THE PROFIT IMPACT OF VALUE CHAIN RECONFIGURATION: BLENDING STRATEGIC COST MANAGEMENT (SCM) AND ACTION-PROFIT-LINKAGE (APL) PERSPECTIVES

An important management topic across a wide spectrum of firms is reconfiguring the value delivery system – defining the boundaries of the firm. Profit impact should be the way any value chain configuration is evaluated. The managerial accounting literature refers to this topic as “make versus buy” and typically addresses financial impact without much attention to strategic issues. The strategic management literature refers to the topic as “level of vertical integration” and typically sees financial impact in broad “transaction cost economics” terms. Neither approach treats fully the linkages all along the causal chain from strategic actions to resulting profit impact. In this paper we propose a theoretical approach to explicitly link supply chain reconfiguration actions to their profit implications. We use the introduction by Levi Strauss of Personal Pair™ jeans to illustrate the theory, evaluating the management choices by comparing profitability for one pair of jeans sold through three alternative value delivery systems. Our intent is to propose a theoretical extension to the make/buy literature which bridges the strategic management literature and the cost management literature, using A-P-L and SCM, and to illustrate one application of the theory.