Science, Global Supply Chains, and Operations Research

I was thrilled to see the cover of the recent Science magazine published by AAAS with a feature section on "Rethinking the global supply chain."

In this volume were several themed articles that I especially enjoyed, including "The information highway gets physical," in which ideas from the existing Internet are being promulgated to create a physical Internet for more effective logistics. Personally, and since we are part of a big NSF project to reenvision the existing Internet, I also see many synergies in the reverse direction through appropriate game theory models! In that nice article, written by Jeffrey Mervis, operations researcher Russ Meller was noted, and his co-authored book, "The Physical Internet: The Network of Logistics Networks." I sent Russ a congrats yesterday and he responded en route to the airport for a flight to Europe. I also enjoyed reading quotes from Kevin Gue, who gave a keynote recently at the Physical Internet conference in Quebec City  (and who is moving from Auburn U. to the U. of Louisville). I was already committed to being in Europe in May so I did not attend. The conference was hosted by Benoit Montreuil of Laval University in Quebec City, Canada.

Kevin J. Dooley of the W.P. Carey School of Business at Arizona State University also had a nice article, "The whole chain," in which he stated that Science is key to holistically managing sustainable supply chains, which I thoroughly agree with and which we have been emphasizing in many of our sustainable supply chain research articles with applications as varied as blood supply chains and even fast fashion!

In the volume there were also several additional articles on sustainable supply chains, and I found it interesting to see the lists of references and journals represented.

In particular, I very much enjoyed the article. "The science of sustainable supply chains," by Dara O'Rourke, who is at UC Berkeley. It was terrific to see cited therein our latest book, "Networks Against Time: Supply Chain Analytics for Perishable Products!"

 

And speaking of supply chains, today we heard the great news that our paper, Supply Chain Network Competition in Time-Sensitive Markets, Anna Nagurney, Min Yu, Jonas Floden, and Ladimer S. Nagurney, was accepted for publication in the journal, Transportation Research E! This paper was recently presented at the 18th European Conference on Mathematics for Industry, Taormina, Italy, June 9-13, 2014 and also at the Conference on Optimization, Control and Applications in the Information Age - in honor of the 60th Birthday of Professor Panos M. Pardalos, Chalkidiki, Greece, June 15-20, 2014.

You can read more about our paper in an earlier blogpost. 

The above presentation can be downloaded in its entirely here.

Hedonistic Sustainability and Supply Chains -- Enjoying Our Environment and Our World

I often write about sustainability on this blog and also about supply chains.

I care about our world and our environment and that is one reason I am spending a lot of time in Sweden as a Visiting Professor of Operations Management, as part of my sabbatical from the Isenberg School of Management at UMass Amherst. The Scandinavians are very advanced in terms of not only social welfare but also sustainability.

This past Friday, my colleague, Professor Jonas Floden, who is one of my hosts at the School of Business, Economics and Law at the University of Gothenburg, and I were visited by a freelance journalist from San Francisco, who had heard me speak on Transport and Traffic at The New York Times EnergyForTomorrow Building Sustainable Cities event this past April.

Our conversation, accompanied by delicious coffee in our office suite, began with congestion charging in Gothenburg, implemented this past January, with contrasts to the Stockholm congestion charging system, which was implemented back in 2006. We also talked about the upcoming referendum, which is an interesting twist, and is due, in part, to the efforts of a local newspaper GT to try to overturn the tolls and they are working with car ridership down and transit use up!!!

In our discussions, we were also told about the waste to energy project of the leader of hedonistic sustainability, the Danish architectural genius Bjarke Ingels, who likes to think BIG,  and which will come with a ski slope! The project is now under construction in flat Copenhagen.

You can enjoy the wisdom and charisma of this visionary architect speaking at TED on YouTube.

Sustainability does not have to be all just about sacrifice. It is a design challenge and I could not agree more. Our work on design of sustainable supply chains,  Sustainable Supply Chain Network Design: A Multicriteria Perspective, Anna Nagurney and Ladimer S. Nagurney, International Journal of Sustainable Engineering 3: (2010) pp 189-197 and even sustainable supply chains for sustainable cities, Design of Sustainable Supply Chains for Sustainable Cities, Anna Nagurney, Invited Paper for the Complex-City Workshop, December 5-6, 2011, Amsterdam, The Netherlands, to appear in Environment & Planning B, is motivated by preserving the beauty of our world -- from the air that we breathe to the natural environment to the food that we eat and even to the clothes that we wear.

Note that consumers in Sweden favor the fish (and fishermen) that they know with information provided on the point of origin and date and I have been captivated by fish supply chains and even the use of RFID technology to track the fish.

And, how can you not enjoy the beauty and taste of the treats below, which I captured in one of my favorite cafes in Gothenburg:

Kudos also to H&M, the fast fashion house, which, I might add, was doing great sales yesterday, as evidenced by the lines in its stores in Gothenburg, for instituting its Rewear-Reuse-Recycle-ConversiontoEnergy initiative. And, according to H&M's website:

Does H&M profit from the returned garments?

No. Our revenues will be used to reward our customers, to make donations to local charity organisations and to invest in recycling innovation. For each kilogram of clothes we collect, 0.02 EUR* will be donated to a local charity organisation chosen by H&M.

I found out about H&M's Garment Collecting Initiative, after we had made purchases at H&M and I liked the bag above, which we will continue to use and reuse. Fast fashion is another passion of mine and we co-authored the paper, Sustainable Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation, Anna Nagurney and Min Yu, International Journal of Production Economics, Special Section on Green Manufacturing and Distribution in the Fashion and Apparel Industries 135: (2012) pp 532-540.

Whether it is the food that we eat, the medicines that we consume, or the clothes that we wear, the buildings that we live and work in, the parks and transportation systems that we enjoy, sustainability, at its best, is hedonistic. Interestingly, last Saturday, while by the Central Station and Radisson in Gothenburg, I was intrigued by the number of police and police cars (unusual in this very safe city). In asking locals what was up I was told -- a local soccer team was in town and then a Chinese princess is visiting. The truth was that a Chinese delegation had arrived and was staying at the Radisson.  According to this report, the Chinese realize west Sweden's competence in energy and eco-friendliness and have come to learn.

 I leave you with photos of the views from the top of the School of Business, Economics and Law, which has won many awards for its architecture. Note the photos of the new bus lane. I'll save the photos of the hills through the woods that I climb to get to my apartment for another post.

Grand Challenges and Opportunities in Supply Chain Networks

Today I gave a two hour presentation in the Optimization Series at the Chalmers University of Technology in Gothenburg, Sweden.

The talk was on Grand Challenges and Opportunities in Supply Chain Networks: From Analysis to Design.

I was really looking forward to giving this talk and, as I promised the audience,  it is now posted online on the Supernetworks Center website.

I enjoyed discussing the importance of decision-making behavior in network systems, from transportation to supply chains and how systems as disparate as electric power generation and distribution networks, the Internet, and financial networks can be reformulated and solved as user-optimized transportation networks.

I also overviewed the Braess paradox and had photos of Professor Braess' visit to the Isenberg School of Management at UMass Amherst after we (Braess, Nagurney, and Wakolbinger) had translated his classical 1968 paper and it was published in Transportation Science. I then showed what happens as the demand varies over time.

I discussed variational inequality theory and how it can be used to formulate non-cooperative game theory problems under Nash equilibrium.

Then, since I am back in the land of H&M, I went deeply into a sustainable fast fashion supply chain model that I had developed with Min Yu and that had been published in the International Journal of Production Economics. This is a competitive supply chain network problem  under Nash equilibrium. I discussed our sensitivity analysis results and emphasized how one must bring the supply chain system into analysis to get a realistic picture and results.

The audience was terrific and I had great comments and questions.

Afterwards, I was taken out to lunch in a cafeteria called Einstein with his portrait as you enter and we ate in an area for faculty. We continued our conversations on the history of science from  network design to transportation to tolls. Gothenburg this year instituted tolls and it has been very interesting to see the impacts.

It was a great experience and I thank the Optimization Group at Chalmers for being such great hosts!

Now I am back in my office at the School of Business, Economics and Law at the University of Gothenburg and it is wonderful to see the staff and my colleagues here.

I promised to bring sunshine to Sweden and the days have been beautiful since I arrived this past Friday.

Great Lufthansa Flights and Great to be Back in Sweden

Lufthansa must have been using machine intelligence to figure out seat assignments.

On  my flight from Boston Logan to Frankfurt this past Thursday I was seated to a student from the business school at UMass Boston and then across the aisle from me there was a faculty member from the MIT Sloan School of Management.  The former was traveling to the University of Heidelberg where she will be studying German and learning about the culture with her ultimate goal of working in international business as a CPA. The MIT instructor, in turn, was traveling to Istanbul, Turkey (his first trip there) for a short workshop.

From the UMass Boston student I learned about her various experiences at universities she had been at (including horror room-mate stories)  prior to transferring to UMass Boston. From the faculty member I caught up on what MIT has been doing in terms of entrepreneurship.

And  there were several other female students on our flight to Frankfurt who were also going to the program at Heidelberg, including an Isenberg School of Management student from the Management Department.

The Lufthansa staff was fabulous -- danke schon -- and the flight with 58 rows of seats was filled. I enjoyed the Airbus airplane with bathrooms down the stairs -- good way to stretch and get some exercise.

I also met a female postdoc from Portugal who is researching neuroscience at Harvard Medical School who was traveling back to Portugal for a vacation and a family from Nantucket who was going back to White Russia to visit relatives and they were traveling with two very young children.

I had a pleasant wait in the Frankfurt airport, where Lufthansa even provided the latest USA Today and International Herald Tribune for the travelers, and then it was time for a short (under 2 hours) flight to Gothenburg.

Now I am back in my office at the School of Business, Economics and Law at the University of Gothenburg, drinking my cafe latte, and enjoying being back in glorious Gothenburg, Sweden.

I have prepared the lecture on supply chains that I will be giving this coming Monday at the Chalmers University of Technology, as part of its Optimization Seminar series. In my talk, I will provide a broad overview of some of the work that we have done on supply chains and then will delve deeply into our latest work on fast fashion and sustainability -- perfect since I am now back in the world of H&M.

Supply Chain Networks with Global Outsourcing and Quick-Response Production -- Operations Research and Fast Fashion

Last Sunday's New York Times magazine had a terrific article by Suzy Hansen, "How Zara Grew Into the World's Largest Fashion Retailer,"  which I very much enjoyed reading. I do admit that,  when I live in Gothenburg, Sweden, I enjoy visiting the Zara, H&M, and TopShop stores there since I conduct research on a variety of network systems, including supply chain networks.  Along with my former doctoral student, who is now an Assistant Professor, Min Yu,  we have published two papers on what is known as fast fashion.

The first paper on the topic that we wrote is: Fashion Supply Chain Management Through Cost and Time Minimization from a Network Perspective, Anna Nagurney and Min Yu, in Fashion Supply Chain Management: Industry and Business Analysis (2011), T.M. Choi, Editor, IGI Global, Hershey, PA, pp 1-20.

The second is: Sustainable Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation, Anna Nagurney and Min Yu, International Journal of Production Economics, Special Section on Green Manufacturing and Distribution in the Fashion and Apparel Industries 135: (2012) pp 532-540.

In The New York Times article,  Hansen writes about the company Inditex, which owns the Zara brand and series of stores. She writes:  More than half of Inditex’s manufacturing takes place either in the factories it owns or within proximity to company headquarters, which is to say in Europe or Northern Africa. Inditex owns factories in Spain and outsources production to factories in Portugal, Morocco and Turkey — considered costly labor markets, typically. The rest of its clothes are produced in China, Bangladesh, Vietnam and Brazil, among other countries. The trendiest items are made closest to home, however, so that the production process, from start to finish, takes only two to three weeks. Inditex’s higher labor costs are offset by greater flexibility — no extra inventory lying around — and on faster turnaround speed. 

The article also has some very nice quotes from Professor Fraiman of Columbia University that got me excited because of the language and terminology. Fraiman, in commenting on Inditex's  ideas on expanding in China stated that: “Their factories in La Coruña have a finite capacity to respond quickly. You open more and more stores, and you don’t have flexibility of the last-minute response. Once they have a big thrust in China, then what happens is that they will have to take the whole model” — the processing of customer reactions, the quick-turnaround design teams, the logistics platform — “and replicate it in China.” But the bigger Inditex gets, he says, the more it will lose control over quality and efficiency. 

In a recent paper of ours, Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, Zugang Liu and Anna Nagurney, which is in press in a special issue of the Annals of Operations Research, we use Zara, as well as toy production, as some of the motivating examples. The paper is also interesting from a methodological perspective since we integrate stochastic programming, game theory, and variational inequality theory, as well as real options from finance.

Specifically, in our paper, which my co-author presented at the INFORMS conference in Phoenix and will also be presenting at the DSI conference in San Francisco next week, we developed a modeling and computational framework for supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty. The  model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. Using variational inequality theory, we were able to formulate the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives. In addition, our simulation studies reveal important managerial insights regarding how demand and cost uncertainty affects the profits, the risks, as well as the global outsourcing and quick-production decisions of supply chain firms under competition.

 The paper will appear in a special issue dedicated to the memory of Professor Cyrus Derman, who passed away last April at age 85. According to Columbia University, Professor Emeritus Cyrus Derman, was considered the driving force behind the success of Columbia Engineering's Department of Industrial Engineering and Operations Research (IEOR). He had also served as the doctoral dissertation advisor of well-known colleagues in Operations Research, including Professor Michael Katehakis, one of the co-editors of the special memorial volume, Peter Kolesar, and Art Veinott, Jr.

The theme of the special issue is Optimization under Uncertainty Costs, Risks and Revenues.

The Fashion Supply Chain Management Book is Now Available

Today I received my copy of the book, Fashion Supply Chain Management: Industry and Business Analysis, a photo of which is above. The book was edited by Professor Tsan-Ming Choi and it is a stunning volume with sections on Mathematical Modeling Research, Quantitative Empirical Research, and Exploratory Study and Case Research.

The publisher is IGI Global in Hershey, PA.

The full list of chapters and their authors can be found here.

Our contribution to this book is the first chapter,

Fashion Supply Chain Management through Cost and Time Minimization from a Network Perspective (pages 1-20),

Anna Nagurney (University of Massachusetts Amherst, USA), and Min Yu (University of Massachusetts Amherst, USA)

View Details View Sample PDF

Supply Chain Networks and Quick-Response Production under Uncertainty

In the paper, Supply Chain Outsourcing Under Exchange Rate Risk and Competition, Zugang Liu and Anna Nagurney, Omega 39: (2011) pp 539-549, we explored supply chain outsourcing decision-making under exchange rate uncertainty and competition. The paper recently made the Top 25 Hottest Articles in Decision Sciences (at number 5).

We then became interested in supply chain flexibility and associated decision-making in quick-response industries, such as fast fashion, toys, consumer electronics and personal consumers, as well as industries associated with merchandise for holidays and special events.

The result is a network modeling and computational framework that integrates stochastic programming and variational inequalities for supply chain decision-making with global outsourcing and quick-response production under demand and cost uncertainty. Our model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. The complete study is reported in our paper,
Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, Zugang Liu and Anna Nagurney.

Specifically, using variational inequality theory, we formulated the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision-makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives.

Our results reveal important managerial insights for supply chain decision-makers who are faced with decisions regarding outsourcing and quick-response production under demand and cost uncertainty:

1). For manufacturers who do not have quick-response production capability, rising demand uncertainty will increase the value of outsourcing. However, for risk-neutral decision-makers who have quick-response production capability, rising cost uncertainty will reduce the value of outsourcing.

2). Manufacturers with quick-response production can expect higher average profit and lower risk than their competitors who do not have such capability. However, these manufacturers may not have a higher chance to beat their competitors in terms of profit when the demand uncertainty is low. Moreover, they may have lower profits if the demand turns out to be at normal levels.

3). The prevalence of quick-response production will reduce the benefit.

4). Manufacturers without quick-response capability should understand that they can still be indirectly and negatively affected by the cost variations of quick-response production through market competition.