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From Teaching to Learning: The Case of Supply Chain Tools

Why teaching Supply Chain tools is so challenging

Alejandro Serrano –  Aug 2013 | Spain

Last week I had a very enlightening conversation with the person in charge of logistics at a medium-size company ($200m turnover). He argued that analytical-tool teaching, such as linear programming, should be removed from supply chain and MBA programs. He claimed that the only important “analytical” tools to be taught at such programs should be Excel. In addition, a number of management tools such as change management, team building, project management, and the like should be included in the teaching curriculum.

I have to admit that I was a bit surprised by his categorical opinion of the uselessness of analytical tools in this field. But he is not alone: I have found a number of managers who either neglect or underestimate the value of analytical tools at work, judging them as too theoretical, non-implementable, and totally disconnected from reality, the routine of a normal company working day.

This evidence clearly shows a disconnection between what is taught at graduate supply chain and MBA programs and what is perceived as needed in the industry. From the academic perspective, it is easy to argue that the problem is that, more often than not, these managers do not have the solid background that is usually needed to understand and carry out a decent analytical analysis followed by a successful implementation. And I agree that this might be the case.



But having said that, consider another plausible explanation: supply chain or MBA students may well understand those tools, and grasp a number of concepts, while being unaware of how useful they may be within a business context. Let me use an example from my own experience. As an MBA student, I was taught the “newsboy logic” to be applied in settings where  1)  demand is uncertain and 2) there are underage and overage costs depending on the decisions made. But I was never challenged to find business contents where this logic could be applied, so I did not. Years later, as a supply chain masters student, I was presented with the same logic, again in a specific context, where a purchasing manager had to decide on how much inventory to buy under the same conditions of random demand and under- and overage costs. But again, I was not pushed to think further and extrapolate the interesting insights of the model from the inventory sphere to others. Only several years later, did I realise the potential of the model and how it could be applied in different realms. For instance, as the COO in a 3PL in a seasonal industry, I should have used the logic model to calculate how many people to train several months ahead of the uncertain season peak. Unfortunately for my previous company, I did not.

All in all, I am convinced of the usefulness of analytical tools and know that they can be a great source of competitive advantage. As an instructor, the takeaway is that I should constantly remind my students why those tools that we teach are useful (they’d better be!)  and how and where they should be applied in practice. It may seem like an easy recipe to follow, but too many instructors fail at using it, either because they do not consider it important (unfortunately many instructors lack industry experience) or they overestimate students’ ability to retain classroom concepts and immediately convert them into ready-to-use managerial tools.


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Jornada sobre Toma de Decisiones en Ibercide. 26 de abril de 2013

La semana pasada compartimos una mañana de trabajo en Ibercide (Ibercaja). Hablamos de algunas pautas para decidir mejor y las aplicamos al caso Sports Obermeyer, en el que un atribulado directivo trata de entender las claves que deben influir en su decisión sobre dónde y cuánto comprar.

Si estuviste en la sesión, te animo a que dejes tus comentarios.

La presentación de la primera parte de la jornada se encuentra está en la sección de links, a la derecha de la pantalla, en la sección “Supply Chain” (“Pautas para decidir mejor”)


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Jornada Impresión 3D en Zaragoza Logistics Center. 21 de marzo de 2013

El próximo día 21 de marzo hablaremos sobre el estado y el futuro de la impresión 3D. Contamos con cuatro ponentes de lujo. El programa y la inscripción están aquí:

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Let Spanish universities compete with each other

Shanghai Ranking 2012: Not a single Spanish university made it to the top 200

It struck me as surprising the fact that not a single Spanish university made it to the top-200 at the last Academic Ranking of World University 2012, published by Shanghai University. Two European ones made it to the top ten (Cambridge and Oxford).Image

In addition, a number of universities from major European countries (Belgium, Denmark, Finland, France, The Netherlands, Germany, Norway, Sweden, Switzerland, UK) made it to the top 100. The first Spanish university (Autonomous University of Madrid) appears somewhere between positions 200 and 300. Other university rankings cast similar results.

As of 2012, there are 79 universities in Spain, 50 of which are public and 29 private. Given this number of universities, it seems obvious that there must be some special causes that explain this rather surprising fact, that none of the 79 universities appear in the first two hundred positions of the ranking.

Someone might suggest that it is the lack of appropriate management that produces such disappointing results. However, this does not seems to be the case, if one considers the encouraging fact that three (private) Spanish business schools (IESE, ESADE, and IE) always get outstanding marks at the European and world level. For instance, in 2012, The Economist ranked IESE’s MBA program as the top two-year MBA in Europe and 9th in the world. There are indeed great managers and professors at Spanish universities, both public and private.

In my opinion, the main reasons, among others, for Spain lagging behind in the rankings are somewhere else:

First, universities do not compete to each other. This is especially true among public universities. Spaniards do usually care about the type of degree (e.g., Engineering or Business), but not much about at which university such a degree has been issued. Therefore, there is no incentive to be the best school of Law in the country, as the market does not reward it. This leads to potential students selecting the university to study purely on a convenience basis. A large amount of undergrads study in or nearby their home towns. This has been reinforced by the autonomous communities in Spain, which have created a university (or at least a campus) at each of the fifty Spanish provinces, following a me-too policy that challenges the most elementary social planner’s common sense.

Second, public universities are not allowed to select students and have very astringent rules to hire and fire its faculties, and its staff in general. This leads to 1) mediocrity, as incentives to stand out are nonexistent (other than intrinsic) for both students and staff, 2) the formation of tightly-knit groups, which are commonplace in many universities, 3) the runaway of talented professors or professors-to-be, who find their place in the industry as incentives at universities are not appropriate for them.

Third, students (or their parents, who are the ones paying the bill for a vast majority of youngsters) are not usually willing to pay much money to get best-in-class education in a top-notch university. Many years of  inexpensive fees at public universities have made potential students believe that university education is a fundamental right in society like, say, health care, thus they do not see the point of paying what they consider to be a huge amount of money to get tertiary education. This leads to private universities reducing fees to be able to compete with public universities. Lower fees means less funds to be spent on top-notch professors, laboratories, and so on, preventing the formation of virtuous circles of excellence and meritocracy.

The good news is that the solution for the above-mentioned problems is quite straightforward, at least in theory, given that university competition should be perceived  as a healthy exercise and has proved to work well in the countries leading the ranking. The challenge, as usual, is the execution part of the plan, which can be seen as highly unpopular by those who feel comfortable with the status-quo.

These are my two cents. I would love to hear other opinions.

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La maldición del perro

Una amplia gama de colores para cada prenda. Prestaciones y diseños combinables en cada producto tecnológico. Mil y un tipos de yogures o de panes… Comprar es elegir. El estudio del comportamiento humano lleva a entender por qué no se deben creer ciegamente las teorías del márquetin cuando se trata de definir el número de variantes de los productos que se ofrecen al público

Alejandro Serrano – Heraldo de Aragón, Nov 9, 2012| Spain

«Cuanto más, mejor». Esta parece ser la idea dominante cuando se trata de definir el número de variantes de un producto que se ponen a la venta.

El razonamiento habitual del márquetin parece impecable: cuantas más opciones tenga el cliente para elegir, mayor es la probabilidad de que se produzca una venta y más satisfecho quedará. Sin embargo, según Barry Schwartz, autor del libro ‘The paradox of choice’ (’La paradoja de la elección’), esto no es siempre cierto: no siempre es deseable ofrecer más variedad de productos a los clientes.

En una interesante charla TED, Schwartz expone que ofrecer al cliente demasiadas variantes es  incluso contraproducente.

Hay cinco razones principales para esto, que por cierto forman el acrónimo PERRO. Son las siguientes:

PARÁLISIS La existencia de demasiadas variantes pueden llevar al cliente a realizar un estudio exhaustivo sobre cuál le conviene más. Este análisis  puede hacerse tan complejo que le lleve a posponer su decisión o incluso a abandonar la compra al verse desbordado por tanta complejidad. Nos podemos referir a este fenómeno como ‘la parálisis por el análisis’.

EXPECTATIVAS A mayor número de variantes, mayor es la expectativa de encontrar el producto que se ajuste exactamente a las necesidades del cliente. Si este no es el caso, el producto elegido puede crear frustración, incluso si es mejor que el que habríamos comprado si no hubiera habido variantes.

REMORDIMIENTO Si la variante adquirida no satisface completamente al cliente, éste puede pensar que dejó en la tienda aquélla que era mejor que la adquirida. Este sentimiento de remordimiento será mayor cuanto mayor sea el número de variantes.

RESPONSABILIDAD Si el cliente compra la única variante existente y después comprueba que no le satisface plenamente, se justificará pensando que, al fin y al cabo, era la única opción disponible. Sin embargo, en el caso de disponer de muchas variantes, puede que se sienta culpable por haber elegido mal, ya que ha sido él el responsable de la elección, lo que aumentará su frustración.

OPORTUNIDAD El valor de una compra depende de que el comprador perciba el ‘gap’ existente entre lo que se lleva a casa y la mejor alternativa no comprada. Si el número de variantes es grande, es fácil imaginar las buenas características de aquellas variantes que no compramos, haciendo al cliente sentirse menos satisfecho con la elección realizada.

Así las cosas, puede ser que, para algunas empresas, haya llegado el momento de plantearse una reducción en el número de variantes de los productos ofrecidos a los clientes.

Quizá sea esta la razón por la que Herbert Heiner, el consejero delegado de Adidas, anunció el pasado abril que iba a eliminar el 25 por ciento de los casi 50.000 artículos ofrecidos por la compañía.

Quizá también por esto, por citar un ejemplo más cercano, Mercadona ofrece en su lineal ‘sólo’ unos pocos miles de artículos, un orden de magnitud por debajo de lo ofrecido por muchos de sus homólogos americanos.

Desde el mundo de la gestión de la cadena de suministro se viene haciendo hincapié desde hace tiempo en la importancia de reducir el número de artículos para contener los costes de mantenimiento del inventario, no sólo por el coste financiero inherente a las necesidades operativas de fondos, sino también por los costes no financieros como la obsolescencia, los seguros, los robos o el coste de almacenamiento.

Ahora se suma el no poner en riesgo la satisfacción del cliente. Un argumento de peso.

Alejandro Serrano Valenzuela Profesor del Zaragoza Logistics Center

To know more about supply chain follow the link

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The Dog Curse – When More is Less

Why you should not blindly trust the Marketing wisdom when it comes to defining assortment

Alejandro Serrano – Sep 27, 2012| Spain

Last week I watched a very interesting talk TED talk by Barry Schwartz based on his book “The paradox of choice” . He argued that having more options to choose from does not necessarily imply having more freedom. This is despite the usual approach from Marketing, which claims that “more is better” when it comes to definition of assortment. His argument stems from some findings which show that having many SKUs to choose from may actually be counterproductive, as it could lower the customer’s utility.

I have summarized the five main findings and packed them under the acronym “PERRO” (thus the title of this piece) for me to easily remember them. Here they are:

  • Paralysis. Too many SKUs force customers to try to analyze each option with respect to the others, pondering pros and cons, until a decision is made. The process can become so messy that customers simply postpone their decisions for later. Put differently, we could say that “too much analysis drives paralysis”.
  • Expectation. If assortment is large, customers usually significantly raise their expectations about the quality of the product they are going to buy. Since utility can be measured with respect to expectations, rising expectations leads to decreasing utility.
  • Regret. If a bought product does not completely satisfy a customer, she may ask herself, what if I had bought an alternative? Therefore, the higher the number of alternatives, the higher degree of regret she will have as she becomes more convinced that one of the others was better.
  • Responsibility. If there is just one variant, and that one does not satisfy the customer, he will think “What can I do?”, with no blame. However, if there are many alternatives and the one chosen does not satisfy the customer, he will blame himself, as he was the one who chose the “wrong” product.
  • Opportunity. As variety increases, the opportunity cost decreases, as the alternatives are closer in value (not necessarily in price) to the product considered. The more SKUs available, the lower the incremental value of the product chosen with respect to the second-best choice.

Given these, it is maybe time to reconsider your marketing strategy, and start reducing the number of variants so as to increase your customers’ utility (aka happiness).

The TED talk is here. The book “Paradox of choice” can be seen here.

To know more about supply chain follow the link

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La crisis económica y el “Beer Game”

La situación de crisis que afloró hace ya cuatro años en Europa  y que sigue azotando principalmente a los llamados países periféricos (esta mañana la prima de riesgo en España era de 540 puntos) me recuerda indefectiblemente al conocido “Beer Game” nacido en el MIT de Cambridge.

Más allá de lo que parece, la enseñanza fundamental de este juego de negocios es que la estructura del sistema determina cómo éste se comporta. Por eso, los esfuerzos locales de los “managers” por poner la situación bajo control durante el juego resultan ciertamente fútiles. Cualquier cambio local en el sistema no hace sino aumentar el ruido y crear mayor incertidumbre en el entorno.

Este escenario, mutatis mutandis, es el que hemos vivido en los últimos cuatro años en España con dos partidos en el gobierno de distinto signo político, que se han empeñado, con buena voluntad y no demasiado acierto (es inevitable), en resolver localmente un problema de ámbito global (léase, al menos, europeo). Y para colmo de males, los medios de comunicación amplifican el nivel de incertidumbre en la sociedad anunciando que las decisiones tomadas por los gobiernos (quizá en la dirección correcta) la víspera no han servido para mejorar las cosas, sin dar “tiempo al tiempo”. Beer Game en estado puro. Los expertos en “system dynamics” (otra gran disciplina inventada en el MIT) dirían que los medios de comunicación alimentan un bucle positivo, que no hace sino aumentar aún más el ruido, el nerviosismo y la incertidumbre.

Solamente 1) comprendiendo las razones últimas del problema (mal servicio al cliente o crisis económica galopante según el caso) y 2) poniendo en marcha acciones estructurales adecuadas (sistémicas, como se las da en llamar últimamente) es posible eliminar, o al menos mitigar, los efectos indeseables. Un reto formidable en una Europa (y una España) con demasiados gobiernos e intereses encontrados.

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Bizi-Zaragoza: A Supply Chain View

How to mitigate the “rush hour effect” using Supply Chain Tools

Alejandro Serrano – . Apr 19, 2012 | Spain

Bizi-Zaragoza rents bikes to users who need to ride for short periods of time within the city. Bikes are located in 130+ stations in the city, mainly downtown. To get a bike, a user goes to a station and unlock the desired bike with his or her user card. To return it, he or she has to find a station with an empty slot and identify him or herself again.

Bizi Station. Source:

The idea is very interesting, and has been proved successful in several cities. The system in place, however, is far from perfect, since users face two major challenges. On the one hand, a user looking for a bike may find the nearest station empty (see black dots in the picture below). On the other hand, a user looking for a slot to leave a bike may find the nearest station full (see purple dots). Furthermore, stations downtown tend to fill quickly in the morning and empty in the afternoon/evening. Good on-line information may be helpful to find a bike or a spot, but still the bottom line is that the typical user my find the service unreliable when his meeting with her boss starts at 9am, and he has to plan for extra 20 minutes of safety time to park his bike so as not to be late.

To mitigate this situation, and according to today’s Heraldo de Aragón(*), a local newspaper, Bizi managers constantly check on-line those stations with no bikes, and send vans with additional bikes to “replenish” those empty stations in no more than 10 minutes. Here is some anecdotal evidence that this may not be the case. The following picture (borrowed from the company web site) shows the map of all stations at 10:02:45 am today. There were 13 empty stations (marked in black in the map), mainly in the periphery.

Ten minutes later, the picture was the following

As it can be observed, 12 of those 13 stations were still empty. Twenty minutes later, there was a new picture.

In this case, 8 of 13 stations were still empty. Thirty minutes later (picture not reported) still 8 of 13 stations were still empty. A similar problem can be observed with full stations (purple dots in the maps).

The question that arises next is how to mitigate this problem. A feasible option is to place stock (i.e. bikes) according to demand patterns to obtain a given service level. For instance, let us say that for the last 50 Mondays, between 7:30 am and 9:00 am, station#77 has observed a demand pattern that can be considered normally distributed, with mean 10 and standard deviation 2 (that implies that roughly 2/3 of the days demand is between 8 and 12 bikes). How many bikes are needed to guarantee an average service level of, say, 99%? The answer is

ROUNDUP(10+2*NORMSINV(0.99),0)=15 bikes

Therefore, rather that being reactive, Bizi managers could be proactive by replenishing inventory at night before users go to work early in the morning. The previous analysis is quite simple and can be easily extended for all stations and for full stations. The good news is that the company should have a lot of data, given that users sign in every time they take or leave a bike. To improve forecasting methods, individual patterns can be studied, since the system knows the ID of the user that takes or leaves a bike.

Finally, there is the problem of devoting workforce to move bikes from one station to the other. A potential solution may be to charge more to those users who do not make “return trips” within a day. If so, users have incentives to return bikes to where they were in the evening, significantly reducing the amount of bikes to be moved at night.

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(*) The piece of news is here (in Spanish)

The web page of Bizi Zaragoza is here


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Adidas to cut its assortment by 25%

How many SKUs should a firm offer?

Alejandro Serrano – . Apr 2012 | Spain

Herbert Hainer, CEO of Adidas AG, announced last Saturday* that the company has plans to cut 25% of its 46,897 SKUs. An argument used by Mr. Hainer to justify their decision is that 20% of the current assortment generates 80% of sales.

If this roughly is the case–which should not be surprising, according to Pareto’s law, it means that 80% of the assortment accounts for 20% of sales. And most likely, within the remaining 80% SKUs, Pareto’s law still holds, i.e., 80% of that 80% account for 20% of the remaining 20% of sales, and so on and so for. Working in this fashion we can prepare the following table for how much the SKUs with the least sales sell.

How much SKUs with the least seales sell according to Pareto's Law

As the last row shows, cutting SKUs by 25% means removing those items that contribute to 0.006% of sales, or $1.2m, since Adidas sells roughly $18b. Remarkably, those 12,294 items  only sell $83 (roughly 1 unit) on average worldwide! Therefore, it makes a lot of sense to remove them from the assortment.

The natural question to ask at this point is why pruning 25% of the items and not more. Should Adidas also remove the second-to-last row items (15,367 SKUs!), which sell $400 on average worldwide? What about the third-to-last row?

These question nicely illustrates the usual trade-off between Marketing and Supply Chain departments in the retailing industry. A marketing-driven organization, like Adidas, argues that adding an SKU to the assortment increases sales. The more variety offered, the higher the chances that the customer likes whatever is on the shelf thus the probability of making one additional sale. The penalty to pay is in the form of, mainly, inventory holding cost and ordering cost. In good times (Adidas increased sales by 10% last year) this penalty tends to be underestimated.

Indeed there is no clear answer to the question posed above, but we can have a look at other industries to shed some light on the issue. For instance, in the telecommunication telephone manufacturing industry,  Apple sells only 2 SKUs (i-phone 4, either black or white), whilst Nokia sells at least one model for each market segment (for instance, it sells 37 different models only in Germany). Other successful companies have followed the same trend of reducing the number of SKUs to focus on reducing supply chain costs. Good examples include Lidl in Germany or Mercadona in Spain.

A holistic view of the company is necessary to make sound decisions when answering the question of ow many SKUs in the assortment are needed. Supply chain costs should be carefully pondered before blindly following the advice of marketing experts.

(*) Frankfurter Allgemeine Zeitung. The link to the piece of news is here  (in German)

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