FEATURE — Fall 2005


Supplying Advice

Professor Panos Kouvelis emphasizes that shifts must be made in today’s complex and sophisticated supply chains for businesses to evolve and succeed in the global economy.

by C.B. Adams

Supply chains are nothing new. From Bronze Age spears to Industrial Age automobiles, people have relied on supply chains to obtain materials necessary to manufacture products. Supply chain management has also been around for as long as people have tried to ensure that material is consistently and efficiently available.

Yet, like so many other things in this accelerated, globalized Information Age, supply chains have been gaining in importance, complexity, and sophistication over the past 15 to 20 years. And tied into this rise in significance has been the career of Panos Kouvelis, the first Emerson Distinguished Professor of Operations and Manufacturing Management and director of the Boeing Center for Technology, Information, and Manufacturing at the Olin School of Business.

How to grow a supply chain scholar
It is safe to assume that not many children have ever said, “When I grow up, I want to study supply chain management.” Kouvelis, born in Greece, was no exception. But he was always good at math, which led him to study mechanical engineering at the National Technical University of Athens, where he graduated in 1983.

From his studies, Kouvelis developed an interest in how large manufacturing systems operate, how they can be improved, and how they deal with inventories and monitor supplies. This interest led him to the University of Southern California, where he earned a Master of Science in Industrial and Systems Engineering (M.S.I.S.E.) degree and an M.B.A. degree, both of which he received in 1985. At first, Kouvelis had plans to earn his degrees and find a good job with a company in the United States, but without a green card, he found his options limited.

“It was much easier to pursue a doctoral degree hoping I could find a permanent placement later on, especially since the focus of my research had settled on operations and supply chain management,” he says.

He received his Ph.D. from Stanford University in 1988. In these intervening 17 years, Kouvelis has mined his field of choice and created his own research supply chain that has led to the publication of two books, Global Operations and Logistics: Text and Cases and Robust Discrete Optimization and Its Applications, and more than 70 papers in top-quality academic journals.

 “Panos has been the senior researcher in the field of supply chain and operations management at the Olin School for the past several years,” says Stuart Greenbaum, the Bank of America Professor and former dean of the Olin School. “He is a very energetic and original researcher, as well as a key teaching faculty member, and he is active in leadership activities at the School.”

Identifying new links in supply chains
Supply chain management has become one of the “it” topics in business in recent years. As Kouvelis puts it, “The emphasis in integrated supply chain management is the next step in the evolution of business. It is a very old activity with some very new challenges.”

This is due, in part, to the shift in the way companies produce and distribute their goods. Forty or 50 years ago, the predominant model was vertical integration. Companies controlled most, if not all, of the activities associated with ordering or obtaining material, producing their goods, and distributing them until they reached the hands of consumers.

“In the past 15 years, companies have begun to do less and less manufacturing themselves and have begun to buy or outsource quite a lot from other suppliers in China, India, and other parts of the world,” Kouvelis says. “These companies now have to monitor these longer, more complex, more uncertain and risky supply chains. The challenge they face is how to integrate these activities even when they actually own only a small part of the process.”

The successful answer to this challenge, according to Kouvelis, is to find ways to exchange information and create visibility among all the partners’ activities with appropriate contractual mechanisms that create incentives for all parties to do the right things.

“Fundamentally, ownership and control do not necessarily have to go together as long as we have information integration, visibility of the overall chain of activities by different firms, and appropriate incentives,” he says. “Companies have to monitor supply chains, but the supply chains need to continuously adapt because the business environment is much more competitive, technologies are moving and changing faster, and the life cycles of the products are much shorter.”

The technological infrastructure exists now to support the necessary exchange of information and visibility, thanks in part to modern telecommunications, the Internet, and transaction processing systems, such as Oracle, that allow companies to integrate across different functions (i.e., accounting, finance, operations, etc.).

The incentive for companies to make strategic improvements in their supply chains is simple: the bottom line. For instance, a $1 billion company that improves its supply chain process can save from $30 million to $60 million annually, according to Kouvelis. And the companies with world-class supply chains, such as Dell, Wal-Mart, ZARA, and 7-Eleven Japan, operate with negative working capital requirements (negative cash-to-cash cycles often of more than one month).

“Businesses move fast. They have lots of smart people. Sometimes, their practices are quite amazing,” he says. “We have a laboratory that often surprises us. That’s what I find fascinating about the world of business research.”

Putting the tag on anti-terrorism
In the past few years, Kouvelis’ “laboratory” has widened to include global supply chain security. In the aftermath of 9/11, Kouvelis began studying ways in which supply chains could endanger America.

“One of the most vulnerable points we face is the 10 to 15 million shipping containers that enter the U.S. each year. They are coming from all parts of the world, and each of them could potentially be some kind of weapon of mass destruction if it is not properly checked,” he says.

The Boeing Center for Technology, Information, and Manufacturing
In addition to his own research activities, Panos Kouvelis is director of the Boeing Center for Technology, Information, and Manufacturing (BCTIM). The BCTIM is a center set up jointly by Washington University’s Olin School of Business, the Boeing Company, and other corporate partners.

The center supports an umbrella of activities, including research associated with the use of technologies in manufacturing and broadening supply chains, as well as sponsoring conferences and other types of initiatives in the areas of operations, supply chains, and interdisciplinary studies.

“The center has a cross-functional agenda, so we can include researchers from within the Olin School as well as faculty from other departments on campus and from other universities—those who have an interest in how technology affects the strategy of a firm or how technology affects supply chain practices,” Kouvelis says.

The center is an important part of the research-driven Olin School and is one of three main research centers, according to Stuart Greenbaum, who recently retired as dean of the Olin School.

“Panos brings his energy and intellectual leadership to running the center,” Greenbaum says. “He’s a first-rate researcher himself and a first-rate judge of research. He is the one who has to decide what the center’s agenda will be and how to allocate its fund. And he has done this with consummate skill.”

The seemingly simple solution would be to increase the percentage of containers inspected at U.S. ports. Currently, approximately 1 percent of containers are inspected.

“Trying to inspect everything is not economically feasible, however, because it would require a lead time of a few months before any container could leave a particular port,” he says. “Most firms live with only a week’s worth of inventory. This delay could cripple the economy.”

A better solution is to move back along the global supply chain and act in a preventive, not reactive, manner. This approach focuses on having containers checked at their port of origination and properly identified. Such identification would rely on a relatively new technology called radio frequency identification (RFID) tags/transponders, or smart tags, and the use of electronic seals. The RFID tags are small objects, such as an adhesive sticker, that can be attached to or incorporated into a product. Each tag contains an antenna to enable it to receive and respond to radio frequency queries from an RFID transceiver. Smart tags came to the fore when Wal-Mart began investigating whether to use them in some or all of the products it sells.

“All of the security measures will happen with a company’s strategic partner in Hong Kong or Singapore or wherever,” he says. “Smart tags can contain a lot of information, and used together with electronic seals, we will know if at any point in time a particular container was tampered with on its way to the U.S.”

The incentive for a U.S. company’s foreign partner to engage in this process is that verified, secured shipments will move through the system faster than those that are unverified.

“They will have the incentive to do the right things, create the right processes, have the right documentation and procedures, and to invest in technologies that will allow us to secure shipments from the time they are loaded until they arrive, and to ensure they have not been tampered with,” Kouvelis says. “This is still a relatively new technology and it will be challenging to implement—but it is better than the alternative.”

C.B. Adams is a free-lance writer based in St. Charles, Missouri.

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