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Miriam F. Weismann, Suffolk
University__________________________________
Case Synopsis
border tariffs, changed the company’s distribution strategy from a wholesale to a retail
operation. That meant that its founders, Eugene and Ann Bourgeois, had to leave the farm
that their days of direct retail distribution were numbered given their age and the competing
needs of the farm. Philosopher’s had to decide how to maintain a sustainable SME supply
networking.
follow a sustainable business model.
Learning Objectives
These themes combine to define the specific objectives of the case:
1. To identify and discuss the economic importance of SMEs in the global marketplace.
2. To identify the challenges faced by an entrepreneur in the implementation of a
sustainable business plan given limited market influence, limited resources, and
limited scale of operation.
___________________________________________________________________________
PHILOSOPHER’S WOOL CO.:
SME SUSTAINABLE SUPPLY CHAIN
MANAGEMENT IN THE GLOBAL ECONOMY
ecch the case for learning
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Volume 6, Issue 2 (Spring 2010) 2
critical stage in the operations.
4. The case study provides an example of a classic “by-product costing” case; where
cost is used to create value.
Target Audience
supply chain in the global marketplace.
Instructor Preparation
the case discussion:
Giroux. Part IV, pp. 343-367
2006). Thomson West Publishing. Chapter 2, pp. 32-74.
4. Goldberg, Ray and Jessica Yagan, (2007) “McDonald’s Corporation: Managing A
Discussion Questions
1. Why did it make business sense for Philosopher's to start a business in an
of their fleece to the cooperative?
2. How did the decision to eliminate outsourcing, increasing the price paid to
business model?
business model? What do you recommend?
7. What choices do Eugene and Ann have to ensure the continuity of their
business? What do you recommend? Why?
Theory Discussion
In order to provide a context within which to explore the discussion questions, the following
background teaching materials which address social entrepreneurship and vertical supply
chain integration may be useful. The theory has been tied to the facts of the case study.
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Where possible, web sites have been listed for the materials to provide an easy link for the
instructor:
Understanding Social Entrepreneurship
Social entrepreneurship as a business model is the starting point in understanding
Philosopher’s SME supply chain model. Martin and Osberg define “social entrepreneurship
as having three principle components: (1) identifying a stable but inherently unjust
equilibrium that causes the exclusion, marginalization, or suffering of a segment of humanity
that lacks the financial means or political clout to achieve any transformative benefit on its
own; (2) identifying an opportunity in this unjust equilibrium, developing a social value
proposition, and bringing to bear inspiration, creativity, direct action, courage, and fortitude,
thereby challenging the stable state’s hegemony; and (3) forging a new, stable equilibrium
that releases trapped potential or alleviates the suffering of the targeted group, and through
imitation and the creation of a stable ecosystem around the new equilibrium ensuring a better
future for the targeted group and even society at large.”
Martin, Roger and Sally Osberg (2007). “Social Entrepreneurship: The Case for a
Definition,” Stanford Social Innovation Review.
http://www.ssireview.org/images/articles/2007SP_feature_martinosberg.pdf
The instructor can apply this model to illustrate learning objective #2 (identify the challenges
faced by an entrepreneur in the implementation of a sustainable business plan given limited
market influence, limited resources, and limited scale of operation) as it applies to
Philosopher’s: The entrepreneurial context faced by Eugene and Ann Bourgeois (and the
other wool producers in Ontario) was a government controlled co-op that paid producers less
money for their fleece than it cost for the farmers to produce and transport it to the co-op.
Despite a substantial demand for finished wool products in Canada, farmers could not find a
market entry strategy using the co-op. Canada chose to import finished product to meet
demand and provided no internal support to its own producers. This was the “inherently
unjust” equilibrium that resulted from marginalization and ultimately, total exclusion from
the global wool markets for local producers. Eugene identified the market opportunity, as
indicated in the problem, when he purchased yarn at substantially higher prices than he had
just been paid by the co-op for his fleece. He then applied his own social proposition: long
term SCM with local partnering to reinvigorate the local economy. Bourgeois: “We took a
very long-term approach to profits, demanding first that truly sustainable prices would be
paid to farmers [other wool producers] for the commodity produced. If we couldn't develop
Philosopher's in such a way that these payments to farmers were achievable, then there was
no benefit to operating Philosopher's and it would fail.” The plan worked. Philosopher’s
created a new profitable equilibrium for farmers by turning cost into profit. Shearers, farmers,
knitters, and woolen mills were part of the local supply chain partnership which benefitted
from Philosopher's goal of sustainable pricing and sharing profits.
Basics of Supply Chain Management and Vertical Integration of Supply Chains
Basic SCM involves the flows of material, information, and finance in a network consisting
of customers, suppliers, manufacturers, and distributors. Coordination and integration of
these flows are the goals of effective supply chain management. The following explanation
ties into learning objectives #2, 4 and 5 (identify the challenges faced by an entrepreneur in
the implementation of a sustainable business plan given limited market influence, limited
TCJ06-02-04TN
For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
The CASE Journal IM-Philosopher’s Wool Co.
Volume 6, Issue 2 (Spring 2010) 4
resources, and limited scale of operation; to demonstrate the need for an entrepreneur to make
difficult choices at a time critical stage in the operations; and converting cost to create value).
What constitutes supply chain integration? There are three principle components: information
integration, coordination, and organizational linkage.
Information integration means sharing needed information and knowledge among members
of the supply chain. This information can include: demand information, inventory status,
capacity plans, production schedules, promotion plans, demand forecasts, and shipment
schedules. Coordination refers to sharing options and decision-making alternatives, work, and
resources to the best-positioned supply chain member. To illustrate using Philosopher’s:
Eugene or his shearer provided the option to other local farmers to either sell to the co-op or
improve animal husbandry on their farms and sell to Philosopher’s for a higher price. As part
of the supply chain, Eugene would share his excess hay bales with farmers struggling to
become part of the supply chain suppliers.
Lastly, resources can be redeployed, consolidated, or shared, so that multiple players in a
supply chain benefit. This may include shared warehouses, inventory pooling, and supplier
hubs. Philosopher’s warehoused the annual production once it was acquired from the farmers.
same goal if the incentives of all members in the supply chain are aligned. Philosopher’s
created equitable sharing relationships with other fleece producers and incentivized knitters
with annual production bonuses.
Integrating a supply chain through information, coordination, and organizational principles
often cited as a chief motivation to vertically integrate with suppliers. This ties into learning
objective #1 (identify and discuss the economic importance of SMEs in the global
marketplace).
Ursino, Giovanni (2009). “Supply Chain Control: A Theory of Vertical Integration.”
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For each seller there is an associated buyer who is simply the next seller in the vertical supply
commodities:
“The movement of food products from producers to consumers must somehow be
organized or coordinated. Vertical coordination may be as simple as a peasant farmer
choosing to transport his produce physically to a local market once a week, displaying
plethora of institutional arrangements comprise the available coordinating
mechanisms. Coordination may conjure up visions of individuals proactively
managing the movement of products, but within-firm managerial orders are only one
potential mechanism of coordination; faceless spot markets are at the other end of the
ranged in between.”
Hobb, Jill and William Kerr (2007). “Agra-food Supply Chains in the NAFTA Market,”
Contemporary Drivers of Integration. http://naamic.tamu.edu/cancun2/hobbs.pdf
Discussion Questions with Answers
1. Why did it make business sense for Philosopher's to start a business in an
Philosopher's supply chain system successfully increased local woolen farmers’
revenues contrary to the “conventional” price wisdom in the Canadian co-
operatives, creating end use value from what was formerly seen as a cost of
doing business. This SME model fits the profile of a classic “by-product
business model?
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during his interview:
“If we couldn't develop Philosopher's in such a way that these payments to
farmers were achievable, then there was no benefit to operating Philosopher's
and it would fail. I readily admit that this is a radical approach to the topic but
success.”
The value added aspect is apparent. As a direct result of higher prices paid for
fleece, farmers expanded wool fleece production, changing the model from a
mere by-product cost of engaging in the meat producing business to a revenue
yield, quality, and farming practices. Eliminating waste and maximizing
efficiency should be one important goal of any corporate socially responsible
organization. The model naturally resulted in improved animal husbandry, a
consistent supply of quality feedstock, reduced transportation costs, and
the creation of equitable sharing relationships in vertical supply chain
integration where the incentives of all supply chain members are aligned. For
farmers, it was higher prices and value added to their herds. For local knitters
from Inverhuron and other adjoining local communities, they were hired as
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program up to $2000 for each child of the family attending college. Knitters
where it provided free knitting patterns and knitting instruction. Customers
also received a free canvas knitting bag with purchase, personalized help and
instruction, and were made to feel part of a special community that knits in an
ancient tradition. Shearers, farmers, knitters, and woolen mills were part of the
sustainable pricing and sharing profits.
5. How does market competition make the choice of a SME to follow sustainable
business practices more difficult than a multi-national company?
The model offers a strategic economic model in the sense that governments
should consider the use of local SME partnerships to create economic
global level. Here, the HBSC case study discussing McDonald’s sustainable
global supply chain bears some consideration. Students can consider whether
size matters in pursuing corporate sustainability. McDonald’s engages in
sustainability with relative ease due to its power to control the marketplace in
impacted the operation.
6. How is it possible for Philosopher’s to continue to operate under its current
business model? What do you recommend?
It is probably not possible. The model worked on the assumption that local
partners with a vested interest would continue to participate. However, that
handmade sweaters and reduced their finished inventory supply which meant
TCJ06-02-04TN
For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
The CASE Journal IM-Philosopher’s Wool Co.
Volume 6, Issue 2 (Spring 2010) 8
business? What do you recommend? Why?
They could refocus their efforts on finding a business successor. They could
also consider selling the company to another partner in the supply chain. Ask
the students to be creative entrepreneurs by putting themselves in this position.
What might they do? Is there a plan to engage government assistance?
Teaching Strategy
integration of all of the components of production, supply, and distribution in the
process from obtaining raw materials to the delivery of the product to the end user.
The close geographical proximity of SMEs offers the ability to partner and
minimize costs through greater efficiency making their connectivity more
business environment. Based upon this explanation, the students can begin to
formulate answers to the following questions:
1. Did it make business sense for Philosopher's to start a business in an
industry where the costs of wool production were not recovered through the
sale of their fleece to the cooperative?
business model?
3. How should a company prioritize sustainability relative to other supply
chain goals, such as ensuring product safety and minimizing costs?
4. How should a company engage other stakeholders, including investors,
suppliers, customers and others, in its sustainable supply chain efforts?
with other U.S. SMEs:
TCJ06-02-04TN
For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
The CASE Journal IM-Philosopher’s Wool Co.
Volume 6, Issue 2 (Spring 2010) 9
It is at this point in the discussion when students begin to focus on the importance
of Philosopher’s in this critical network of SMEs; an example of part of the glue
that holds together the global marketplace. With these statistics in mind, the
following discussion points help the students to begin to put the importance of
useful here.
Solving Philosopher’s Dilemma:
6. How is it possible for Philosopher’s to continue to operate under its current
business model? What do you recommend?
7. What choices do Eugene and Ann have to ensure the continuity of their
business? What do you recommend? Why?
distributors, its profit margins will decrease and it ability to follow a
sustainability model will fail. The company was already required to cut back
fleece purchases and cut its staff of local knitters.
It has been difficult to interest large U.S. distributors because the product is
option would require Philosopher’s to expand its staff to enable it to package
and ship to multiple destinations. It would also require the owners to visit
shopkeepers and make a personal sales approach as Eugene has found it
difficult to attract small business owners without some personal contact.
discussion questions above).
Student Response
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villages are often ignored in the course of national development. Other students pointed to
the failure of the model when it was unable to adjust in the wholesale sector. The reasons for
the failure were then analyzed in the context of comparing the model in small and large
economies of scale.
Epilogue
TCJ06-02-04TN
For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
