Impact of metric-alignment on supply chain performance: a behavioral study

PurposePrevious research has shown that firms are struggling to incorporate collaboration among supply chain partners. This paper presents a new approach to incorporate collaboration using metric-alignment. The analysis provides key insights regarding the usefulness of this approach to synchronize decision-making that leads to reduced bullwhip effect, less backordering and lower supply chain costs.Design/methodology/approachThis research is based on a large-scale behavioral study comprising 556 participants in multi-echelon supply chain games. Supply chain decisions from these experiments are evaluated to study the impact of metric-alignment on managerial decision-making and the corresponding effects on the overall supply chain performance.FindingsResults show that the metric-alignment approach offers an informal and self-enforced governance mechanism that changes managerial decision-making behaviors and improves supply chain performance. Results also show this approach to yield operational and financial benefits for all supply chain partners in the form of reduced bullwhip effect, less backordering and lower supply chain costs.Originality/valueThis is the first behavioral study of its kind that evaluates a new approach to incorporate collaboration in supply chains using metric-alignment. This approach avoids the shortcomings of current industry practices of using monetary penalties, such as on-time in-full (OTIF) mandates in supply contracts. The study shows that metric-alignment approach can improve overall supply chain performance while offering mutually beneficial rewards for all supply chain partners.

Unraveling Behavioral Ordering: Relative Costs and the Bullwhip Effect

Problem definition: We study the bullwhip effect and analyze the impact of human behavior. We separate rational ordering in response to increasing incoming orders from irrational ordering. Academic/practical relevance: Prior research has shown that the bullwhip effect occurs in about two-thirds of firms and impacts profitability by 10%–30%. Most bullwhip mitigation efforts emphasize processes such as information sharing, collaboration, and coordination. Previous work has not been able to separate the impact of behavioral ordering from rational increases in order quantities. Methodology: Using data from a laboratory experiment, we estimate behavioral parameters from three ordering models. We use a simulation to evaluate the cost impact of bullwhip behavior on the supply chain and by echelon. Results: We find that cost increases are not equally shared. Human biases (behavioral ordering) at the retailer results in higher relative costs elsewhere in the supply chain, even as similar ordering by a wholesaler, distributor, or factory results in increased costs within that echelon. These results are consistent regardless of the behavioral models that we consider. The cognitive profile of the decision maker impacts both echelon and supply chain costs. We show that the cost impact is higher as more decision makers enter a supply chain. Managerial implications: The cost of behavioral ordering is not consistent across the supply chain. Managers can use the estimation/simulation framework to analyze the impact of human behavior in their supply chains and evaluate improvement efforts such as coordination or information sharing. Our results show that behavioral ordering by a retailer has an out-sized impact on supply chain costs, which suggests that upstream echelons are better placed to make forecasting and replenishment decisions.

Reducing retail supply chain costs of product returns using digital product fitting

PurposeThis paper investigate how fit uncertainty impacts product return costs in online retailing and how digital product fitting, a pre-sales fitting practice, can reduce fit uncertainty.Design/methodology/approachThe paper analyzes the current performance of a retailer's e-commerce and return operations by estimating costs generated by product returns, including product handling costs, tied-up capital, inventory holding costs, transportation costs, and order-picking costs. The estimated costs were built on 2,229 return transactions from a Scandinavian fashion footwear retailer. A digital product fitting technology was tested with the retailer’s products and resulted in estimations on how such technology could affect product returns.FindingsThe cost of a return is approximately 17% of the prime cost. The major cost elements are product handling costs and transportation costs, which together amount to 72% of the total costs. If well calibrated, the fitting technology can cut fit-related return costs by up to 80%. The findings show how customers reacted to the fitting technology: it was unable to verify fit every time, but it serves as a useful and effective support tool for customers when placing orders.Research limitations/implicationsVirtual fit verification using digital product fitting is key to retailers to reduce fit-related returns. Digital product fitting using three-dimensional scanning is more appropriate for some products, but it is unsuitable for products that are difficult to measure and scan.Originality/valueThe paper contributes an empirical estimate of retail supply chain costs associated with fit uncertainty, as well as theoretical understanding of the role of pre-sales fit verification in avoiding product returns.

Design of a CPFR, Location, Inventory and Routing Approach to Diabetes and High Blood Pressure Medicine Supply Network Planning

Objective: Designing a CPFR (collaborative planning forecasting and replenishment) model for the delivery of diabetes and arterial hypertension medicines from a health insurance company (EPS) to a healthcare provider (IPS) and comparing the performance of this collaborative chain to that of the traditional one through their corresponding supply chain costs. Methodology: A series of collaboration agreements involved in joint planning were established according to the designed CPFR model. This allowed (i) raising the levels of interaction between the health insurance company, the healthcare provider, the supplying pharmaceutical laboratories, and the patients; (ii) determining demand forecasts; (iii) locating distribution centers; and (iv) defining medicine distribution strategies oriented to the minimization of costs along the chain. Subsequently, the main differences between the current operation and CPFR models at the level of structure and decisions were characterized and then evaluated in terms of supply chain costs. Results: The significant impact of the proposed model is demonstrated. The total monthly cost of operating the chain is reduced by 11.2 % on average. Within the proposed innovation, an outstanding place is held by the savings reached in the purchase and distribution of medicines from the laboratory to the distribution centers, and by the customer satisfaction differences, which increased 15.3 % on average during the studied six-month period.

Hydrogen Road Transport Analysis in the Energy System: A Case Study for Germany through 2050

Carbon-free transportation is envisaged by means of fuel cell electric vehicles (FCEV) propelled by hydrogen that originates from renewably electricity. However, there is a spatial and temporal gap in the production and demand of hydrogen. Therefore, hydrogen storage and transport remain key challenges for sustainable transportation with FCEVs. In this study, we propose a method for calculating a spatially resolved highway routing model for Germany to transport hydrogen by truck from the 15 production locations (source) to the 9683 fueling stations (sink) required by 2050. We consider herein three different storage modes, namely compressed gaseous hydrogen (CGH2), liquid hydrogen (LH2) and liquid organic hydrogen carriers (LOHC). The model applies Dijkstra’s shortest path algorithm for all available source-sink connections prior to optimizing the supply. By creating a detailed routing result for each source-sink connection, a detour factor is introduced for “first and last mile” transportation. The average detour factor of 1.32 is shown to be necessary for the German highway grid. Thereafter, the related costs, transportation time and travelled distances are calculated and compared for the examined storage modes. The overall transportation cost result for compressed gaseous hydrogen is 2.69 €/kgH2, 0.73 €/kgH2 for liquid hydrogen, and 0.99 €/kgH2 for LOHCs. While liquid hydrogen appears to be the most cost-efficient mode, with the integration of the supply chain costs, compressed gaseous hydrogen is more convenient for minimal source-sink distances, while liquid hydrogen would be suitable for distances greater than 130 km.

A framework for reducing greenhouse gas (GHG) emissions through carbon pricing for offshore outsourcing

Reducing supply chain costs is a primary concern of every organization. Organizations have implemented offshore outsourcing as an effective strategy towards reducing supply chain costs. However, neither government nor corporate organizations have sufficiently taken into account the effects of this strategy on global greenhouse gas (GHG) emissions. The purpose of this research is to analyze the impact of offshore outsourcing on global GHG emissions, and the effect of changes in fuel prices in addition to a carbon price on additional emissions on supply chain costs. The purpose is supported by five key objectives. The objectives are addressed through a systematic methodology. The analysis is supported by a literature review, and the development and testing of mathematical models. Finally, a framework to reduce global GHG emissions through a carbon price on differential emissions from manufacturing and additional emissions from international transportation is proposed. The findings suggest that offshore outsourcing has increased global emissions. The fuel prices are increasing at a rate higher than the overall rate. A carbon price on excess emissions due to outsourcing coupled with increasing fuel prices impacts supply chain costs adversely and leads to bigger lot-sizes. As an illustration at the national level, the framework showed that emissions for the USA increased by about 20% for every year between 2007 and 2010. As another example from a corporate organization, the net profit (profit after tax) for Wal-Mart was reduced by about 19% for 2006 due to a carbon price on manufacturing emissions alone. The suggested framework is a major contribution for quantifying the extent of changes in the emissions due to offshore outsourcing and the value of these emissions at a prevailing rate of carbon tax in North America. It is intended to provide a basis for reducing emissions and costs from global supply chains. The proposed framework provides a level playing field to manufacturers in different countries using different technologies, provides incentives to organizations for manufacturing in locations where net emissions are low, helps national governments determine how they can generate revenue for dealing with emissions, and, most importantly, aids in reducing overall global GHG emissions.

A framework for reducing greenhouse gas (GHG) emissions through carbon pricing for offshore outsourcing

Reducing supply chain costs is a primary concern of every organization. Organizations have implemented offshore outsourcing as an effective strategy towards reducing supply chain costs. However, neither government nor corporate organizations have sufficiently taken into account the effects of this strategy on global greenhouse gas (GHG) emissions. The purpose of this research is to analyze the impact of offshore outsourcing on global GHG emissions, and the effect of changes in fuel prices in addition to a carbon price on additional emissions on supply chain costs. The purpose is supported by five key objectives. The objectives are addressed through a systematic methodology. The analysis is supported by a literature review, and the development and testing of mathematical models. Finally, a framework to reduce global GHG emissions through a carbon price on differential emissions from manufacturing and additional emissions from international transportation is proposed. The findings suggest that offshore outsourcing has increased global emissions. The fuel prices are increasing at a rate higher than the overall rate. A carbon price on excess emissions due to outsourcing coupled with increasing fuel prices impacts supply chain costs adversely and leads to bigger lot-sizes. As an illustration at the national level, the framework showed that emissions for the USA increased by about 20% for every year between 2007 and 2010. As another example from a corporate organization, the net profit (profit after tax) for Wal-Mart was reduced by about 19% for 2006 due to a carbon price on manufacturing emissions alone. The suggested framework is a major contribution for quantifying the extent of changes in the emissions due to offshore outsourcing and the value of these emissions at a prevailing rate of carbon tax in North America. It is intended to provide a basis for reducing emissions and costs from global supply chains. The proposed framework provides a level playing field to manufacturers in different countries using different technologies, provides incentives to organizations for manufacturing in locations where net emissions are low, helps national governments determine how they can generate revenue for dealing with emissions, and, most importantly, aids in reducing overall global GHG emissions.