Essential for Survival

The “MIT Forum for Supply Chain Innovation” was founded in 2002 to identify new ways of dealing with supply chains. Academics, researchers, and practitioners work together to develop innovative ideas and recommendations for supply chain management (SCM). Its members include leading companies such as SAP, Deloitte, Microsoft, and IBM. Until now, the Forum has only been active on the U.S. market. However, this is now set to change – the Massachusetts Institute of Technology (MIT) is expanding its forum into a global platform. It has therefore commissioned the Hasso Plattner Institute for Software Systems Engineering (HPI) and the SCM Research Institute of the Vienna University of Economics and Business Administration to establish a European section.
Following the section’s establishment in June 2006 in Vienna, HPI invited managers from business and industry to attend a two-day meeting in Potsdam. The first day of the event began with an intensive seminar entitled “Supply Chain – IT, Strategy & Management”. During the seminar, MIT professor and supply chain expert David Simchi-Levi described various strategies for optimizing supply chains using examples from practice. On the second day, speakers dealt with a range of topics, including the innovative control of a supply chain, how a company like Deutsche Post World Net approaches innovation, and the role of SMEs and Radio Frequency Identification (RFID) in innovation.

Based on sound cooperation

In his opening speech, Christoph Meinel, Scientific Director at HPI, stressed the potential offered by cooperation between MIT and HPI. Explaining that this collaboration represents the ideal platform for innovation, he went on to emphasize that HPI, established by SAP Co-Founder Hasso Plattner in 1998, seeks to provide elite innovative training. “Our job is to furnish our students with well-founded know-how and make them competent team players,” commented Meinel. Consequently, HPI places a strong emphasis on practical, scientific excellence and close cooperation with industry.
Agreeing with Meinel, William Killingsworth, Executive Director of the MIT Forum, added that his organization also aims to bridge the gap between theory and practice. To achieve this, MIT departments, researchers and industry work together to develop innovative ideas. He used the American aircraft industry as an example to illustrate just how important a fully functional supply chain can be. Within the industry, manufacturers need to wait 60 to 80 weeks for a delivery of titanium and therefore have to develop special strategies to safeguard their service levels.

What do users really need?

During his presentation “Design and Innovations in Enterprise Applications”, Hasso Plattner, Co-Founder and Chairman of SAP AG, explained the importance of human input for every design and innovation process. He commented that new products, new models, new processes and new markets are the future, and that these should be designed around people. It is absolutely essential, he stressed, to identify what users actually require. “I find it shocking how little some developers know about the areas they are working on. We first have to know what the problems are, before we can go about solving them,” explained Plattner.
Everyone on the development team has to communicate with one another on the same level. And it is vital that, at the outset, ideas are only sketched in rough, since “final” drafts only restrict the exchange of ideas. “It is important that everyone keeps an open mind, because setting boundaries at the start of a process destroys creativity,” concluded Plattner.

The new supply chain

According to David Simchi-Levi, long lead times, unpredictable demand, and high logistics costs make it difficult to control a modern supply chain. In a study carried out by MIT and SAP, only ten percent of companies surveyed operated mature planning systems and business processes. However, their profits were 75 percent higher than other manufacturers. “They benefit from the high performance levels of their supply chain and consequently enjoy low inventory levels or shorter-term capital tie-up,” explained Simchi-Levi in his presentation.
He went on to say that, in order to be successful, companies need to look at the entire supply chain. Maintaining a narrow focus means that individual sections concentrate only on their own interests, without considering how partners are affected. Simchi-Levi commented that effective risk management can also optimize a supply chain and that strategically organized and positioned warehousing can reduce costs and delivery times. He went on to point out that one-sided investment is clearly not sufficient. On the contrary, companies investing only in IT will fare worse than those focusing purely on their business strategies. “In the end though, success can only be achieved when both approaches are combined,” concluded the MIT professor.

In touch with progress

Heinz-Paul Bonn, Vice President of BITKOM, emphasized the importance of SMEs and RFID for innovative supply chains. Small- and medium-sized businesses are not exactly renowned for welcoming new technologies with open arms. However, they are more open-minded than is often supposed. “SMEs are often one step behind larger companies, but never lose touch with technical progress,” stressed Bonn. He went on to mention that, despite a predominantly hesitant attitude, a large number of SMEs are fully aware of factors such as the potential of RFID. And he noted that this technology is already in use in some small- and medium-sized suppliers, particularly in the automotive industry.
Several practical examples – such as the Klinikum Saarbrücken, where blood supplies are registered using radio tags to prevent errors occurring when blood is issued – provided ample evidence to prove that SMEs in other sectors have also adopted the technology, a key condition for achieving success. He stressed that, for complex supply chains in particular, it is vital that material flows are recorded among all partners. “Without acceptance from SMEs, the introduction of RFID in supply chains will not work, or will be patchy, at best”, concluded Bonn.

Successfully coping with complexity

According to Keith Ulrich, Head of Technology & Innovation Management at Deutsche Post World Net (DPWN), cutting-edge logistics companies are only successful when they can cope with the complexity resulting from continuous change. It is important that the supply chain is both transparent and flexible. “Flexibility means being able to react to events,” explains Ulrich. But, in this respect, companies have to have a realistic understanding of what can be achieved. For that very reason, DPWN established a department for technology and innovation management in 2005. A technology such as RFID is no answer in itself, but the potential it offers does enable companies to react to various demands with new solutions. DPWN also maintains internal and external networks to enable it to operate innovatively and with a focus on the customer. “No innovation is the result of just one company’s work,” explains Ulrich. Knowledge has to be brought in from partners, he adds, as this is the only way to develop customized solutions.

Fostering networks and the exchange of ideas

Alexander Zeier, Substitute Professor for Dr. Hasso Plattner and Co-Executive Director of the European section of the MIT Forum organized the event. He received very positive feedback and some companies have already expressed an interest in joining the forum. There was animated debate among the 90 participants both in the many breaks between presentations and during the evening meal at the “Hotel am Griebnitzsee”. The next official event is to be held in March 2007 in Vienna.

Gabriele Jörg

Alexander Fischer