the unpredictable?

Chaos Theory

Not only has game theory been recently tested on the supply chains that form fluid and complex supply networks. The unpredictable nature of supply network interactions attracts chaos theorists too.

Chaos theory studies the behavior of dynamic systems that are highly sensitive to initial conditions,15 such as the existing value chain design illustrated in Figure 1.1. Small differences in initial conditions yield widely diverging outcomes for such dynamic systems, rendering long-term prediction impossible in general (which leads to the unpredictable nature of the supply networks illustrated in Figure 1.15).

This happens even though these systems are deterministic, meaning that that their future behavior is fully determined by their initial conditions, with no random elements involved (Kellert 1993). In other words, there are defined strategies, policies, practices, and procedures in any element of this system, yet it is impossible to predict its behaviors in the long time. Does this look familiar to supply chain management professionals?

Lorenz defined chaos as when the present determines the future, but the approximate present does not approximately determine the future.16 Therefore, if the very near future is known to be slightly different from the present, then the future is unpredictable. The authors have selected some processes within the fluid and complex supply network that may eventually show this behavior: supplier’s performance, manufacturing yield rate, sales forecast, haulers performance, import cycle time, distribution adherence to delivery schedule, 3PL performance, and IT integrity, to mention a few.

In the long term, any strategy created in recent decades was known to be obsolete. In recent years, any strategy created was known to be obsolete much sooner. In the near future, any strategy created will be known to be obsolete even sooner.

The movement toward the use of game theory and chaos theory in the management of networks of supply chains indicate the global community has understood the real nature of this new environment. Predictability is no longer the most important agenda. Concepts such as responsiveness, resilience, flexibility, and agility must be tangible to the daily management of the organization as the only mechanism to deliver value to shareholders and stakeholders. The ultimate strategy capable of transforming these concepts into executable routines is long-term knowledge management. The introduction of knowledge management redirects organizational behavior and realigns its route toward competitiveness.

Figure 1.20

Figure 1.20 Nature of the business environment

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020