The emergence of supply chain as a growing area of research has generated a renewed interest in theory and theory-making within the field of operations management. This interest is the result of the parallel advances in other areas like economics, sociology, and general management that have developed theoretical perspectives and tools relevant for the operations domain. Work in these areas has demonstrated the relevance of strategic action and organizational structure that are traditionally ignored in an operations framework. In this paper we propose a new theory through which existing research paradigms in the field of operations management may be reinterpreted and redirected. We call this theory the Theory of Entrepreneurial Policy Alignment (TEPA). The point of departure for the theory is the concept of the policy as the locus of institutional activity. The TEPA defines the policy as the fundamental unit of economic analysis and the strategic lever of entrepreneurial action. Analysis of policy – as opposed to the individual choice or the transaction cost – permits the examination of economic activity, which draws attention to the Schumpeterian dynamics of competing supply chains operating in environments far from equilibrium. This theoretical innovation marks the theory as distinct from others on order and can be seen as a movement through transaction cost economics. The TEPA recognizes the consequential nature of operations and incorporates policy considerations to arrive at a newer institutional economics. In this paper, we motivate the argument for developing such a theory, present its basic features and provide an example of how TEPA may be applied to a decision to offshore a manufacturing production facility.