Bounded Rationality

1
Welcome

• Strategies of Network Companies
• Jonathan Wareham
• Jonathan.wareham_at_esade.edu

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Topics

1. What are Supply Chain Management Systems?
2. How do they work?
3. What can they do?
4. What can they not do?
5. An economic model of virtual organizations The
   WS paradigm

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Traditional supply chain obsolescence
Direction of flow of demand
Direction of flow of product
Point of differentiation Distribution
costs Market mediation costs
Manufacturers
Tier-I Suppliers
Distribution Centers
Tier-II Suppliers
Retailers
Customer Zones
Raw Material vendor
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RFID Tags
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What is RFID? -- The Tags

• Tags can be attached to almost anything
• pallets or cases of product
• vehicles
• company assets or personnel
• items such as apparel, luggage, laundry
• people, livestock, or pets
• high value electronics such as computers, TVs,
  camcorders

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Are All Tags The Same?

• Basic Types
• Active
• Tag transmits radio signal
• Battery powered memory, radio circuitry
• High Read Range (100 meters)
• Passive
• Tag reflects radio signal from reader
• Reader powered
• Shorter Read Range (10cm 5 meters)

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RFID the Supply Chain
Tag
Reader
Antenna
Middleware
Supply chain execution

• Process information from reader
• Filters data
• Sends data to backend servers

- Backend SCE or ERPsystems receives
Information
- Transmits identification data to a reader

• Transmit data tomiddleware
• Associates tag info with product info

- Coiled antenna ofreader creates magnetic
field with coiled antenna of tag
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How far, how fast, how much, how many, attached
to what?

• Low Frequency
• No regulation
• Penetrate materials (water, wood, tissue well)
• Slow read speed
• Small range
• No penetration of iron and steel
• Medium Frequency
• Little data, small distance
• Thin tags
• Low cost
• High data rates
• Govt regulated
• Non mental penetrating
• High Frequency
• Penetrate materials
• Small tag size
• High data transfer
• Long range
• Non-water or tissue penetrating

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Where can RFID add value?

• From Manufacturing

• Through Distribution

• Transportation

• Into a Stores Back Room Inventory

• On the Shelf

• At the Cash Register

• Out the Door as an anti-theft device

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• Top 100 Suppliers
• Suppliers will mark inbound cases and pallets
  with RFID - 1 January 2005 - May, 2003
  specification calls for 256 bit read/write tag
• 1 EPC tag per carton 100 read on conveyor
• 1 EPC tag per pallet 100 read at Inbound dock
• Conveyor speed of up to 600 feet per minute
• 3 Texas Distribution Centers
• January 2005

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Why???

• Stock management /perishables (field to fork)
• In-stock levels
• Invoice reconciliation damaged, deductions,
  performance penalties, etc.
• Scan Based Trading or VMI
• Improved analytics POS data
• All reads available to suppliers within 30
  minutes

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Guidelines for using RFID

• Bar codes cannot be used
• Counting versus identification (reverse
  logistics)
• Use of 3Party logistics and suppliers
• Data collection is chaotic (battlefields,
  hospitals, retails shops)
• Exact configuration of the good must be
  maintained
• Counterfeit protection
• High Risk scenarios, drugs, hospitals
• Collecting data outside of retailer (smart
  refrigerators, medicine cabinets, etc)

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Traditional supply chain obsolescence
Direction of flow of demand
Direction of flow of product
Point of differentiation Distribution
costs Market mediation costs
Manufacturers
Tier-I Suppliers
Distribution Centers
Tier-II Suppliers
Retailers
Customer Zones
Raw Material vendor
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Example Problem Space
Credit Service
Consolidate Results
PO Service
Client
Inventory Service
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• Sell 50,000 computers with only 4 days of
  inventory
• Keep few suppliers very close
• 30 suppliers 75 of materials
• When order is made, signal is sent to supplier,
  90 minutes later, supplies are delivered to Dell.
• We sell what we have, we dont sell what we
  dont have

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Dell From HBR

• Have as few suppliers as possible
• In real time, communicate your inventory levels
  and replenishment needs to them
• Order from suppliers only when you receive demand
  from customers.

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Example Problem Space
Credit Service
Consolidate Results
PO Service
Client
Inventory Service
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Example Self-describing data
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XML Auction Demo
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Web Services Overview Application Model
Partner Web Service
Other Web Services
Partner Web Service
Internet XML
YourCompany.com
End Users
Application Business Logic Tier
Data Access and Storage Tier
Other Applications
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Web Services Overview Portals
Ads
Mail
Other Svcs
Calendar
Weather
Finance
News
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Web Service Demos

• WebMethods.net
• http//www.webservicelist.com/
• http//www.xmlwebservices.cc/index_Samples.htmTop
  
• http//www.asitis.co.uk/web-services/

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Underlying Technologies Web Services Stack
Directory Publish Find Services UDDI
Inspection Find Services on server DISCO
Description Formal Service Descriptions WSDL
Wire Format Service Interactions SOAP
Universal Data Format XML
Ubiquitous Communications Internet
Simple, Open, Broad Industry Support
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Underlying Technologies Web Services Stack
Directory http//www.uddi.org
UDDI
UDDI or other directory service
Locate a Service
Link to Discovery Document (XML)
Inspection http//www.ibuyspy.com/ibuyspy.disco
DISCO
Request Discovery Document
Return Discovery Document (XML)
Web Service Client
WSDL
Description http//www.ibuyspy.com/ibuyspycs/Insta
ntOrder.asmx?wsdl
Request Service Description
Web Service
Return Service Description (XML)
SOAP
Wire Format
Request Service
Return Service Response (XML)
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SCM Software Who?
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What does SCM software do?

• 2 Main Functions Tracking Optimization
• Factory Scheduling
• Bar Code Warehouse Management
• Transportation Routing and Scheduling
• Inter Organizational Systems
• Collaborative Planning Optimization
• Multi echelon optimization
• E-Procurement Marketplaces
• Supplier Contract Management
• RFID Management Systems

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The Bullwhip Effect
Upstream amplification of demand
variation Progression of a brushfire to an
inferno!
Customer
Retailer
Distributor
Factory
Tier 1 supplier
Equipment
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Machine Tools at Bullwhip Tip
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The Diaper Supply Chain!

Ripples to tidal waves Stockpiles and
stockouts Insufficient or excessive
capacities Higher costs
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Interorganizational Systems CRP
BIG RETAILER
lt 3 stock outs lt 14days inventory
Warehouse 1
PG
Warehouse 2
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Before CRP
Budget
BIG RETAILER
Actual
Warehouse 1
PG
Warehouse 2

• Volume discounts
• New product promos
• Here and now discounts
• Trade marketing
• Bonuses.

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Differences

• Bringing vertical coordination to the network
  but how?

3,500 modular parts 30 suppliers
Over 1,000,000 parts in just one car!
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Ronald Coase (1937)

• Why do we have firms?
• there must be some cost in using the price
  mechanism.
• Price discovery/search costs
• Contract negotiation
• Long term stability of supply sources
  (uncertainty)
• Ergo, operation of the market costs something,
  and by forming and organization and letting some
  authority to allocate resources, some costs are
  saved

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Basic attributes of transactions

• Specificity
• Frequency
• Duration
• Complexity
• Uncertainty
• Difficulty of measuring performance
• Connectedness

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Asset Specificity

• Investments made to allow two parties to exchange
  but has little or no value outside of the
  exchange relationship
• Site specificity
• Physical-asset specificity
• Dedicated assets
• Human capital
• Lead to higher transaction costs and the problem
  of hold-up

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Specificity Frequency
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IT, Complexity Specificity
Hierarchy
Product Complexity
Market
Asset specificity
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Example Problem Space
Credit Service
Consolidate Results
PO Service
Client
Inventory Service
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Traditional supply chain obsolescence
Direction of flow of demand
Direction of flow of product
Point of differentiation Distribution
costs Market mediation costs
Manufacturers
Tier-I Suppliers
Distribution Centers
Tier-II Suppliers
Retailers
Customer Zones
Raw Material vendor