navigating german-chinese logistics networks · supply chain volatility (scv) is defined as the...

In cooperation with:

endowed by the Kühne Foundation

Navigating German-Chinese Logistics

Networks

–

Successfully Managing Supply Chain Volatility

(Summary of Workshop Results)

Prof. Dr. Frank Straube

Benjamin Nitsche, Dipl.-Ing.

Joel Cedric Lengeling, M.Sc.

Peter Verhoeven, M.Sc.

Shanghai, March, 2017

12th Workshop on German-Chinese

Logistics Networks

Agenda

– 2 –

1. Introduction and Procedure of the Workshop

2. Strategies Dealing with Supply Chain Volatility (Workshop I+II)

3. Future Challenges in International Logistics Networks

(Workshop III)

Agenda

– 3 –


a. Introduction to Supply Chain Volatility

b. Procedure of Workshop I+II

c. Procedure of Workshop III



(Workshop III)

Successfully Managing Supply Chain Volatility (Summary of Workshop Results)

Prof. Dr.-Ing. Frank Straube

Department of Logistics, Technische Universität Berlin – 4 –

Volatility – What is it all about?

Development of a definition

… …

Manufacturer

Suppliers Customers

t

Vo

lum

e

t

Vo

lum

e

?

Supply chain volatility (SCV) is defined as the steady state of unplanned variation of upstream

and downstream material flows resulting in a mismatch of supply and demand at the focal firm

originating internally, endogenous to the supply chain and exogenous to the supply chain.

Consequences

dissatisfied

customers

inappropriate

inventory levels

special freight

costs

inappropriate

capacity utilization

Definition of supply chain volatility

others...

Origin

internal

e.g.

Endogenous to the SC

Exo

ge

no

us

toth

eS

C

Exogenous

toth

eS

C




Supply Chain Volatility – Old wine in new bottles?

Traditional Causes Comparatively New Causes

Arising Challenges and Open Questions

• While a lot of companies still struggle to deal with traditional causes of volatility, comparatively new

causes challenge them additionally

• To deal with volatility, companies need to understand the mechanisms that cause volatility and

identify areas to focus on to efficiently manage their supply chain

Unpredictable customer demand

Forecasting errors

Inefficient information exchange

Bullwhip-effect

Unreliable suppliers

1. Globalization

• Increasing outsourcing rates, especially

emerging market sourcing

• SCs are getting more prone to political, legal

and currency instability

2. Increasing volatility of markets

• transport and logistics market faces a growing

volatility in transport volumes leading to higher

logistics costs due to expenses for covering

peaks or unutilized capacities

Others...

3. Digitalization

• potentially new challenges arising from it (e.g.

increasing demand volatility)

• potentially brings relief to many traditional

causes of volatility

Combining a previous workshop with a comprehensive set of

literature lead to a conceptual framework of supply chain volatility

organizational

volatility

vertical volatility

market-related

volatility

institutional and

environmental

volatility

supply chain

volatility

unstable

production

processes

inaccurate

forecasting

misleading

ordering policies

intra-

organizational

misalignment

self-induced price

variations

(to affect sales)

missing SC

coordination

missing SC

visibility

supply variability long lead-times

variable lead-

times

price variations

(induced by SC

partners)

high level of

competitionseasonality

short product life

cycles

highly innovative

products

national economic

& financial

instability

exceptional

environmental

events

political and legal

instability

behavioral

volatility

Meta-sources of SCV Dimensions of SCV

unpredictability of

customer demand

erratic behavior of

decision makers in

the SC

self

-ind

uce

den

do

gen

ous

to t

he

SC

exogen

ous

to

the

SC




In the following we exclude the dimension of institutional and

environmental volatility and focus on the first four dimensions of

supply chain volatility.

organizational

volatility

vertical volatility

market-related

volatility

supply chain

volatility

unstable

production

processes

inaccurate

forecasting

misleading

ordering policies

intra-

organizational

misalignment

self-induced price

variations

(to affect sales)

missing SC

coordination

missing SC

visibility


variable lead-

times

price variations

(induced by SC

partners)

high level of


short product life

cycles

highly innovative

products

behavioral

volatility

Sources of SCV Dimensions of SCV

unpredictability of

customer demand

erratic behavior of

decision makers in

the SC




Results of AHP assessment from previous workshop:

Average of all participants

organizational

volatility

vertical volatility

market-related

volatility

supply chain

volatility

unstable

production

processes

inaccurate

forecasting

misleading

ordering policies

intra-

organizational

misalignment

self-induced price

variations

(to affect sales)

missing SC

coordination

missing SC

visibility


variable lead-

times

price variations

(induced by SC

partners)

high level of


short product life

cycles

highly innovative

products

behavioral

volatility

Sources of SCV Dimensions of SCV

unpredictability of

customer demand

erratic behavior of

decision makers in

the SC

5,2 4 10

3 5 7,3

1,5 6 5

2,1 7,9 3,1

11,5 3,4

8,7 11,6

4,8

34,1

27,6

20,3

17,9

n=17

Numbers shown above indicate the percentual impact of a source,

respectively dimension, on SCV (e.g. „inaccurate forecasting“ impacts

SCV by 11,5 %). All sources quall 100% and all dimensions equal

100%.




AHP results analyzed by production strategy

Top level: Dimensions of SCV

N=4 N=7 N=6 Summary

For different production strategies, SCV

arises from different dimensions.

For Engineer to Order products, SCV

evenly arises from all four dimensions while

the source of unpredictability of customer

demand and high level of competition

seem to have the biggest impact on SCV

For Make to Order products, SCV is mostly

induced by organizational volatility, more

specifically by an intra-organizational

misalignment

Make to Stock products suffer most from

inaccurate forecasting and the

unpredictability of customer demand and

a high level of competition




AHP results analyzed by lead time (in days)

Top Level: Dimensions of SCV

N=5 N=6 N=6 Summary

the length of lead times seems to affect the

relative impact of the vertical and

organizational volatility dimension

The longer the total lead time of the product

gets, the more volatility arises from the

vertical dimension

For products with comparatively short lead

times, companies should focus on mitigation

self-induced volatility from the organizational

dimension, especially arising from an intra-

organizational misalignment and

inaccurate forecasting

Additionally, products with comparatively

short lead times suffer more from the

unpredictability of customer demand

(days)




Key take-aways from previous research on supply chain

volatility

SCV results in a mismatch of supply and demand at the focal firm that originates internally,

endogenous to the supply chain and exogenous to the supply chain.

SCV arises from five dimensions: (1) organizational, (2) vertical, (3) behavioral, (4) market-

related and (5) institutional and environmental volatility.

From the first four dimensions the six most impactful sources of SCV are intra-organizational

misalignment, inaccurate forecasting, long lead times, unpredictability of customer demand,

erratic behavior of decision makers in the supply chain and high level of competition.

For products with comparatively short lead times, companies should focus on organizational

volatility first when trying to manage SCV.

The longer the total lead time of a products gets, the more companies should focus on

mitigating vertical volatility as well.

SCV has to be understood as a multidimensional phenomena.




The first two workshop aim at identifying measures dealing

with volatility.

Generation of strategies dealing with

supply chain volatility

Future Challenges in International

Logistics Networks

Workshop I&II Workshop III

Goal

• discuss most pressing sources of

volatility and their effect on your

business

• joint identification of strategies to

cope with the selected sources by

applying the nominal group

technique among interdisciplinary

groups

Goal

• identify and discuss future

challenges in international SCM and

how research can support

practitioners

Agenda

– 13 –







(Workshop III)




In the following, we will focus on six sources that have been

rated as impactful in previous workshops

Inaccurate forecasting

customer demand forecast does not

meet the actual demand and has to

be changed constantly

Intra-organiz. misalignment

Plans and actions of different

departments within the own

organization are not well coordinated

e.g. conflicting goals, competition

among different value streams,

misaligned organizational plans such

as forecasts

Long lead-times

the total amount of days between

ordering a component at a supplier

and delivering a final product to a

customer is very high

e.g. due to global sourcing

Erratic behavior of decision makers in the supply chain

degree to which decision makers react irrationally and unpredictably to certain events

e.g. over- or underestimation of demand or supply signals, strategic interactions among supply chain partners or a lack of consideration of already placed orders, changing order quantities that are generated by system

Unpredictability of customerdemand

the customer demand is very uncertain

and hard to predict

e.g. the customer changes already

placed orders on a regular basis

High level of competition

is characterized by a very high

number of offered product variants at

the market and/or a very high number

of competitors




Goal of the workshop

We aim at jointly identifying strategies dealing with the most pressing sources of

supply chain volatility.

Don’t feel hindered to be creative!




Workshop Groups

Group 1Moderator: Benjamin Nitsche

Sources of SCV

1. Intra-organizational misalignment

2. Long (and variable) lead times

3. unpredictability of customer

demand

Group members

• Grace Guan, Bosch

• Lin Xialoi, Bayer Healthcare

• Jiang Wie, Schaeffler

• Jannis Waldmann, AMA Freight

• Quiong Wang, Rittal

Group 2Moderator: Peter Verhoeven

Group 3Moderator: Maurice Palmen

Sources of SCV

1. Inaccurate forecasting

2. Erratic behavior of decision makers

3. High level of competition

Group members

• Oliver Scheel, 4flow

• Hatty Wang, Lenze Drive Systems

• Bastian Zhang, Kuehne+Nagel

• Diane Cai, Bayer

Sources of SCV

1. Intra-organizational misalignment

2. Long (and variable) lead times

3. unpredictability of customer

demand

Group members

• Janet Zhang, Bayer

• Thomas Haug, Reyher

• Kelvin Xie, TNT

• Michael Hu, Siemens Medical Eqt.




Workshop I – Generation of strategies dealing with supply chain

volatility

In each group: individual

sharing of ideas and

opinions, followed by a short

discussion.

20 min each

In each group: individual

generation of possible

strategies dealing with each

source.

10 min each

Short discussion and summary

of results on flipcharts.

1

For each source, please apply this procedure

At the beginning, choose a time keeper and a group leader to

present the results to the plenum.

32

10 min each




Presentation of results of workshop I/II

1

Each Group 5-7 min

Presentation of strategies to deal

with volatilityFeedback and comments by

other groups

2

3-5 min

Agenda

– 19 –







(Workshop III)




Workshop Overview

Generation of strategies dealing with

supply chain volatility

Future Challenges in International

Logistics Networks

Workshop I&II Workshop III

Goal

• discuss most pressing sources of

volatility and their effect on your

business

• joint identification of strategies to

cope with the selected sources by

applying the nominal group

technique among interdisciplinary

groups

Goal

• identify and discuss future

challenges in international SCM and

how research can support

practitioners




Workshop III: 5-3-5 Brainwriting - The Method

+Procedure

• 4 or 5 participants

• Steps:

• Narrow down the topic

• Each participants writes down

3 challenges in 5 minutes

• Pass worksheet to neighbor

• Each participants writes down

3 new challenges using the

previous ideas

• (Detailed procedure on the next

Slide)

Motivation

• German/Chinese Navigator workshops are a origin for knowledge exchange between science

and industries

• We are currently examining different research areas

• Help shaping our future research focus

Many ideas (4/5 people

generate 48/75

possible content

ideas)

Valorizes the possible

different backgrounds

of participants since it

encourages sharing

and exchanging

knowledge

Very efficient method

Challenges

1 2 3P

art

icip

an

ts

1 …

2

3

4

5

6




Future Challenges in your International Supply Chains

Clustering the ideas in a

framework. Try to find

categories in which you can

sort all of your ideas.

15 min5 min each

2

At the beginning, choose a time keeper and a group leader to present the results to the plenum.

5

Individual generation of

challenges to deal with

the trend.

5 min each

1

Please elaborate future challenges that you see in your international supply chains in the next

years. Preferably in areas were you are seeking scientifically support and knowledge exchange

with other industries.

4

Repeat until all lines on the

worksheet are filled.

Pass the

worksheet to your

left neighbor.

3

Individual generation of three

challenges using the previous

ideas on the worksheet (e.g.

adding something, enhancing

etc.)

Agenda

– 23 –



a. Intra-organizational misalignment

b. Inaccurate forecasting

c. Long lead times

d. Unpredictability of customer demand

e. Erratic behavior of decision makers in the SC

f. High level of competition


(Workshop III)




Strategies dealing with „Intra-organizational mislalignment“

weekly S&OP meetings

silo-breaking cross-functional S&OP teams

clear guidelines how to react to changing

demand/supply throughout the organization

in-depth value-stream analysis and optimization

shared goals (efficient company-wide target setting to

break silo-thinking

Team events across departments

Internal social media platform

Improvement-process-marketplace (internal platform

for process improvement ideas to increase

employees involvement)

Other strategies

development of clear company-

wide code of communication to

increase speed of communication

as well alignment among different

departments

Communication language

Intra-organizational misalignment

lower number of hierarchy levels

consistent centralized or

decentralized organizational

approach throughout the

organization

Lean-organization

cascades through the

organization

responsibilities rather

concentrated in one person that in

multiple

can be re-adjusted bottom-up

Clear top-down alignment strategy

alignment of

management team by

harmonized KPIs

reduction of KPIs should

be targeted

switch from KPIs for

departments/functions to

purpose-driven company-

wide KPIs (total profit,

customer satisfaction

etc.)

KPI reductionand alignment

Early involvement of

logistics in development

process and following

stages to include often

underestimated topics

like customs or

packaging

rolling test-assess-

change cycles among all

relevant department to

ensure feasibility on all

stages

Agile project management

Agenda

– 25 –





c. Long lead times





(Workshop III)




Strategies dealing with „Inaccurate forecasting“

Inaccurate forecasting

In case of inaccurate forecasts, trace back the root

causes and challenge current models and assumptions

Continuous, iterative process of small improvements

Lessons learned have to be disseminated

Forecasting CIP (continual improvement process)

defined standards for forecasting

globally (all regions) and on all department levels

same source of data

underlying models and assumptions have to be

transparent

expectations on accuracy of forecasts have to be

defined

Aligned and standardized internal forecast

reduce complexity of

forecasts by increased

number of standard parts

Component standardization

Integrated system with supplier and customer to

share relevant data for more accurate forecasts

Frequent communication with customer and

supplier about forecasting changes and their

reasons rather than just updating them

Honest feedback in all directions, no finger-

pointing

Close communication loopalong the SC

Align forecasts throughout

the SC (customer, LSPs,

supplier) base on same

assumptions and source

of data

SC forecastingalignment

Agenda

– 27 –





c. Long lead times





(Workshop III)




make use of new technologies, e.g. fully automated

warehouses

standardization decrease level of customization

Reduce quality release times

Regional distribution centers

End-to-end lead time visibility as starting point for

improvement

Safety stock increase

Other strategies

including follow-up actions such as

trainings or improvement projects

Regular supplier visits and audits

Long lead times

in case estimated lead time of

main supplier cannot be met,

backup supplier has to cover it

Dual/multi sourcing

to identify waste and eliminate

unnecessary processes

In-depth SC value-stream analysis and process mapping

to help supplier better

preparing for upcoming

orders and consequently

reducing lead times

have to be binding to a

certain extend to initiate

activities at supplier

Provision of rolling forecast to supplier

utilize local suppliers

instead of buying in low

cost countries

higher cost are often

overcompensated by

better forecasting

accuracy, close

communication, etc.

Localization

Strategies dealing with „Long lead times“

Agenda

– 29 –





c. Long lead times





(Workshop III)




Strategies dealing with „unpredictability of customer

demand“

instead of trying to perfectly

forecasting customer

demand, increase logistics

capacities to cope with

short-term demand

fluctuations

Increase logistics flexibilities

send best demand planners to

customers in order to transfer

strategies/concepts for demand

forecasting to the customer in order

to reduce unpredictable demand

behavior of customer

Transfer of demand planning competencies

Unpredictability of customer demand

analyze behavioral patterns of

customer and understand the

cause of certain behavior

joint analysis with customers is

beneficial for both sides

Root cause analysis for customer behavior

categorize different customer

groups and define customized

strategies dealing with them

instead of one-size-fits-all

approaches

Customer segmentation

instead of firefighting the

constant mismatch of

supply and demand, setup

proactive strategies to deal

with different scenarios

Establishment of proactive mindset

increase communication between logistics and

marketing/sales departments

market-analysis to get more insights into

industry, market segments, customer types,

trends, competitors etc.

internal resource-allocation-system

(centralized resource allocation system to

serve customer demand to avoid internal

competition for resources among departments)

setup frozen zones

Other strategies

Agenda

– 31 –





c. Long lead times





(Workshop III)




short communication chains

clear responsibilities

Lean communication

Proactively analyze processes

anticipate and assess erratic

behavior

mitigate possibility and/or impact of

erratic decisions

continuous process

Proactive risk management

Erratic behavior of decision makersin the SC

whenever erratic behavior occurs

that induces volatility, the drivers

behind such behavior have to be

analyzed and understood

open and honest communication

of problems without any blaming

rather than hiding them

continuous improvement process

Root cause analysis

reduce the effect of erratic

decisions of individuals by cross-

departmental approval including

logistics

nevertheless, speed of decision

process should not be hindered

Standardized decision makingand approval processes

Encourage employees in telling

the truth

Mistakes can happen once but

should not happen twice

Allow mistakes (once)

same goals lead to less erratic

decisions within the organization

Cross-departmental goal alignment

Strategies dealing with „Erratic behavior of decision makers

in the SC“

Agenda

– 33 –





c. Long lead times





(Workshop III)




Strategies dealing with „High level of competition“

High level of competition

integration/cooperation with

customer

longer contractual periods

Long customer relationships

identification and management of

market trends and risks early in

advance

Market research

stabilize market share by clear

focus on innovative areas

Specialization/Innovation

decrease number of product

variants offered at the market to

decrease the level of internal

competition

Product variety reduction

focus on cost down to gain

competitive advantage

Low cost as USP

Agenda

– 35 –




(Workshop III)




Future Challenges & Trends

Smart Technologies &

Digitalization

• Industry / Logistics 4.0

• Data Sharing / Security

• Technology Application

• Transparency & Tractability

Culture

• Language barriers

• Cultural differences

• Mindset change

• Rising middle class in China

Infrastructure

• Limited capacity of sea and air

transportation

• Last mile delivery

• Unstable logistics networks

Enabling Challenges

Exogenous SC Challenges

Sustainability & Environment

• Sustainability initiatives without higher prices

• Increasing CSR

• Reduce CO2 emissions within the supply chain

• Sustainability through supplier assessment

Changing Markets & New Business Models

• Dynamic Markets shorter product life cycles

• E-Commerce and Multi-Channel

• Global Migrations

• Increasing delivery points

Regulations & Politics

• Unpredictable political effects

• Local protection from government

• Cross-border shipments

• Regulations for international e-commerce

Costs

• Cost pressure in all dimensions

• High transportation cost, Rising labor cost, Increasing

energy costs

Network Complexity

• Manage more involved SC partners and stakeholders

• Negotiations with vendors and 3PLs

• Lack of local supplier knowhow

• Raw materials from oversea

Organization

• Organization changes

• Expertise of people

• Communication & Flexibility

• New needs for employee qualifications

Endogenous SC Challenges

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