Supply Chain Modelling
Lecture 1
Chapter 1
What is Supply chain dynamics?
From the 1980s-1990s until now: “The modern firm”, or “From spaghetti to asparagus”.
• 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 cafetaria to IT, were outsourced
• Component production and assembly were outsourced to suppliers and contract
manufacturers
• To a lesser extrent, even customer care and engineering were outsourced as well
• Middle management labelled “the Leemlaag” or in Dutch, or “clay layer” in English, was cut
out of the organization
• Performance evaluation became more formal, and more geared towards the shor 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 and 60s: integral control
All coordinated and centralized decision making.
Any optimization of those parts would be suboptimization on the whole.
In reality, decision-making wasn’t all that central and clearly aimed at local interest, also because of
IT impediments
All the parts were run as individual parts, they were doing there suboptimizations.
,The rate of change in the environment has increased, and therefore the need to respond quickly
Today’s supply network reality: Multiple, (Semi-) independent organizational units, with local, ad-hoc
decision-making, who jointly serve final customers
Coordination challenge has become much larger.
We need new structures and mechanisms that will assure coordination throughout the network
Examples of effective coordination
Example 1: Collaborative Planning
,Example 2: Sales & Operations Planning
In collaborative S&OP meetings:
o Weekly
o With representation on all supply network partners
o On basis of current data:
o Workloads
o Quality
o All phases in the network are
o (a) monitored, (b) forecast and , (c) kept consistent and (d) within control limits
o Based upon an underlying formal model that calculated the relations between
performance in the network and customer-facing performance
Example 3: Collaborative KPIs
Joint set op KPI’s focussing on the performance on the end customer
Example 4: Operations planning with scenarios
Red: max. Blue: min. Green: plan executed
In all these examples, the hard work remains to turn around the vicious cycles of the soft factors into
virtuous ones
Trust and transparency is the most important.
, Main thesis of this course: we need a new perspective on management, one that starts from the
notion of business dynamics
Organizational Culture differences
Chapter 2
Stocks & flows language: Bathtub dynamics
Water level in the bathtub; stock/level
Terminology used to distinguish between stocks and flows in different disciplines
Lecture 1
Chapter 1
What is Supply chain dynamics?
From the 1980s-1990s until now: “The modern firm”, or “From spaghetti to asparagus”.
• 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 cafetaria to IT, were outsourced
• Component production and assembly were outsourced to suppliers and contract
manufacturers
• To a lesser extrent, even customer care and engineering were outsourced as well
• Middle management labelled “the Leemlaag” or in Dutch, or “clay layer” in English, was cut
out of the organization
• Performance evaluation became more formal, and more geared towards the shor 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 and 60s: integral control
All coordinated and centralized decision making.
Any optimization of those parts would be suboptimization on the whole.
In reality, decision-making wasn’t all that central and clearly aimed at local interest, also because of
IT impediments
All the parts were run as individual parts, they were doing there suboptimizations.
,The rate of change in the environment has increased, and therefore the need to respond quickly
Today’s supply network reality: Multiple, (Semi-) independent organizational units, with local, ad-hoc
decision-making, who jointly serve final customers
Coordination challenge has become much larger.
We need new structures and mechanisms that will assure coordination throughout the network
Examples of effective coordination
Example 1: Collaborative Planning
,Example 2: Sales & Operations Planning
In collaborative S&OP meetings:
o Weekly
o With representation on all supply network partners
o On basis of current data:
o Workloads
o Quality
o All phases in the network are
o (a) monitored, (b) forecast and , (c) kept consistent and (d) within control limits
o Based upon an underlying formal model that calculated the relations between
performance in the network and customer-facing performance
Example 3: Collaborative KPIs
Joint set op KPI’s focussing on the performance on the end customer
Example 4: Operations planning with scenarios
Red: max. Blue: min. Green: plan executed
In all these examples, the hard work remains to turn around the vicious cycles of the soft factors into
virtuous ones
Trust and transparency is the most important.
, Main thesis of this course: we need a new perspective on management, one that starts from the
notion of business dynamics
Organizational Culture differences
Chapter 2
Stocks & flows language: Bathtub dynamics
Water level in the bathtub; stock/level
Terminology used to distinguish between stocks and flows in different disciplines
