MARCH, 2019
SUPPLY CHAIN DYNAMICS
(H. AKKERMANS)
SUPPLY CHAIN MODELLING
BOOK + LECTURES
MASTER SCM
Tilburg University
,INHOUDSOPGAVE
CH1. Introduction: the managerial imperative to master supply chain dynamics .................................................. 2
CH2. Models of man: introducing the language of system dynamics ..................................................................... 4
CH3. Boundedly rational: human limitations to effective decision-making.......................................................... 11
CH4. The curse of cyclicality: managing semiconductor (PHILIPS) ........................................................................ 16
CH5. In praise of lies? On information sharing in high-tech supply chains (ASML) .............................................. 21
CH6. Surviving market growth dynamics in professional services (INTERPOLIS) .................................................. 28
CH7. The boiled frog: decision traps in managing new product development (TECHCO) .................................... 34
CH8. Managerial decision biases in new aircraft development programmes (AIRBUS) ....................................... 39
CH9. The service quality cascade: managing ramp-ups in service supply chains (KPN) ....................................... 43
CH10. Travail, transparency, trust: buyer-supplier relationship dynamics (PHILIPS)............................................ 50
CH11. Virtuous and visious cycles in ERP implementation (FOKKER) ................................................................... 56
CH12. KPIs: managing buyer-supplier collaboration in outsourcing (KPN/ATOS) ................................................. 62
CH13. Speeding up the management cycle .......................................................................................................... 72
1
,CH1. INTRODUCTION: THE MANAGERIAL IMPERATIVE TO MASTER SUPPLY CHAIN DYNAMICS
1.2 FROM SPAGHETTI TO ASPARAGUS: HOW FIRMS C HANGED COMPLETELY IN JUST 2 DECADES
In the last two decades, the way firms are organized has completely changed:
• Large, vertically integrated firms were split up in smaller business units, under labels such as ‘unit
management’, ‘unbundling of the firm’.
• All non-core functions, from cafeteria to IT, were outsourced.
• Component production and assembly were outsourced to suppliers and contract manufacturers.
• To a lesser extent, even customer care and engineering were outsourced as well.
• Middle management labelled ‘the clay layer’, was cut out of the organization.
• Performance evaluation became more formal, and more geared towards the short-term, and on
measurable (financial) criteria.
• Combining of diverse business activities in one conglomerate, which was once rewarded by the stock
market, was now disapproved of.
• Management became even more a generic skill (the MBA manager, not necessarily founded in an-depth
knowledge of the nature of the business being managed).
The ideal world in the 1950s - 1980s: integral
control.
The idea: the integrated firm, that coordinates
everything from a centralized and optimized
decision-making core.
In reality in the 1950s- 1980s: decision-making
was not all that central and clearly aimed at
local interests, also because of IT impediments.
Historical reality: integrated firms, but with
local and non-optimized decision-making.
The reality today: multiple, (semi-)
independent organizational units, with local
ad-hoc decision-making, who jointly serve final
customers.
The idea: the managerial response to the need
for greater flexibility has been fragment these
integrated chains into networks of semi-
independent organizations.
The ideal situation today: we need new
structures and mechanisms that will assure
coordination throughout the network.
The idea: multiple, independent organizational
units, that effectively coordinate their actions
through joint and joined-up decision-making.
2
,1.5 WITH BOTH FEET FIRML Y ON THE GROUND
We cannot limit ourselves to looking at flows of goods and orders in supply chain management, we also have to
look at flows of information, money and people and even intangibles such as trust and motivation as well.
The logic through which operations are modeled stays firmly with both feet on the ground, in three different
ways:
• Many things in operations are essentially, factory physics.
• A great deal of decision-making in operations may concern physical facts of life, but a great deal of it
concerns psychological givens (the relation between stress and performance).
• Our IT systems and the algorithms governing them also determine a great deal of how the dynamics in
supply chains play out.
1.6 BUT WITH OUR HEADS IN THE AIR
We need a new perspective on management, one that starts from the notion of business dynamics.
Table 1. Cognitive, individual differences between the current managerial mindset and a business dynamics mindset
Table 2. Cultural differences between the current mindset and a business dynamics mindset
3
, CH2. MODELS OF MAN: INTRODUCING THE LANGUAGE OF SYSTEM DYNAMICS
2.1 STOCKS & FLOWS M ODELING AND DYNAMICS
Figure 1. Symbols used in stocks-and-flows diagrams
Characteristics of stocks:
• Stocks characterize the state of the system (the snapshot test)
• Stocks provide the basis for actions
• Stocks provide systems with inertia and memory
• Stocks are the source of delays
• Stocks decouple rates of flow
• Stocks create disequilibrium dynamics
Let’s assume that our bathtub has no water flowing out or in. Now, look at the three different kinds of inflows of
water shown in the left figure. Then, try and sketch for yourself how the water level will behave in the bathtub.
The results are shown in the right figure.
2.2 POSITIVE FEEDBACK
Figure 2. General structure of positive feedback
4
SUPPLY CHAIN DYNAMICS
(H. AKKERMANS)
SUPPLY CHAIN MODELLING
BOOK + LECTURES
MASTER SCM
Tilburg University
,INHOUDSOPGAVE
CH1. Introduction: the managerial imperative to master supply chain dynamics .................................................. 2
CH2. Models of man: introducing the language of system dynamics ..................................................................... 4
CH3. Boundedly rational: human limitations to effective decision-making.......................................................... 11
CH4. The curse of cyclicality: managing semiconductor (PHILIPS) ........................................................................ 16
CH5. In praise of lies? On information sharing in high-tech supply chains (ASML) .............................................. 21
CH6. Surviving market growth dynamics in professional services (INTERPOLIS) .................................................. 28
CH7. The boiled frog: decision traps in managing new product development (TECHCO) .................................... 34
CH8. Managerial decision biases in new aircraft development programmes (AIRBUS) ....................................... 39
CH9. The service quality cascade: managing ramp-ups in service supply chains (KPN) ....................................... 43
CH10. Travail, transparency, trust: buyer-supplier relationship dynamics (PHILIPS)............................................ 50
CH11. Virtuous and visious cycles in ERP implementation (FOKKER) ................................................................... 56
CH12. KPIs: managing buyer-supplier collaboration in outsourcing (KPN/ATOS) ................................................. 62
CH13. Speeding up the management cycle .......................................................................................................... 72
1
,CH1. INTRODUCTION: THE MANAGERIAL IMPERATIVE TO MASTER SUPPLY CHAIN DYNAMICS
1.2 FROM SPAGHETTI TO ASPARAGUS: HOW FIRMS C HANGED COMPLETELY IN JUST 2 DECADES
In the last two decades, the way firms are organized has completely changed:
• Large, vertically integrated firms were split up in smaller business units, under labels such as ‘unit
management’, ‘unbundling of the firm’.
• All non-core functions, from cafeteria to IT, were outsourced.
• Component production and assembly were outsourced to suppliers and contract manufacturers.
• To a lesser extent, even customer care and engineering were outsourced as well.
• Middle management labelled ‘the clay layer’, was cut out of the organization.
• Performance evaluation became more formal, and more geared towards the short-term, and on
measurable (financial) criteria.
• Combining of diverse business activities in one conglomerate, which was once rewarded by the stock
market, was now disapproved of.
• Management became even more a generic skill (the MBA manager, not necessarily founded in an-depth
knowledge of the nature of the business being managed).
The ideal world in the 1950s - 1980s: integral
control.
The idea: the integrated firm, that coordinates
everything from a centralized and optimized
decision-making core.
In reality in the 1950s- 1980s: decision-making
was not all that central and clearly aimed at
local interests, also because of IT impediments.
Historical reality: integrated firms, but with
local and non-optimized decision-making.
The reality today: multiple, (semi-)
independent organizational units, with local
ad-hoc decision-making, who jointly serve final
customers.
The idea: the managerial response to the need
for greater flexibility has been fragment these
integrated chains into networks of semi-
independent organizations.
The ideal situation today: we need new
structures and mechanisms that will assure
coordination throughout the network.
The idea: multiple, independent organizational
units, that effectively coordinate their actions
through joint and joined-up decision-making.
2
,1.5 WITH BOTH FEET FIRML Y ON THE GROUND
We cannot limit ourselves to looking at flows of goods and orders in supply chain management, we also have to
look at flows of information, money and people and even intangibles such as trust and motivation as well.
The logic through which operations are modeled stays firmly with both feet on the ground, in three different
ways:
• Many things in operations are essentially, factory physics.
• A great deal of decision-making in operations may concern physical facts of life, but a great deal of it
concerns psychological givens (the relation between stress and performance).
• Our IT systems and the algorithms governing them also determine a great deal of how the dynamics in
supply chains play out.
1.6 BUT WITH OUR HEADS IN THE AIR
We need a new perspective on management, one that starts from the notion of business dynamics.
Table 1. Cognitive, individual differences between the current managerial mindset and a business dynamics mindset
Table 2. Cultural differences between the current mindset and a business dynamics mindset
3
, CH2. MODELS OF MAN: INTRODUCING THE LANGUAGE OF SYSTEM DYNAMICS
2.1 STOCKS & FLOWS M ODELING AND DYNAMICS
Figure 1. Symbols used in stocks-and-flows diagrams
Characteristics of stocks:
• Stocks characterize the state of the system (the snapshot test)
• Stocks provide the basis for actions
• Stocks provide systems with inertia and memory
• Stocks are the source of delays
• Stocks decouple rates of flow
• Stocks create disequilibrium dynamics
Let’s assume that our bathtub has no water flowing out or in. Now, look at the three different kinds of inflows of
water shown in the left figure. Then, try and sketch for yourself how the water level will behave in the bathtub.
The results are shown in the right figure.
2.2 POSITIVE FEEDBACK
Figure 2. General structure of positive feedback
4
