MSCI 571 Strategic Supply Chain Management
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
MANAGEMENT SCIENCE
MSCI 571 Strategic Supply Chain Management
SECTION A – The Ocado Case (Compulsory)
In this section, you have to respond to questions on the article from the Economist which was shared with you before the exam. The article can be accessed via this link on Proquest:
Supermarket or Startup?
Anonymous. The Economist; London Vol. 427, Iss. 9093, (May 26, 2018): 32
ANDOVER
The online grocer has an appetite for more than just food
IN A cavernous shed on an industrial park in Hampshire, hundreds of robots are at work in the "hive". In Ocado's latest Customer Fulfilment Centre (CFC), 65,000 orders a week are prepared for some of the grocer's 645,000 online customers. It is probably the most technologically advanced such centre in the world.
Instead of ferrying crates on a long line of conveyor belts, as many cfcs do, it uses a three-dimensional grid system, or hive, to assemble customers' orders. Washing machine-sized robots whizz this way and that on the top of the grid, pausing only for a second to pick up products and ferry them to "pick stations", where people put the orders together. An air-traffic-control style system choreographs the movements of the 700 bots scurrying over an area the size of three football pitches, with just half a centimetre to spare between them.
This is the operating platform that has turned Ocado, founded in 2000, into one of the giants of contemporary retail. The company at last came of age on May 17th when it announced a deal to supply America's biggest supermarket chain, Kroger, with the same technology in up to 20 new cfcs across the America. The news sent Ocado's stock soaring by more than 50%.
Started as an online grocery company, Ocado is now as much a tech startup as anything. Its success points to a future in which retail is dominated by online shopping. And it throws into sharp relief the continuing woes of Marks & Spencer, a retail giant of the bricks and mortar era, which has been slow to adapt to the digital era and is paying the price. On May 23rd it announced a 62% fall in annual profits. It will close a third of its 300 stores by 2022 in an attempt to cut costs.
Ocado is now valued at £5.7bn ($7.6bn), and venerable M&S at £5bn. M&S is on the brink of dropping out of the FTSE 100, and may even by replaced by Ocado. If it were, there could be no better symbol of the old economy making way for the new.
For Ocado, it is a moment of vindication. Analysts were long sceptical about a company that produced little profit, and thus looked overvalued. Ocado’s management argued that it was investing for future growth, especially in technology. It teamed up with Morrison's, a British supermarket, in 2013, and in the past year has sold its operating platform not only to Kroger but to four other supermarkets in Europe and Canada. The company also has expansion plans at home. It is building the world's largest automated cfc for online groceries at Erith, just outside London. Here 3,500 swarming robots will prepare 200,000 orders a week.
It is notoriously hard to make money in online grocery shopping, which most supermarkets do as a sideline to their offline business. But, says Bryan Roberts of TCC Global, a consultancy, by so extensively automating the picking and delivery process, Ocado has proved that it is possible to do so. This is what makes it a successful "disrupter". So much so that it is now emerging as the main challenger to Amazon in online groceries.
Paul Clarke, Ocado's chief technology officer, argues that the bespoke AI and robotics systems that the company has developed for its CFCs will have applications beyond grocery shopping. "That's the bigger game," he says. The company is developing robotic hands for the delicate manipulation of fragile goods. Before long the grocer could be eating more firms' lunch.
Question A1
For this question, you do not need to conduct further research on Ocado’s operations/ supply chain. If you miss any crucial information, make assumptions and state them clearly.
a) Ocado reflects some important developments that have taken place in the supermarket sector in recent years. In particular, there has been (i) a shift to much greater use of online shopping by consumers, thereby reducing the significance of the ‘bricks and mortar’ physical store within the supply chain; (ii) a rapid decrease in order processing and delivery times, with orders delivered within hours of being placed and at competitive prices.
Discuss how the Fisher framework can be used to understand these developments, and comment on any limitations of the framework. (40% of marks)
b) Ocado is also an exemplar of the value of emerging technologies in transforming supply chain, logistics and /or manufacturing operations. During this module we explored five key emerging technologies that hold high promise:
1. The Internet of Things and “Big Data”
2. 3D-printing /additive manufacturing
3. Driverless vehicles and drones
4. Artificial Intelligence
5. Robotics applications in factories and warehouses
i. Select TWO of the above emerging technologies that you find to be most relevant for Ocado in its current or future operations. Briefly discuss how their core features (i.e., how they work) have enabled Ocado to emerge as a “successful "disrupter"” in the supermarket industry. (20% of marks)
ii. Evaluate the specific application of the technologies you identified in terms of: i) how they help Ocado’s Customer Fulfilment Centres to achieve outstanding performance, and ii) internal risks to be managed and supply chain considerations to be made to ensure overall success. (40% of marks)
Section B: Answer any two questions
Question B1
a) Two key theoretical perspectives that can be used to explain outsourcing decisions are transaction cost economics (TCE) and the Resource Based View (RBV). Briefly discuss the fundamental differences between these two perspectives- speculating on when it is best to apply one theory over the other- and explain how they can lead to different conclusions about the same outsourcing decision. (20% of marks)
b) Read the mini case study below. Using TCE, the RBV and any other relevant theoretical frameworks, analyse the key factors driving AeroCo’s decision of whether to outsource the aftermarket parts operation or to keep it in-house. (80% of marks)
AeroCo is a world leader in the design and manufacture of innovative aviation products and services for business and military aircraft markets. AeroCo’s global workforce of over 20,500 associates delivered 565 aircraft in 2011, generating over $9.5 billion in sales. The company also provides aftermarket support for its aircraft. When a plane breaks down, a critical part (e.g. engine component) needs to be replaced quickly to minimize expensive downtime. In these circumstances, speed of delivery is often more important to the customer than cost.
After a series of acquisitions, AeroCo’s service parts operation was fragmented, resulting in declining service delivery performance and threatening customer loyalty. Also, the customer base has become much more global, meaning that AeroCo has to deliver to nearly every region of the world. They also face complex and time consuming administrative procedures such as customs clearance and documentation compliance.
This service performance problem received great attention during the quarterly update meeting of the senior management. The CEO of the company opened the discussion by saying:
“Folks, I am tired of complaints from our major customers about planes being grounded because a $75 repair part wasn’t in stock or couldn’t be tracked during delivery. We need to fix this problem fast! The goal is to regain our number one ranking in customer service by restoring market confidence in the AeroCo aftermarket support capabilities. Now get busy!”
In the brainstorming session, the senior managers quickly outlined a set of goals: improved service quality, improved parts velocity and responsiveness, visibility and control of parts in transit, sustained sales growth and profitability through cost containment. A heated discussion then followed of how to achieve these goals, and three options emerged:
Option 1: A few managers advocated the idea of centralizing all customer service operations in the company’s distribution centre (DC) in Schiphol International Airport in Amsterdam. The rationale was greater inventory availability and better control of order fulfilment.
Option 2: Others wanted to set up a network of company-owned regional DCs in major market areas to reduce distance to customers and improved order cycle times.
Option 3: Another manager brought up the idea of appointing a logistics service provider to help manage the aftermarket operations. Her justification was that AeroCo, although it was a great manufacturing company, wasn’t so good at running a service parts operation and so perhaps they should outsource to a logistics specialist firm to optimize the service parts business. This option would most probably require making major physical and operational adjustments to the company’s DC facility in Schiphol to allow the logistics provider’s operations to run efficiently. It would also entail dedicating some AeroCo aftermarket operations managers to the appointed logistics company to provide training on AeroCo’s parts and run daily operations alongside the provider’s operations team.
The response to Option 3 was immediate and negative from most of the other managers, since they felt that AeroCo was capable and didn’t need any external help. “A few adjustments here and there are all we need”, said the Director of Customer Services. The Procurement Director said that the company had no prior experience of outsourcing logistics activities and no established processes for selecting and managing logistics service providers. The outsourcing option would require extensive research of the logistics service market to identify suitable and trustworthy potential providers. These comments were gaining support until the CEO cleared his throat and boldly stated: “Logistics outsourcing? That sounds intriguing. Tell me more about Option 3!”
Question B2
a) Outline the basic mechanism of the ‘bullwhip effect’ in supply chains. Using an example from practice, explain why it happens. (15% of marks)
b) One of the seminal papers on supply chain integration is by Frohlich and Westbrook (2001)*.
i. Summarise the key findings in this paper. Also, identify and reflect on one of its limitations (besides the ones stated by the authors). (15% of marks)
ii. Discuss the validity of the findings drawing on more recent literature (at least two academic papers published after 2011) on supply chain integration and/ or with examples from practice to illustrate your viewpoint. (70% of marks)
* Full reference: FROHLICH, M. T. & WESTBROOK, R. (2001) Arcs of integration: an international study of supply chain strategies. Journal of Operations Management, 19, 185-200.
Question B3
Towards the end of 2020, Capgemini published a report which stated that more than 80% of 1000 surveyed companies were negatively impacted by Covid-19. As a result, most were left struggling to cope with significant challenges across all aspects of their operations. Interestingly, Capgemini reports that the main outcome of this is that only a small minority of organisations are taking decisive steps to become crisis resilient. The full report can be accessed via this link.
Drawing on ideas on the relationship between resilience and risk management, the key arguments underlying the “resistance and recovery matrix”, and any other relevant frameworks, reflect on whether this outcome is surprising and problematic. Ultimately, do you think that all companies need to invest heavily in resilience? Give reasons for your answer. [100%]
2023-01-08