Abstract: In supply chain system, the competence, information environment and contracts codetermine the Firm's Position Energies (FPE). When any factor of them changes, the FPE will fluctuate and move to another level, which causes the evolution of firms. The mechanism of firm's evolution shows that the processes of firm's evolution obey a general rule that the firm evolves from a high level FPE to a low level FPE,which creates another perspective for supply chain operation.