Can Merge-in-Transit be Sustainable? A Micro-Enterprise Perspective OR59 Annual Conference Loughborough University 12-14 September 2017 Can Merge-in-Transit be Sustainable? A Micro-Enterprise Perspective Eliseo Vilalta-Perdomo 1 , Oliverio Cruz-Mejia 2 and Martin Hingley 1 1 Lincoln International Business School 2 Universidad Autónoma del Estado de Mexico

Abstract The theme of sustainable supply chains is explored from a particular configuration, Merge-In-Transit (MiT). Three different operational strategies: Postponement, Mass Customization and Rapid Fulfilment are revisited in the light of MiT. Limitations to current understandings of ‘sustainability’ are recognised and an extension to this concept is explored in the context of Micro-Businesses (MBs). In order to build operational approaches to this extension, different retailing structures are presented and discussed: direct marketing, supply chain, supply network and supply community. Finally, two languages: of needs and for interactions are presented and exemplified to show alternative approaches to build sustainability in supply chains where MBs participate actively. The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Postponement, Mass Customization and Rapid Fulfilment The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Direct deliveries The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Deliveries through warehouse The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Merge-in-transit deliveries The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Is not just cross-docking   Customers Nature of the product Main goals Crossdocking To distribute products from manufacturers to retailers. High-consumption products for retailers’ continuous replenishment. Products with stable demand To minimize holding and handling costs by removing intermediate distribution warehouses. Merge-in-Transit To satisfy end-customers; no retailers are involved. Multi-product orders consolidated in one-delivery independent shipments for end-customers. Products are normally made-to-order and with high obsolescence costs. To deliver made-to-order product orders with very high customer satisfaction in the delivery The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Online vs Physical Retailing   Online retailing Physical retailing Inventory selection + - Order tracking for products assemble-to-order Market area size Touch and feel Purchase price comparison 24 hrs. shopping Personal service Multi-item consolidated delivery Immediacy Customer equipment requirements Receipt of product Adapted from Otto & Chung (2000) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Postponement A strategy that delays product differentiation to as late as possible, with the aim to improve marketing systems’ efficiency (Anderson, 1950) A strategy to speculate with the delay of operations activities (i.e. inventory holding, assembly, and manufacturing) in the distribution channel, to reduce cost and deal with competitive forces (Bucklin, 1965) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Postponement Pagh & Cooper (1998) suggest three categories of postponement: Postponement in logistics involves a degree of speculation, as finished products are held in inventory until orders are placed. Manufacturing postponement considers pre-planning products assembly, in terms of which partner will process and distribute final goods. Full postponement combines previous two. It is more focus on opportunities available in specific time windows. The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Mass customisation Gilmore & Pine II (1997) suggest mass customization as a “flexible work process”. It refers to a customer co-design process of products and services that matches product features to the needs of each individual customer (Piller, 2005). It allows high-volume customization of goods and services to individuals’ specifications, within a fixed solution space, characterized by stable but still flexible and responsive processes. Accordingly, mass customization provides increase in variety and customization without a corresponding rise in costs, providing strategic advantage and economic value (Pine II, 1999). The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Mass customisation strategies Task Manufacturing to Order MTO Manufacturing to Stock MTS Assembly to Order ATO Information Product specifications Provide forecast Configuration management Planning Provide engineering capacity Project Inventory levels Determine delivery dates Control Adjust capacity to customer needs Assure customer service levels Meet delivery dates Sales and Operations Planning Demand forecasts, engineering detail Demand forecast Demand forecasts, product family mix Master Production Scheduling Final configuration Actual demands Mix forecast, actual demands Customers Design status, delivery date. Next inventory replenishment Configuration issues, delivery date. Source: Vollmann, Berry, Whybark and Jacobs (2004) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Mass customisation The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Quick response This strategy is also known as ‘Time-Based Competition’ (TBC). Quick response supply chains rely on the use of speed to gain competitive advantage (Suri, 1998). Therefore, lead-time analysis is a key performance indicator in quick response supply chains. Having the ability to respond to customers’ requirements on a time basis is fundamental to the marketing concept (Christopher, Lowson & Peck, 2004) Companies like Dell Computers, Cisco Systems and Amazon (prime) are examples of organizations running quick response operations. The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Who were first? Company Year of introduction Business sector Cisco Systems 1997 Telecommunications Sun Microsystems Computers Lucent Technologies Dell Computers 1998 Micron Computers Ericsson 1999 Source: O’Leary (2000a and 2000b) and Hoffman (1998) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Summary Task Advantages Limitations Postponement Reductions on cost due to final product inventory Slow response times Mass customisation High-volumes without an increase in cost for quality or delivery Need of internet-based technical solutions Need to build and maintain an extensive suppliers’ network Quick response Fast-paced response to global customers Usually limited to high- value products The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Merge-in-transit Micro-businesses´ context Postponement + Mass customisation = + Quick response The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Sustainability and resilience The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Sustainability and resilience PEOPLE PLANET PROFIT Bearable Viable Equitable Sustainable “The Triple Bottom Line is an expanded baseline for measuring performance, adding social and environmental dimensions to the traditional monetary yardstick” (SCBD / IUCN, 2007) (Elkington, 1997/1999) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Language of policy-making consensus ADVANTAGES? LIMITATIONS? Quality of life (bearable) Globalisation (equitable) Knowledge Internal vs. external Acquisition, codification, recovery & use Education SOCIETY (people) Capital: Local vs. global Standardisation CSR Science Shared value Language of policy-making Impact (viable) ENVIRONMENT (Planet) ECONOMY (Profit) Language of … Language of decision-making Trade-offs Environmentalists? Scientists? Politicians? Efficiency & effectiveness Lean vs. agile Real cost of non-renewable resources (Vilalta-Perdomo & Corliss, 2012) The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Retailing structures Direct marketing, supply chain, supply network & supply community The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Retailing structures Direct marketing There is no active participation of intermediaries. Producers might be open to collaboration but usually none shows any interest on leading collective initiatives. Direct marketing characterisation Arrangement Challenge Driver Organisational principle Transactional direction Power structure Supply chain Survival Dependent on producers’ expectations Adaptation Towards the customer Based on direct customers´ relationships

Retailing structures Supply chain The strongest actor (i.e. supermarket) structures coordination protocols between different actors Customers (may) receive benefits from operational savings Supply chain characterisation Arrangement Challenge Driver Organisational principle Transactional direction Power structure Supply chain Lean/agile Economic only Organised by main actor Towards the customer Centralised around main actor

Retailing structures Supply network Several strong actors (i.e. supermarkets, distributors) build redundant chains that provide additional resilience to the supply ‘system’ Customers (may) receive benefits from operational savings Supply network characterisation Arrangement Challenge Driver Organisational principle Transactional direction Power structure Supply network Resilience Economic mainly Externally self- organised Towards the customer Centralised around several hubs

Retailing structures Sustainability and resilience Capability through time to deal with noise Sustainability Resilience Adaptability Learning Capability to preserve a system in the long-term The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Retailing structures Supply community Supply community characterisation Arrangement Challenge Driver Organisational principle Transactional direction Power structure Supply community Collaboration Different drivers Internally self- organised Towards the producer Decentralised “[Community] operations research [COR] is the securing of improvement in social systems [collectives to become stronger actors] by means of scientific method” (adapted from Churchman, 1970)

To implement supply communities Language of needs and language for interactions The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Implications on TC and micro-businesses Decision-making under uncertainty (Kahneman). System 1. Experienced-based decisions System 2. Reflective decisions Approach Kahneman´s system Direct marketing System 1 Supply chain System 2 - profit Supply network System 2 - resilience Supply community Systems 1 & 2 The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Sustainability and resilience Capability through time to deal with noise Individual perspective Sostenibility Resilience Collective perspective Language of needs Language for interactions Capability to preserve a system in the long-term The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Implications on TC and micro-businesses Kahneman´s system 1 The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Implications on TC and micro-businesses Kahneman´s system 2

Recommendations and conclusions The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Recommendations and conclusions A possible way to develop sustainable MiT strategies in MBs is by means of collaboration. Groupings of MBs associated in organizations that share common resources to deal with their own challenges is one possible solution for MiT implementations. For instance, communities of MBs may share common resources that would not be possible to develop alone. The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

Recommendations and conclusions The procedure consists of collecting a set of people (the potential community) and build what links them (a project) in order to create a second set of observations (additional collective resources). Putting people together by means of propensity exercises; create initial links, by means of people engagement; increase the variety through new internally-defined attractive activities, and strengthen and improve interactions, based on safeguard protocols. The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017

THANKS FOR YOUR ATTENTION The OR Society OR59 Annual Conference Loughborough University,12-14 September 2017