ENEA line of research on the Integrated Supply Chain BAS – direzione Ing. R. Tononi Ing. R. Raimondi Ing. G. Spagna

Supply Chain Mgm: a critical problem Supply Chains made up of independent SMEs, usually, exhibit unsatisfactory levels of coordination. Effective and authoritative managerial hubs difficult to be found. A problem studied for years by Research and academy institutions. Interesting proposals: Methods of Decentralized Coordination

Basics of decentralized coordination Such methods consist of collaboration rules devised so that to align the specific interests of any SC member enterprise with the interests of the SC taken as a whole, as a System. Alignment  any member free to pursue maximization of its own interest  implicit higher level of collaboration For these methods to be adopted, two are the criteria to be met: Through the higher collaboration levels, supply chain extra profits higher than the related alignment costs. Costs of alignment of the single enterprise to be more than off set, through appropriate rules of sharing profits among SC members.

rationale for a management model Within a European project (SSA - eMensa), ENEA has developed and proposed a management model for SCs made of independent SMEs: SMEC (Small Medium Enterprise Chain) SMEC objectives: - close the gap between research and industrial practice; - tailor the decentralized methods to SMEs features; - experiment with actual chains of SMEs in agro-food; - set up a Virtual Demo Center: to allow SME chains to measure the potential benefits provided by the model

Components of SMEC model 6 lines of intervention and a technology proposal: Supply contracts Optimization of the supply chain operation Unified management of logistics Alignment of product quality features Support to process and product innovation Strategic plan for the whole supply chain An ICT platform to automate the collaboration processes

aim of each component 6 lines of intervention and a technology proposal: Supply contracts increase market offer Optimization of the SC operation decrease SC costs Unified management of logistics Alignment of product quality features Process and product innovation increase capability to meet consumer expectations Strategic plan for the whole SC ICT platform ease business model adoption

Supply contracts They rule the exchange of resources among member enterprises With the traditional contract (“wholesale contract”) resources are bought and sold at prices higher than costs Easy to manage. But choke the chain supply to the market below the level that maximizes profits. Supply (marginal cost) of the vertically integrated chain optimum supply (max chain profit) Demand (price) quantity of product €/q The vertically integrated chain

Supply contracts Supply (marginal cost) of vertically integrated chain Supply (marginal cost) of chain of independent SMEs Decrease of supply due to wholesale contract Demand (price) quantity of product €/q Chain of independent SMEs

Supply contracts A potential countermeasure is behaving as a vertically integrated chain: exchanging resources at cost value. A supply contract of different nature is required, such as: - revenue sharing contract - buy back contract different details but same basic principle A disadvantage of these contracts: higher administrative complexity. Successful examples of application: - Blockbuster which has increased its market share from 24% to 40% - various chains built on franchising contracts (McDonald, Benetton, Tecnocasa……)

Optimization of SC operation Focus on minimization of operational costs of the whole supply chain. Not the same as minimizing costs of single enterprise members. Linear programming approaches. Sinergy with with supply contracts (costs need to be known). With no revenue sharing contract the price paid by retailers would be minimized rather than SC costs. Spur internal (horizontal) competition

Unified management of logistics Inventories of single enterprises managed as components of the inventory system of the whole supply chain  inventory pooling (average and safety stocks); Sincronization and coordination of trasportation of resources among members to lower total cost of the supply chain. Large potential savings in logistics. Further savings allowed by the “flowcasting” approach to hold safety stocks only at the retailer. A successful practice: Barilla  reduction of logistics cost by 50%

alignment of quality features of SC product Higher product quality levels imply higher number of quality features that contribute to quality. Those quality features are to be consistent with each other, but are under the control of different enterprise members. Weak managerial hub does not grant that consistency. SMEC approach: - estimate market value of necessary alignments  go if values higher than costs. - revenue sharing rules must ensure that alignment costs are paid back to single members before distributing profits.

Support to process and product innovation Two different problems. For process innovation too slow adoption. For product innovation too low adoption. SMEC proposal for process innovation : collaborative financing of all SC members (Chain Business Plan). For product innovation: a methodology of new product development aimed at reducing financial risk.

Strategic plan for the whole chain Itself an innovation for chains of SMEs. SMEC proposes two methodologies to define the plan with the collaboration of all members. QFD (Quality function Deployment), to define: - identikit of consumer target groups; - best marketing mix the chain can deliver to target groups. SCOR (Supply Chain Operation Reference model): - identify market position of chain (according to standard parameters) with respect to competitors: - change that position if necessary. Beyond these specific objectives, enhances the collaboration among members and the perception of membership within the system/chain.

Technology proposal SMEC requires the enterprise members to be engaged in more complex or numerous activities. To get around this inconvenience the collaboration processes are automated as much as possible, so that process complexity becomes transparent to the implementer enterprise. The ICT adopted includes, as a building block, a Business Process Management System (BPM). The platform is the system which implements SMEC Virtual Demo Center, to allow chains of SMEs to measure the benefits of the model.

Technology proposal WEB OS Application Server Process execution engine DBMSOptimization applications Portal Server interface Process Modeling Process Simulation Process Monitor SMEC ICT Platform – Basic Architecture