Recent history (2000s)

JOS VAN HILLEGERSBERG: We have looked at the history– you can call it the classic history of the 1970s to 1990s– and the great innovations in ICT that had a huge impact on supply chain management. Now, we’ll look at the more recent developments, let’s say, from the 2000s. And beyond then, you will see that these developments continue to have a big impact on supply chain management. I will cover them in, let’s say, some categories, and you will see how to continue to innovate supply chains today. The technologies that are introduced that had to do with software and communications allowed more and more large companies to outsource their supply chain activity.

They realised that this part of their processes could be handed over to what we call third-party logistics providers. They would basically take over the process, the systems, and run the supply chain on behalf of a large shipper. As this became more of a separate field, the expertise also became more concentrated at these companies and at the larger shippers. And they needed tools to really use all the information and data they get from the supply chain systems to analyse what things could be done better. So companies started to build supply chain management software. In those years, famous names were “Managistics” and “i2.” And SAP introduced their own module.

It was called “Advanced Planning and Optimizer,” which really had a strategic goal, not so much to run the supply chain, but to really analyse it and optimise it. Think of analysing the demand. Think of analysing the stock levels in the different parts of the supply chain. Think of looking at demand patterns and trying to predict them, analysing the effectiveness and sustainability of the whole supply network. Very ambitious goals that this software was trying to address. Another area that really is growing a lot– started in the 1990s but actually more recently has become much more powerful and much more interesting to improving supply chains– is the area of simulation and gaming.

I use these two terms together because I think they are highly connected. Simulation modelling of supply chain has been done for many, many decades, but the interesting thing is that recently, because computer power is increasing and because the data we can get from the supply chain is so much more precise than in the past, that our models of the supply chain are becoming much more realistic and much more useful. In a simulation model, you try to quantitatively model the supply chain. You build a computer model, a mathematical model, of the supply chain, and then you use it to dynamically analyse how the supply chain operates and how maybe it can be improved. You can run what-if analysis.

So you can say, what if I would change a certain process or I would change a certain element? Would that help me to improve my supply chain? This you can almost one-on-one connect to supply chain gaming. If you have a proper supplies chain model, you can run mathematical experiments with it. But you can also build games, let’s say, on top of these models. And these games can have two goals. They can be very essential in learning. So you can let people understand and experience certain supply chain effects by playing the games. And they can also facilitate change, so trying to experiment with new types of organisations in your supply chain.

A famous example of learning– learning actually about an effect that’s called “the bullwhip effect”– is the beer game that was developed by MIT. Today, it has become a big area to develop simulations and games to improve supply chains and to analyse alternative ways of designing and managing supply chains. We’ll give you some examples later in this course. Why is it so much powerful than in the past? There are several reasons for this. So there are several reasons why simulation and gaming today and in the future will even be more powerful than so far. First, we’ve got a much better fuel to supply chain today.

We’ve got much more data from the actual state of the supply chain through all these software systems we have in place. Secondly, we have much more computing power to build much more accurate models of the supply chain. And then we can build software much faster than in the past. In the past, we would spend a long time building a proper simulation model. But today we can build these relatively fast. So it can be done more frequently and more cost-effective. So we can also use it for smaller supply chain decisions.

And the final effect– the fourth one– is that the simulation and gaming environments can be integrated much better to the operational environments or to the actual business than in the past. So you would almost play a scenario in your real business and see if it helps or see if you can train your people that is very realistic. And this is, of course, a huge opportunity for supply chain improvement. Another area that has been around for decades but that has really seen dramatic improvements recently is the area of decision support and supply chain analytics.

Basically, computers and decision support systems help you to analyse a problem, to design a solution, to analyse various alternatives, and to make a decision and implement it. And this idea’s been around for decades, but today, the models, again, are more accurate. The visualisations of the various solutions are much better. The systems have become collaborative. So it’s not just an individual analyst that works with these systems. But these are entire teams, even teams that are in multiple companies. And the implementation can be done faster in the current software systems. So it’s an area where you see much improvement. There are many types of decision systems today. In this figure, you see the evolution of decision support systems.

Much more intelligence is added to it. They can deal with different types of data today, not just a very quantitative data, but also rich data, data from different media, social media data. And they’ve become much more powerful in this way than in the past. Basically, all these systems help you to improve your supply chain processes in what’s sometimes called these “continuous improvement cycles.” These are known under different names– plan-do-check-act. You will find that cycle. So you plan certain changes, you do it, you check if they work, and then you adapt your plans again. An alternative acronym is Define, Measure, Analyse, Improve, and Control. Again, you define a change, you measure it, you analyse if it worked, improve it.

All these cycles have been around for many, many decades. But the modern software technology allows you to actually do these cycles in an integrative way and also accelerate it to get your data faster, analyse your scenario. For example, you could analyse your current supply chain process, find certain inefficiencies in the data you get from the supply chain, design alternative ways of organising your supply chain, run some tests to see if that design really works, and then implement it in your software large scale in design and evaluate it again. In this way, you can implement a continuous improvement cycle, facilitated by your supply chain software.

Summarising this brief history, you see different examples of how ICT technology has really innovated supply chains and gives you a lot of opportunities, not just to automate the current processes, but also to improve the way the supply chain is organised. It’s very important to realise that ICT has started inside the company, making the processes of a company more efficient, but today, the key added value is the use of ICT in supporting the entire supply chain network. So analysing communications and the flows between companies and trying to improve them by facilitating analysis and collaboration to support these kind of decisions to make the entire supply chain much more efficient.

So the tremendous developments in ICT have made all this possible, and it’s very fascinating to realise that we have actually just started. If you look at the developments today, the software that’s around today, and if you look at what’s coming in the coming years, you see the opportunities are enormous to make the supply chain even much more better, innovative, and sustainable. So we’ll look into that in the coming sessions.