Tag: supply chain



Forty of the world’s leading supply chain scholars were invited to the Olin Business School at Washington University in St. Louis, back before a virus’ early days gave rise to shortages of cleaners, toilet paper and such. This was May 2019, under the auspices of the 5thSupply Chain Finance and Risk Management Workshop in which The Boeing Center for Supply Chain Innovation served as host.

The assembled academics offered such relevant presentations, research and ideas — a full nine months before a pandemic derailed, if not stymied, global operations — that it produced a special edition in scholarship: how to pay for production and distribution today and manage global risks in a highly uncertain COVID-19 environment. Supply Chain Finance and Fin Tech Innovations was published Oct. 1 as the 14th volume of Foundations and Trends in Technology, Information and Operations Management.

The volume was co-edited by two Boeing Center/Olin faculty: Panos Kouvelis, the Emerson Distinguished Professor of Operations and Manufacturing Management and the center’s director, and Ling Dong, professor of operations and manufacturing management. Their third co-editor was former Olin colleague Danko Turcic of the University of California, Riverside.

Kouvelis

“Innovative ways in managing working capital within global supply chains is of utmost importance in a turbulent environment,” said Kouvelis, who also sits on the journal’s editorial board. He also was part of a team that published a separate paper on these issues in the journal Production and Operations Management. “Especially small suppliers in global supply chains are currently stretched thin in their liquidity and ability to collect on their accounts receivables. Their debt exposure has drastically increased, and they rely on innovative financing schemes by their large corporate customers, such as reverse factoring schemes, or on fin tech innovations, such as the Ant Group fast loan services.”

Hot-off-the-press ideas

Supply chain managers who want to stay in the forefront of such practices can benefit from the hot-off-the-press ideas in research shared in the workshop and appearing in the edited volume. “Our workshop benefits from the close interaction of the Boeing Center with its member companies, and we listen to the timely topics they want us to research. We bring state-of-the-art thinking back to them to advance their practices,” Kouvelis added.

The scholars came from the London Business School at the University of London, University of Chicago, Northwestern, Penn and Carnegie Mellon as well as top universities in Australia and China. They authored 10 different papers parsed into three supply chain themes: financing issues in supply chains, fin tech innovations for working capital and risk management, and advances in risk management of operational systems.

Dong

“Supply chain risk management is the other topic of timely importance in the current environment,” Dong said. “The last 20 years, and especially during the pandemic, made apparent to all that we are more frequently exposed to increased severity disruptive shocks. Building supply chain resilience is what all companies aspire in their initiatives right now.”

The question always remains: How to do it.

“There are some very interesting ideas and practical suggestions on better hedging operational and supply chain risks in the work summarized in the volume,” Kouvelis said.

Working capital needs

In another recent work, Kouvelis and Turcic addressed both of the challenges prominently mentioned above: supporting working capital needs and better hedging certain risks (exchange rate exposure, commodity price fluctuations, interest rates and so on). The two researchers teamed on an automotive industry study forthcoming in Production and Operations Management.

They looked into the effectiveness of two data-driven financial hedging policies, cost hedging and cash hedging, aimed at mitigating financial distress, with their data coming from car manufacturing environments. The paper is titled “Supporting Operations with Financial Hedging: Cash Hedging Versus Cost Hedging in an Automotive Industry,” and for this study, they used data from the Federal Reserve Bank of St. Louis, U.S. Bureau of Labor, U.S departments of Treasury and Energy, and International Monetary Fund data.

The widely used cost-hedging strategy calls for carmakers to hedge raw material and production input purchases. That means they need to trade in raw materials to avoid higher costs, such as amassing the four essential commodities: aluminum, steel, zinc and plastic. Kouvelis and Turcic argue that a better way is to focus on cash hedging under which the firm hedges its net cash flow. Although managers are concerned about fluctuations in commodity prices, their study points out that demand changes are the most significant factor to be hedged.

Their findings also meant that cost hedging is barely more effective than no hedging at all and less effective — plus more costly — than a cash-hedging strategy, which hedges cost and demand. Moreover, in the current pandemic-affected environment, with changing consumer behavior and spending approaches across many product categories, including cars, and with volatile commodity prices, manufacturers should use cash-hedging policies to enhance operating cash flows and protect against financial distress.

Photo: Empty grocery store shelves in Vancouver, British Columbia, in March 2020 reflect the global supply chain disruptions amid the COVID-19 pandemic. (Margarita Young/Shutterstock.com)




The global supply chain has experienced once-in-a-lifetime disruptions — at least four times in the past 12 years or so. The 2007-09 financial crisis was followed by Japan’s tsunami, earthquake and nuclear disaster of 2011, which was followed by the U.S.-China trade conflict that seemed to peak in 2018 and now the COVID-19 pandemic.

Resilience, once a hallmark that academics ascribed to the most successful supply chains, has become a “matter of survival,” writes an international team of researchers including an expert from Olin.

Why do some distribution businesses have it and others don’t? It’s all about the implementation and execution of resilience strategies, the team learned from supply-chain executives and shared in a paper forthcoming in Management and Business Review.

In a series of pandemic-era interviews with 14 senior executives from 12 companies representing a wide range of industries affected by the pandemic, the co-authors discovered that the businesses survived, if not thrived, due to “agile responses”—whether for the short term or long term, or both. These interviews allowed the researchers to derive an integrative framework similar to a how-to list, split into two basic categories: enablers and resilience strategies.

Enablers and resilience strategies

The resilience strategies are built upon policies that increase redundancy and operating flexibility: operation buffers (such as different inventories); footprint diversification (postponing or relocating production lines); supply options (flexible networks and financing); robust distribution (alternative warehousing, transport and routes); product standardization (sharing components or using off-the-shelf parts); and partner network (supplier relationships and sharing risks, costs and gains).

The enabler activities essentially are best practices and “prerequisites for implementing the strategy elements,” the researchers wrote: end-to-end visibility, end-to-end control, continuous IT infrastructure, and organizational readiness (previous or continuous risk management and planning).

Kouvelis

“While all executives seemed well-versed into the supply chain resilience theory and concepts, they all discussed the implementation barriers they encountered as they tried to move their company’s supply chain to a needed resilient state,” said co-author Panos Kouvelis, director of the Boeing Center for Supply Chain Innovation and the Emerson Distinguished Professor of Operations and Manufacturing Management at Olin. “The executives were quick to point out supply chain resiliency as the attribute to guide the companies’ adjustment in the new (ab)normal world we will face the next two years.”

Kouvelis and his co-authors— rom Stanford University, Georgetown University, Santa Clara University, Kobe University, Germany’s Otto Beisheim School of Management and the University of Pennsylvania—followed four themes in their interviews: How has your company responded to the crisis? What are the elements of your resilience strategy? How did you arrive at that strategy? What lessons are key moving forward?

Cisco, Colgate-Palmolive, Nike, etc.

They interviewed executives with firms anywhere from a 2,000-employee food business in Asia earning $2.5 billion annually to a 150,000-employee consumer products company in Europe earning $52 billion annually. Among them were Cisco, Colgate-Palmolive, HP Enterprise, Infineon, Nike, Unilever, Emerson and Bayer Crop Science.

The co-authors learned that these companies basically designed a resilient supply chain via a two-stage process: selecting the “right” fit of strategies—and nobody implements all of the aforementioned—and then defining how to implement them. This could mean that, in the definition process, company management decides their first choice proves to be unfeasible or costly and instead opts for a Plan B. A company may also design different strategies for different products under their umbrella.

The researchers also found that strategy implementation, in these times of outsourcing and global disruptions, was enhanced by a collaborative, cooperative relationship among logistics businesses, suppliers and customers.

Interestingly, the researchers learned that executives are more willing to invest in resilience strategies if they had trouble regaining their market position after a disruption. For instance, it was mentioned amid the interviews—as examples of best practices—how Japanese automakers invested in increased buffers to reduce disruption risks after the 2011 earthquake, and Cisco reviewed its supply chain network to assess suppliers’ financial health after the 2007-09 crisis. The expenses were justified as a long-term and cost-effective “insurance policy.”

In fact, cross-company collaboration was seen as a necessary cost to the point where some companies financed suppliers and buyers, or at least provided technical support, to ensure a stronger supply chain.

‘Prescriptive recommendations’

The researchers offered a list of “prescriptive recommendations” such as centralizing the risk-management function, strengthening supplier relationships and innovative financing. However, they noted that the more resilient companies react early in such a crisis, and chains’ designs differ as much as their products, markets and countries. In other words, what works for toilet paper in Texas won’t work for cars in the Cayman Islands.

Kouvelis said he heard clear echoes of “never let a good crisis get wasted” throughout the executive interviews, and he paraphrased one of them: “You might even consider it a blessing in disguise … .” That particular company used the pandemic disruption to speed up digitalization of its supply chain and invest further in risk management.

In a separate paper written by Kouvelis and Morris A. Cohen, the Penn researcher from the resilience strategies study, and accepted for publication in the Production and Operations Management Society (POMS) journal, the co-authors rewrote the long-held Triple-A framework of successful global supply chains: agile, adaptable and aligned. They re-evaluated and reconfigured it, adding three R’s in addition: robust, resilient and realigned.

The reasons behind the redo are the global crises and the localized shocks that regularly have arrived the past decade-plus: Industrial supply chains have been found to experience a serious, one-month disruption every four years or so.

“The Triple-A framework of supply chain excellence served us well in the 1990s and early 2000s,” Kouvelis said of the rationale for, and the logic of, a new framework. “However, the last 15 years have seen frequent supply chain disruptions—and of alarming severity. Time to add the R’s in the supply chain excellence attributes model.

“Short-term agility has to be complemented with robustness for real-time responses across a wide range of scenarios. Adaptability to long-term technology and macroeconomic trends needs resilience to future shocks and the new (ab)normal world. Moreover, alignment of incentives of existing supply chain partners requires realignment to deal with evolving business models, changing consumer needs and preferences and a newly defined value system. The era of turbulence of the next 20 years needs a Triple-A-&-R portfolio of excellence capabilities in supply chains.”

POMS honored Kouvelis in its November 2020 issue, printing a career commendation called a Laudatio (subscription required). POMS also published as the lead article in that issue a study by Kouvelis and a Chinese University of Hong Kong professor on distribution channel compensation, initially posted online in June.




Amid a pandemic when limitations on disinfecting wipes, toilet paper and drugs brought attention — and disruption — to supply chains, new research involving Washington University in St. Louis delivers something of an answer to improving these lines of business:

Work with who you know.

While most of the business world builds success from existing relationships, four scientists including Xiumin Martin from the Olin Business School crunched data to find that personal connections between suppliers and vendors particularly improves the efficiency of the supply chain. To be precise, such rapport results in better overall performance, less restrictive and longer-lasting contract terms, and crystallized communication.

Martin

“Recent years witnessed significant increase in the complexity of supply-chain relationship due to outsourcing,” said Martin, professor of accounting. “Such increased complexity pushes my co-authors and me to think about how some fundamental issues concerning information asymmetry are addressed in this new regime. We examined this question by focusing on personal connections because the world has also become increasingly connected.”

The research team — Martin along with Ting Chen of the University of Massachusetts Boston, Hagit Levy of the City University of New York and Ron Shalev of the University of Toronto — studied 2000-11 data from public companies, though private businesses may even more keenly rely on personal, existing relationships.

College and work connections

In their paper, forthcoming in The Review of Accounting Studies, the researchers focused on previous education and work connections between suppliers and vendors. They showed such a personal relationship proved a successful way to select suppliers in a chain that has become more complex amid outsourcing and this global economy/information age.

In compiling their 12-year-long data set, they used a database called BoardEx — listing universities, employment histories, charitable involvements and board memberships — to try to find supplier-customer connections. Through another database, Compustat Segment, they were able to determine long-running business relationships between 1,430 suppliers and 2,630 customers.

Ultimately, they focused on just two relationships: university and work connections. They found 7.4% of the sample had educational connections and 21% had either educational or past-work relationships. Looking at the organizational charts, they discovered 0.5% connections between CEOs and 15.2% between non-C-level executives.

Such personal connections increased the likelihood a vendor will select a supplier by 60% over baseline probability, the scientists learned. Connections between C-Level executives show statistically stronger effects than those between lower-level executives, though the COO — who oversees most firms’ supply chain — has a more pronounced effect on supplier selection than a CEO or CFO.

They also studied when that connection was broken — say, one of the parties in the relationship leaves their employer or retires. There, they found that the supplier-customer relationship ended earlier after a departure of a connected executive than after a departure of an unconnected executive.

Boiled down, these prior college or work connections:

  • increased a vendor’s chance of being selected as a supplier;
  • relaxed procurement-contract terms;
  • improved firms’ operating efficiency;
  • expanded geographical areas to choose supplier-chain partners when there are limited choices nearby; and
  • smoothed out exchanges of information.

Simply put, these businesses know one another. And that enabled them to make more accurate assessment of supply-chain risks, helped to reduce costs, facilitated more timely updates and improved the effectiveness of monitoring the supplier along the chain.

Longer-lasting contracts

They found the utility of the relationship by breaking down such factors as: product quality and reputation; delivery reliability/on-time delivery; competitiveness of cost; manufacturing capability; management leadership; technical capability; research and development; financial risk; and production flexibility to customer requests.

The data showed that 27% — or one in four — contracts were between connected parties, and on average, the contracts lasted six months longer (48 months vs. 42 months) in duration than two parties with no connection. The less restrictive contract terms translated into product warranties, the ability to inspect supplier’s plants, supplier-paid liability or property insurance, and pre-scheduled periodic meetings often used to address risk and moral-hazard issues.

“The COVID-19 crisis has significantly disrupted supply chains,” Martin wrote in the paper. “It will be interesting and important to examine whether personal connections have an influence in counteracting such disruptions and fostering a more resilient and robust supply chain network.”




A day hardly passes without an urgent headline focused on the economic transformation underway wrought by blockchain technology. The software is the power behind bitcoin and other cryptocurrencies, but Olin experts have been plumbing the deeper implications of the technology.

Here are five things business leaders should know right now about blockchain from Panos Kouvelis, director of Olin’s Boeing Center for Supply Chain Innovation, and Ohad Kadan, H. Frederick Hagemann, Jr. Professor of Finance and Associate Dean for Global Degree Programs. Then, watch for a way to learn more.

Peer-to-Peer Transactions—Like Cash

Blockchain technology has been developed as an efficient method for completing financial transactions, based on the principle of peer-to-peer involvement and fully decentralized and shared networks. It functions as a distributed ledger that provides visibility of all transactions to all parties in the chain, and it is built on an immutable database.

Early Applications

Beyond cryptocurrencies such as bitcoin, etherium, and litecoin, the blockchain has been used in supply chain finance in areas such as clearing financial payments, using digital ledgers, and executing “smart” contracts.

Digital Inventory Tracking

Key inventory and asset resources can take on a digital footprint, which provides additional security and tracking capabilities. Applications have been built, relying on the blockchain, to track and trace goods involved in the supply chain for industries such as the diamond trade, food, and pharmaceuticals.

Applications Still Being Conceived

Blockchain has the potential to revolutionize supply chains and it requires the immediate attention of supply chain managers. Many are scrambling to understand how a technology developed to support cryptocurrencies might be applicable to supply chains and, in particular, to the supply chains of their companies. Experts say the technology will reduce friction in global shipping operations and complex supply chains that involve goods flowing across borders, through ports, and involving governmental agencies, manufacturing, and retail firms.

Kouvelis and Kadan will help business leaders get further up-to-speed on the ways blockchain technology will enhance (or disrupt) their industry in a two-day seminar May 22-23 called “Blockchain Innovation Strategies: Early Lessons from an Emerging Technology.” Click for more about this workshop.

The workshop is structured as a forum to learn more about the technology and equip attendees to know what questions to ask as they explore the implications of blockchain for their business. Coming out of the workshop, attendees should better understand the potential application of the technology in their supply chains, gain inspiration about possible immediate benefits the technology can provide, and confront obstacles and challenges in implementing it.


Jorge Calvo, Professor of Operations Strategy at GLOBIS University Management School and former President & CEO of the Global Supply Chain Management Division of Roland DG Systems, recently sat down with the Director of The Boeing Center for Supply Chain Innovation, Panos Kouvelis, to talk about Industry 4.0 and its implications on the future of global manufacturing.

Industry 4.0 was a term coined to describe a program to support the local industry in Germany and France. It is considered to be the fourth major phase of the industrial revolution, characterized by its use of emerging technologies to enhance manufacturing techniques and supply chain processes.

In his experience, Calvo has found that there are two different approaches within the scope of Industry 4.0: the German approach, focusing on machine-to-machine production practices and supply chain management (i.e., the “smart factory” and the Internet of Things), and the Japanese approach, which focuses on cloud-based technology designed for process optimization through the use of artificial intelligence and machine learning.

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