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Recent Advances in The Management of Logistics
Networks
December 2006
Dr. Richard PibernikProfessor of Supply Chain Management
MIT-Zaragoza International Logistics [email protected]
© Zaragoza Logistics Center 2
Zaragoza
Logistics hub of high-speed railway, highway exchanges, and an airport accommodating the world's largest cargo planes
60% of Spain’s GDP and 20 million consumers within 300 kilometers (200 miles)
Host city for World Expo 2008
New high speed railway station
Ebro river flows past the Basilica
University of Zaragoza
© Zaragoza Logistics Center 3
Zaragoza Logistics Park
13-million square meter (3200 acre) complex of distribution centers, transportation, dry port, and intermodal services
© Zaragoza Logistics Center 4
Zaragoza Logistics Park
Over 100 companies under contract, representing over 5,000 jobs
Phase 1 development complete with over 20 companies already operating: Zara, Imaginarium, MemorySet, & DHL
Phase 2 underway, rail/intermodal yard construction started
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Zaragoza Logistics Center (ZLC)
Created by the Government of Aragón and industry partners as a research institute associated with the University of Zaragoza
Partnership with the MIT CTL to create the MIT-Zaragoza International Logistics Program
Spain Ministry of Education & Science named ZLC to lead theNational Center of Excellence in Integrated Logistics
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MIT-Zaragoza Mission
Deliver world class education and perform leading-edge research in logistics & supply chain management.
Impact industry and society via outreach.
Support the economic growth of the Aragón region.
Create a new model for academia-industry-government cooperation.
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World class education
MIT-Zaragoza Master of Logistics & Supply Chain Management (ZLOG)• Full-time, 9 month, professional degree taught in English• Joint MLOG-ZLOG module at MIT and in Spain during IAP• Builds upon MIT’s top-ranked graduate programs in supply chain
management• Degree from University of Zaragoza, Certificate from MIT
MIT-Zaragoza Ph.D. in Logistics and Supply Chain Management• Coursework in Zaragoza and at MIT
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Leading-edge research
Hired six full-time faculty members in three years• Countries: Argentina, Germany, India, Spain, Turkey, US• Degrees: Harvard Business School, Georgia Tech, Goethe-
University Frankfurt, Univ. of Washington, Univ. of Zaragoza, Univ. of Alabama and IIT-Delhi
• One open position to be filled this year; one adjunct faculty member
Visiting faculty • Harvard, Dartmouth, Syracuse, London Business School,
Lund (Sweden), Instituto de Empresa (Madrid), INCAE (Costa Rica), Mannheim (Germany), Cologne (Germany)
3 full time research staff with a PhD
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Research Focus: Management of Logistics Networks Design of global supply chains (e.g. in high-tech
industries) Design and integration of logistics parks Distribution network design “Humanitarian” supply chains (HIV/Malaria
treatment) Cash Logistics network design But also: new technologies in logistics (e.g. Auto-ID) Future of Supply Chain Research (SC2020 Project)
In the following: some examples of research projects
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Global Supply Chains in the High-Tech Industry
Forces: globalization, outsourcing, product proliferation, customer demands, communication capabilities, etc.
Examples: high tech, fashion, etc. Product design, network design, and coordination capabilities drive
competitive advantage
VMI with major supplier
Logistics Services Provider
Contract Manufacturer
Other suppliers
Joint product design team
Alliance with competitor who complementary
services
Global Procurement
Plant for specialized
products
Risk pooling contract with
major customer
3PL warehouse
Other customers
Joint venture in an emerging
market
Strategic carrierSupply
intermediary
Collaborative forecasting
team
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Case Study: Telecommunications Industry How does the OEM strategically invest in and allocate
capacities among partners and locations? Focus on the circuit pack supply chain
Bell Labs Ireland: Lou Manzione MIT-Zaragoza Faculty: Richard Pibernik, Jarrod Goentzel MIT-Zaragoza Students: Joseph Pruett, Brett Thiessen
Note: Pictures of equipment captured from the internet by the presenter are representative, but not the actual products studied
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Specialized Testing and Remanufacturing
Manufacturing (Assembly)
Testing
Delivery
Remanufacturing
Self-Embedded Testing could be
developedSourcing
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Strategic Deployment Among Partners
1.00
0.17
0.19
0.25
0.12
0.04
Test Sets: $1-2 million each
Should the OEM develop a self-testable product?
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ComponentSuppliers
Assembling & Testing Warehouses
Europe
CALA
E.Asia
ME/A
CustomerRegions
Test Capability
Assemble Self Tested Product
NA
S.Asia
Assemble Standard Product
Remanufacturing flow
Example Network Design
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Supply and Demand Complications
Demand can be very volatile, based on a handful of large contracts
Assembly requests outside a range around the contracted amount result in penalties
Assembly cannot always occur in low cost regions due to local content requirements
New products/processes are deployed frequently and can strongly impact the test yield
Yie
ld a
t diff
eren
t loc
atio
ns
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Parameters
30 month horizon Cost parameters, yield and demand scenarios based
on realistic data Assembly quantity allocations among partners is
givenChina Malaysia Czech Poland Mexico USA
Assembly Cost 4.1% 12.1% 19.2% 25.7% 17.1% 100.0%Test Cost 1.7% 5.0% 7.9% 10.5% 7.0% 40.9%Rework Cost 2.8% 8.3% 13.1% 17.5% 11.7% 68.2%Assembly Allocation (% of Overall Contracted Capacity)
20% 40% 5% 5% 10% 20%
Costs are relative to assembly in USA
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Model
Model fixed costs of test set installation and variable costs of material flow
Use a MIP with the following objective function:
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Results for Test Set Deployment
Despite additional shipping costs, it is not optimal to deploy test sets at each location, but instead at four locations
Cost of completely centralizing test sets is >10% above the optimal
Test Sets Testing ReworkChina 9 48% 94%Malaysia 6 30% 0%Czech. Rep. 1 6% 0%Mexico 3 16% 6%
Centralized Malaysia 18 100% 100%China 0 0% 10%Malaysia 15 89% 90%USA 6 11% 0%China 12 70% 100%Malaysia 5 27% 0%USA 4 4% 0%
3 Location
Optimal
2 Location
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Impact of Self-Embedded Testing If the incremental cost for self-testing (as a percent of COGS) is
• < 1.5%, then self-testing is deployed at all manufacturing partners• > 6.5%, then conventional testing is deployed as in our previous
scenarios• 3.5% to 6.5%, then a small amount of self-testable product is
produced to balance supply and demand while avoiding the fixed investment for an additional conventional test set
• 1.5% to 3.5%, then it is optimal to deploy a mixed testing strategy with self-testing capabilities in high cost regions and conventional testing in low cost regions
0%
20%
40%
60%
80%
100%
1.5% 2.5% 3.5% 4.5% 5.5% 6.5%
Incremental Product Cost (% of COGS)
Sh
are
of
Se
lf-T
es
tab
le
Pro
du
ct
Volatile Demand (VC)Stable Demand (SC)
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Transportation Cost Analysis
0%
10%
20%
30%
40%
50%
60%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Global Shipping Cost Increase
Sh
are
of
Glo
bal
Tes
tin
g
China
Malaysia
Czech Rep.
Mexico
Malaysia (large assembly site)
Mexico (close to US demand)
Global shipping cost increases shifts testing from China to…
Step changes reflect redeployment of test sets – the OEM can adjust
testing capacity in discrete increments across its partners
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Labor Cost Analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Labor Cost Increase in Asia
Sh
are
of
Glo
bal
Tes
tin
g
China
Malaysia
Czech Rep.
Mexico
Labor cost increases in Asia shifts Malaysia testing to…
China, which retains comparative advantage as labor cost increases simultaneously in both locations
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Volatile commodity and labor prices impact the total supply chain Energy Cost
• Transportation costs• Material costs (e.g., oil-
based materials)• Production operating costs• Packaging costs
Other Commodities
Labor Cost
Land Cost
Want lowest total landed cost
• Facility• Labor• Raw Materials• Production• Inventory• Transportation• Duties/Taxes
Network Effects are complex
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Long-term Research Project
Supply Chain 2020 is a pioneering project mapping innovations to successful supply chains as far into the future as the year 2020.• Phase I
– Define excellent supply chains– Identify principles that drive excellent supply chain practices
• Phase II– Create scenarios of the future: technology, regulation, consumer
expectations, environmental pressures, etc.– Determine how future supply chains should be designed to be excellent
in various scenarios– Create a roadmap of actions organizations should take in order to be
prepared
Collaborators• Industry Advisory Council• European Advisory Council• Academic Partners
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Supply Chain 2020 Advisory Council
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Zaragoza Supply Chain Summit 2007
Susan HockfieldPresident, MIT
LaVerne H. CouncilCIO, Johnson & Johnson
Robert A. WillettCIO, Best Buy
CEO, Best Buy International
Robert W. MoffatSr. VP, Integrated Supply Chain, IBM
Diego del AlcázarPresident, Instituto de Empresa
Presidents of the Cotec Foundations of Spain, Portugal, and Italy
http://www.zlc.edu.es/summit07
March 21-22, 2007 Zaragoza, SpainTheme: Supply Chain Innovation
More [email protected]
