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Governance (Control) of Distributed Governance (Control) of Distributed

INAE Annual Convention at Roorkee December 6-7, 2012

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Manufacturing and Service NetworksManufacturing and Service Networks

N. ViswanadhamINAE Distinguished Professor

Computer Science and AutomationIndian Institute of Science

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Indian Institute of ScienceBangalore- 560012

n.viswanadham@gmail.com

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Machines, Systems and NetworksMachines, Systems and Networks

NC Machine Controller Factory Floor Control System

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eMotivationMotivation

Three layers Real time control, Optimization &Adaptation are used at Systems level

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xcel Adaptation are used at Systems level

Control rooms or Cyber Towers are used in Power plants, Refineries, Cement plants, Air traffic control, City Transportation etc.Large network projects suffer delays and higher costs due lack of coordination & execution

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Systemic planning execution are absent

Need a Good Theory

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ContentsContents

Integrated Supply Chain NetworksM f i S i

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xcel Manufacturing Scenario

The Basic EcosystemGSCNs and Interorganizational Social NetworksMultilayer Governance, Coordination & ExecutionThe Orchestration model

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Conclusions

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Integrated Supply Chain Integrated Supply Chain NetworksNetworks

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Integrated Manufacturing & Service Network

B2B Logistics Chain B2C Logistics Chain

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Supplier OEM DistributorCustomer

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iService Center Logistics

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Cradle to Cradle Protocol : A sustainable supply chain uses environmentally friendly inputs & Its outputs can be reclaimed and re-used at the end of their life-cycle.

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Global Supply Chain Global Supply Chain NetworkNetwork

Inventory hub

ChinaManufacturing

hub

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USA

USA

Europe

Demand

India

InBoundLogistics

China

Korea

OutboundLogistics

EasternEurope

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Distribution

Europe

Retail

Suppliers

Assembly

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Global Supply ChainsGlobal Supply Chains

Networks of companies forming a goal specific chain.

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xcel Inter-organizational social network with strong & weak ties

Strong ties promote commitment.– Keiretsu (Japan), Chaebol (Korea), Guanxi (China) – The buyers may feel socially obligated to partners with obsolete

capabilities & compelled to ignore more competent new comers.

Weak ties (arm length relationships)

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– Can severe ties if not competitive. – Incentivizes partners to be on the cutting edge (cost & innovation)

Tension between Weak and Strong Ties

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eLast Two Decades Companies were Last Two Decades Companies were

Proud of Their Supply ChainsProud of Their Supply Chains

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VisibilitySupply-Demand matchingSoftware Providers, Consultants & Implementation Experts flourished

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Global trade grown exponentiallyThe Asian Century Began

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The great Trade CollapseThe great Trade CollapseGLOBAL

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• Globalization & Highly Connected Supply Chains amplified &

L

TRADE

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g y pp y ptransmitted market collapse across the globe.

• Governments turned protectionist . Resources became expensive.• High concentration Clusters became vulnerable. • Shortage of Talent to deal with new realties.

The Great Trade Collapse: Causes, Consequences and Prospects A VoxEU.org Publication Edited by Richard Baldwin page 3

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Manufacturing ScenarioManufacturing Scenario

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Indian Manufacturing SectorIndian Manufacturing SectorIndia’s manufacturing sector is 16% of GDP & 1.8% of Global manufacturing.Why Lower productivity in manufacturing:

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xcel Why Lower productivity in manufacturing:

– Low technological depth : SCM, Production planning, Quality & Service

– Low labor productivity : Indian Workers are almost four (Thailand) or five (China) times less productive.

– Poor Infrastructure: High logistics costs, High % of damaged goods– Poor implementation: Too many stakeholders, Poor Coordination &

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Low returns on Capital InvestmentDesign to counter poor Execution with Ecosystem Based Governance

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Manufacturing retuning to USpl

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Basis for Global manufacturing footprint: Total costs of making products for markets

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– Worker productivity in countries– Labor & Logistics as a share of total costs– Hidden costs and risks

The low cost advantage of China disappears with changed cost structure between China and the U.S.

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Redesign the Supply Chain Network

Design supply chains with - Partner networks (with strong andweak ties ) thatprovide

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competitive advantage - Governance mechanisms for robust execution and risk

mitigation.We design a multi-layered control system usinga) Ecosystem Framework

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b) Inter-organizational Social Networks c) Control Theory

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eThe Ecosystem Model

A framework to visualize all pl

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N. Viswanadham and S. Kameshwaran, Ecosystem Aware Global Supply Chain Management, World Scientific Publishing, 2013

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Institutions

The Basic EcosystemThe Basic Ecosystem

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Resources

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Service Chains

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Investment ClimateCo-Evolution, Conflict, Risk Propagation

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Logistics & IT companies

Infrastructure, FIIPorts, Airports, Roads

Customs , Export & Other Govt. Regulators

INSTITUTIONS

Quality Control & Environmental Issues

Social, Financial & Trade issues

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ECOSYSTEM

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RELogistics Parks,

SEZs, Freight Corridors

TransportRail, Air, Ship, Road

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Industry Clusters

Human, Financial & Natural Resources & labor Unions

INDUSTRY VALUE CHAINS

Retail Chains Distribution Manufacturing SuppliersJuly16,2010 17N.Viswanadham

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Transaction CostsTransaction Costs

Delivery Shipping, Inventory,

Asset specific Hard & Soft

Infrastructure

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Institutions Taxes, Tariffs, SEZs, FTAs,

Social groups

Transaction Cost

Resource Asset Specific Clusters, Human,

Financial, Power, etc.

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Supply Chain Production, Quality, Transport

Coordination Costs Broker fees

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Multilayer Governance, Coordination & Execution

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Governance, Coordination & Control

A separate chain is formed for each orderG P t l ti b d

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xcel Governance: Partner selection based on

– Structural features (asset specificity, capabilities)– Relational ties (with govt., social organizations, cluster mangmts, etc.)

Coordination : Determining who does what and when and communicating to everyoneExecution: Monitor order status so that processes work as

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Network Governance, Coordination and Network Governance, Coordination and ExecutionExecution

OtherAgencies

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Governance

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Three Types of Network Governance Three Types of Network Governance

The Network Governance model – Highly Centralized External Broker (Li & Fung, Olam Intl.)

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xcel Highly Centralized External Broker (Li & Fung, Olam Intl.)

– Participant Shared Governance by Elected Board (Healthcare , Dairies, Cooperatives)

– Participant Shared Governance with a Lead PlayerProducer-driven (Cisco, Nike)Buyer-driven (Wal-Mart, Carrefour, Levi)

All th f i ti & N

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The Orchestration ModelThe Orchestration Model

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OrchestrationOrchestration

Orchestrators are “learning organizations” with privileged relationships

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– Mobilizes assets and capabilities of other companies for value delivery to its customers.

– Builds infrastructure for planning , monitoring and execution – Have a deep knowledge of the network’s operations– Have connections with all strategic partners in industry,

governments and other stake holders

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– Recruits the right Talent.

A Popular model in construction, airlines, newspapers, Apparel, Electronics etc. and spreading fast to other areas

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eOrchestratorOrchestrator Business ModelBusiness Model

End Customer

Planning, Coordination and Overall Responsibility

OrdersOrchestrator

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Material FlowOperationalStatus

Plans

Payment

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Supplier Contract Mfg 3PL

Execution

Supplier Contract Mfg 3PL

3PL

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ConclusionsDispersed Small Player Service/ Supply networks require help for Formation, Governance, Coordination and Execution for efficient & profitable product/service delivery

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Identifying and managing relations with government, trade, social groups, labour, resources and B2B and B2C delivery mechanisms are required capabilities.Implementation of the Governance needs sensor networks, big data management, cloud computing Can be applied to SMEs, Hospitals, Cities, Villages, etc.

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Theory development needs Integration of Social networks, Inter-organizational theory, Machine learning, Optimization, Game theory with SCNs.

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eWhat Business Can Learn from Organized Crime

When 10 men attacked the Taj Mahal Palace hotel in Mumbai, in November 2008, they executed one of the best-orchestrated, most technologically advanced terrorist strikes in history.

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xcel – Before the assault they had used Google Earth to explore 3-D models of the target

and determine optimal entry and exit routes, defensive positions, and security posts.

– During the melee they used Blackberry's, satellite phones, and GSM handsets to coordinate with their Pakistan based command center, which monitored broadcast news and the internet to provide real-time information and tactical direction.

– When a bystander tweeted a photo of commandos rappelling from a helicopter onto the roof of one of the buildings, the center alerted the attackers, who set up a trap in a stairwell.

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It took three days for authorities to kill nine of the terrorists and arrest the tenth; which had resulted in 163 deaths and hundreds of injuries.There were resources that could have addressed the problem, but they weren't in the right place, not under the right authority. Governance is missing

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The Logistics EcosystemThe Logistics Ecosystem

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eOrchestrator- Supply Chain Network

Orchestrator is highly embedded in the supply chain, almost all the

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betweenness centrality highlights its importance to the success of the supply chain.The relationship between the focal firm and the O represents a strong tie in the sense of providing access t l bl th t i thi

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to valuable resources that in this case are the benefits arising from O know-how and relationships.

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Content

Central HQ, Database + Back office*

Branches

Branches

Customer Care

CUSTOMERS

Print Service Chain – Banks

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Print Location 2

Print Location 1

Paper Mills

Stationary Department

Ink

Warehouse 2

Warehouse 1

Content

Content

Branches

Branches

Branches

Branches

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Distribution

Mail & Courier Services

Print CutCollate, Staple

FoldInsertFrank

Mail Preparation

Outbound Sorting and Bundling based on PIN Codes

Courier/Distribution.

Print Location n

Warehouse n

Branches

Branches

Branches

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Courier/Distribution