1. The WHY of SCI

Question 1

Outline

Answer 1

I. INTRODUCTION TO THE COURSE
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II. THE WHY?
1. Supply Chain Innovation: what are we talking about?
2. Supply Chain Management: The Basics
3. Drivers of Supply Chain Innovation
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III. Innovation and Innovation Management: An Introduction
1. Basics of Innovation
2. Innovation concepts
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IV. THE “HOW”?
1. Supply Chains – Process perspective
2. Business Process Management for Supply Innovation
3. Tools and Techniques for Supply Chain Innovation
4. Business Model/Value Innovation and Supply Chain Innovation
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V. THE “WHAT”?
1. (Selected) Supply Chain Innovation Concepts
2. (Selected) Technological Innovations for the Supply Chain
3. (Selected) Technological Innovations with Big Impact on the Supply Chain
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VI. FORWARD-LOOKING TOPICS AND CASE STUDIES:
1. Standardization and Innovation for the Supply Chain
2. Next Generation Supply Chains
3. Case studies

Question 2

Examples of Innovations in the Supply Chain

Answer 2

Taylorism: The principles of scientific management - Frederick Winslow Taylor.
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The Ford Assembly Line
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Lean Production System (Toyota) The machine that changed the world.
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Universal Product Code (UPC)
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The Fedex Tracking System
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P&G’s Continuous Replenishment Program
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Economic Order Quantity formula = sq root (2SD/H)
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The Shipping Container. The box - Marc Levinson

Question 3

The Container – Lessons from one of the Most Influential Supply Chain Innovations

Answer 3

The Container’s Importance for World Trade by Paul Krugmann
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“The ability to ship things long distances fairly cheaply has been there since the steamship and the railroad. What was the big bottleneck was getting things on and off the ships. A large part of the costs of international trade was taking the cargo off the ship, sorting it out, and dealing with the pilferage that always took place along the way. So, the first big thing that changed was the introduction of the container. When we think about technology that changed the world, we think about glamorous things like the internet. But if you try to figure out what happened to world trade, there is a really strong case to be made that it was the container, which could be hauled off a ship and put onto a truck or a train and moved on. It used to be the case that ports were places with thousands and thousands of longshoremen milling around loading and unloading ships. Now longshoremen are like something out of those science fiction movies in which people have disappeared and been replaced by machines”.

Question 4

Challenges and Problems Before Containerization

Answer 4

• Before containerization: inefficient handling:
• Unloading of rail freight wagon/truck at the port
• Handling and storage on dock
• The carriage of goods onto the ship (by manual labour)
• Stowage on board.
• Reverse process for unloading the ship
• The tasks were labour intensive, dangerous, and skilled workers are required.
• Resistance to reform from labour organizations.
• It was not clear that the containerization of shipments would
  produce savings.

Question 5

Containerization of Shipping

Answer 5

• The reduction in transport costs due to containerization enabled retailers and manufacturers to access low cost products and labour forces in previously remote parts of the world, leading to a revolution in supply chains.
• The adoption of the new technology was not quick or without challenge.
• It was not until the 1950s before containerization started to take root.

Question 6

Social and Political Barriers

Answer 6

• Politicians were interested in retaining the status quo in the transport industry, largely due to the large labor forces employed in the sector, however inefficiently.
• Labor organizations wanted to protect jobs and employment
• Use of taxes on container freight!
  .
  Technological Barriers:
• The boxes had to be robust enough to be stacked, but not too heavy.
• There had to be a quick way to pick up and load the containers by
  crane.
• The system used to stow the boxes on board ships had to be good
  enough so that the containers would not shift during the voyage.
• The system had to be standardized so that the boxes could be moved by any truck or by any rail company.
  .
  Resistance from Market Incumbents:
• The shipping industry had always been focused on moving ships rather than cargo.
• There was little economic case for change.
• “Time spent loading and unloading was a much smaller
  proportion of the overall travel time!!”
• Post-war, merchant ships were very numerous and cheap.
  .
  Lessons Learned:
• Containerization not only a solution to a shipping problem, but to entire supply chains.
• The lessons for today’s (supply chain) innovators:
• Just because something works technologically, doesn’t mean that it will be successful.
• Standardization is key for innovation diffusion
• Innovation is an evolving work, rarely a one-person activity
• Systemic innovation can be difficult to implement. Impact on many parties: shippers, shipping lines, rail operators, truckers, port authorities, labor organizations, governments

Question 7

What is Supply Chain Management?

Answer 7

Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability.

Question 8

Explain Fisher’s model for Supply Chain Strategies and its extension by Lee?

Answer 8

Matching Supply Chains with Products (Fisher, 1997)
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X axis: Efficient supply chain, Responsive supply chains
Y axis: Functional products, innovative products
Match: (Efficient supply chain, Functional products) (Responsive supply chains, innovative products)
Mismatch: (Responsive supply chains, Functional products) (Efficient supply chain, innovative products)
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Supply Chain Strategies (Lee, 2002):
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X axis: Supply uncertainty
Low (Stable process); High (Evolving process)
Y axis: Demand uncertainty
low (functional products), high (innovative products)
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Lean supply chain: Low (Stable process) ; low (functional products)
Risk hedging supply chain: High (Evolving process); low (functional products)
Responsive supply chain: Low (Stable process); high (innovative products)
Agile supply chain: High (Evolving process), high (innovative products)

Question 9

What is a Push-Pull Supply Chain?

Answer 9

The Supply Chain Time Line
Suppliers
PUSH STRATEGY
Low Uncertainty
.
Customers
PULL STRATEGY
High Uncertainty
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A shift from a Push System, in which production decisions are based on forecast to a Push-Pull System

Question 10

What is the Bullwhip effect and what are its causes?

Answer 10

• Order Variability is amplified up the supply chain; upstream echelons face higher variability.
• The increase in variability as we travel up the supply chain is referred to as the bullwhip effect.
• What you see is not what they face.

Question 11

What are the Causes?

Answer 11

• Price fluctuations: Promotional sales and discounts lead retailers to stock up.
• Volume and Transportation Discounts
• Inflated orders: IBM Aptiva orders increased by 2-3 times when
  retailers thought that IBM would be out of stock over Christmas
• Demand Forecast: Adjusting standard deviation, safety stock and order up to level
• Long lead times: With longer lead times, a small change in demand variability implies significant change in safety stock and reorder level, and also order quantity

Question 12

What do you understand under supply chain visibility?

Answer 12

Definition of Supply Chain Visibility by Caridi et al. (2010):
The Visibility that the focal company has on its Supply Chain is defined as “its ability to access the significant information owned by its Supply Chain partners.”
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Types of SC visibility:
* One direction visibility (SC partners  focal company)
* Two directions visibility (SC partners  focal company and focal
company  SC partners)
* Direct visibility (only “b” and “c” flows in the picture)

Question 13

What are the Supply Chain Innovations that you know with regard to Inventory Management?

Answer 13

Selection of Suppply Chain Innovations with Respect to Inventory Management:
* Material Requirements Planning (MRP)
* Kanban
* Economic Order Quantity:
Find out the formula thins (slide 40)

Question 14

Propose a taxonomy for Supply Chain Performance metrics.

Answer 14

A Possible Taxonomy for Supply Chain Metrics:
* Service: Service relates to the ability to anticipate, capture, and fulfill customer demand with personalized products and on-time delivery
* Assets: involve anything with commercial value, primarily inventory and cash
* Speed: includes metrics which are time-related—they track responsiveness and velocity of execution

Question 15

What are the three pillars of Design for Logistics and Supply Chain?

Answer 15

Design for Logistics and Supply Chain Management:
* Economic packaging and transportation – 3 Principles
- Design products that can be efficiently packed and stored;
- Design packaging so that products can be consolidated at cross docking points;
- Design products to efficiently utilize retail space.
* Concurrent and parallel processing
* Management of Variety

Question 16

What is a closed loop supply chain?

Answer 16

Closed-loop supply chains are chains where direct and reverse flows form “loops” wherein used materials return to previous points in the chain for reuse, reprocessing, or for new use (Farooque et al., 2019).

Question 17

What are the capabilities to create a resilient Supply Chain?

Answer 17

Supply chain resilience can be improved by building up redundancy or flexibility.
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1. Redundancy: Building up redundancy means to keep extra resources to be used in case of a disruption
 Investments in redundancy (i.e. incremental cost due to redundancy) is effectively an insurance premium
 It represents a sheer cost with limited benefit, unless it is needed due to a disruption
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2. Flexibility: Increasing flexibility means to build up capabilities that can respond to them quickly.
 It does not only bolster supply chain resilience, but it can also create competitive advantage
 Investments can be justified on the basis of normal business results without taking into consideration the benefits of risk mitigation

Question 18

Statements for Discussions – Rules for Supply Chain Operations

Answer 18

1. Different channels may require different supply chain strategies.
2. Aggregate forecasts are always more accurate than individual forecasts
3. The appropriate supply chain strategy—push, pull, or push-pull— is driven by demand uncertainty and economies of scale.
4. IT investments need to be accompanied by similar and considerable investments in the appropriate business processes.

Question 19

(Selected) Drivers of Supply Chain Innovation

Answer 19

• Population Growth and Demographics:
• Population growth in Africa and Asia
• Increasing life expectancy.
• The population in today’s emerging countries will be younger than the average age of people in industrial countries
• In 2050, the number of Americans aged 65 and older is projected to be 88.5 million, more than double in 2010
  .
• The New Consumer:
• Demand for organic products
• Higher transparency request along the supply chain
• Need for mass customized products
• Customers as prosumers
• Buying online
  .
• Urbanization:
• 83 % of the online shoppers in the USA live in cities
• Increasing number of urban dwellers
• Environmental pollution
• Rising demand on living space, schools, clinics, water, energy, and recreational programs
• Possible Solutions: The Swiss “Cargo Sous Terrain Projet” (CST Project);
  .
• Mobility in the Twenty-First Century:
• Selected characteristics and trends:
• Infrastructure is not able to deal with today’s heavy traffic.
• In 2014, 58% of the new passenger cars were powered by diesel engines, 38% by petrol engines. 4% run on alternative fuel engines.
• Intermodal transportation solutions: rail and road. Self- driving cars as last mile solutions
• Self-driving trucks (e.g., by Daimler)
  .
• Digital Culture:
  1. How many email users are there worldwide?
  2. How many emails are sent and received per day on average?
  3. How many smartphones are there worldwide?
  .
• Ubiquitous Intelligence:
  Technologies
• Internet of things
• Cloud computing
• Robotics
• Artificial intellingence (AI)
• Blockchain
  .
• Resource Scarcity and Energy Shifts:
• The global transportation ecosystem is 96% dependent on oil.
• Water is becoming scarce.
• Earth offers a finite amount of land to be used for agriculture.
• Packaging is increasing (The lighter, the better.)
  .
• Climate Change:
• Extreme weather conditions:
• heavy rain
• above-average temperatures
• Triggered problems in the supply chain:
• Storms cause delays in airfreight;
• Extreme heat waves affect railways and cause pavement to soften and expand, making it more rutted and prone to damage;
• Flooding causes delays in both road transport and airfreight.