Partnerships in Supply Chain Management

Boundary Decisions Of The Firm

An organization can be characterized as its boundaries which are a physical, arbitrary, or imaginary line of demarcation acting like a cell membrane or a barrier to separate territories of organizations (Crowley & Karim, 1995). The aim of the theory of the firm is to provide an explanation of the conditions when a firm should do things by itself rather than provide them through the market to minimize production and transaction costs (Weigelt & Miller, 2013). In addition, the theoretical explanation of the boundary of the firm is diverse. To give an insight to the reader a narrow-scoped explanation will be provided. For more information, the following are suggested: Coase (1937), Williamson (1975, 1985), Crowley & Karim (1995), and Sousa (2010, 2014).

Contrary to what is generally known, Sousa (2014) stated that an economic activity of a firm may be actualized in three ways:

• 1.

  Firms do things by themselves within the boundaries of the firm (make).

• 2.

  Traded in markets: firms get things done by others (buy).

• 3.

  Exchanged mutually rewarding buyer-seller interaction: firms buy from or cooperate with counterparts (cooperate).

Make-or-buy-or cooperate decisions specify the boundaries of the firm. Boundaries can be kept the same or be changed according to requirements of the firm. The main questions to answer include which “resources, capabilities and activities” reside internally, and which are to remain outside and how as a purchasing activity or cooperating with counterparts (Sousa, 2014).