Projects

Efficient Supply Chains

Project Description

The research methodology in designing integrated global supply chains for range of products produced by the paper industry involves combining strategic elements of tariff and taxation policies, and factors influencing the globalization of production, based on the economics literature with the key features of supply chain design and management. The focus will be on identifying the relevant factors, objectives and drivers of globalization and global supply chains, as well as the development of a preliminary descriptive model of global supply chains in the pulp and paper industry. Given the limited timeframe of this project, we will focus on two main sectors, namely containerboard and consumer paper products, and on important countries in four key regions: North America, South America, Asia and Europe. The proposed first-year research plan is described in detail below:

1. Identification of the basic elements of global supply chains in the paper and pulp industry:
   Casual empirical observation suggests that there are many different configurations of supply chains in the industry: global, international, regional or largely domestic. Our goal at this stage would be to identify the main types of supply chain configurations that exist in the US industry, and to identify the processes and characteristics where value is added in the supply chain.
2. Literature review:
   The main focus of the literature review is to identify the state-of-the-art research in the area of both GSC and the international factors that influence GSCs.
3. Semantic global supply chain model.
   There is a serious gap in the industry's knowledge and understanding of the changes and evolution of GSCs, and how they influence industry profits. The first step towards identifying the key drivers of GSCs is the development of a semantic GSC model, that will describe in detail the various components of a GSC, their interactions, the points at which value creation and value destruction could potentially take place, and the impact of global factors on the profitability of GSCs.
4. Compilation of a comprehensive database of global factors that impact GSCs
   The development of the semantic GSC model will be followed by the compilation of a comprehensive database of trade, exchange rate, political and economic risk and other policies and factors that impact demand, inventories and related aspects of global supply chains. This will include future prospects for reductions in trade barriers as a result of ongoing trade negotiations, as well as data on regional arrangements. The data will be obtained from a variety of sources such as the WTO and World Bank publications, and the UNCTAD 2001 TRAINS database.
5. The development and administration of a detailed survey instrument.
   Concurrent with the creation of the global database, we will also develop a detailed survey instrument that will be sent to industry sources, in order to glean from the industry their experience with GSCs. While academic research highlights in a structured environment the various international factors that impact GSCs, the information gathered from industry sources with provide us with additional qualitative data on not only the types of relevant international factors, but also the manner in which they affect the profitability of GSCs. We hope, for example, to be able to identify corporate perceptions on the key global drivers of value creation and destruction in the industry, as well as the main objectives they desire to maximize (profits, flexibility, etc.) in configuring their GSCs. While at this stage it is not possible to assess accurately the number of firms that will be involved or other specific details of the survey instrument itself, Section (f) below describes in greater detail how the industry input will be obtained.
6. Industry Input:
   Consultations with industry experts will include discussions on the drivers of globalization in the industry, and current industry practices that maximize competitiveness in the global economy. We will approach the AFMPA to provide some guidance regarding the types of companies to be contacted, the level at which the contacts should be made (corporate office, production teams etc.), the functional areas from where we should obtain input (purchasing, logistics etc.) and also for an introduction to these firms. The first stage will involve forming a small industry consultative group of representatives from four to five firms who will provide input regarding the questions to be included in the survey. We will then conduct a pilot survey of about 20 firms. The survey questionnaire will be further refined based on the responses to the pilot, and then the full-fledged survey will be conducted.
7. Assembly and analysis of the data:
   The UNCTAD database will provide information on the types of tariff and non-tariff barriers in the industry as well as the trade flows for product categories by 6-digit HS codes. We hope to obtain from the survey firm-specific details about the configuration of their GSCs, value creation / destruction, as well as other global factors affecting the GSCs. While a detailed description of the various components of GSCs, their interactions, value/creation destruction in GSCs, and the global factors influencing profitability of GSCs is in itself invaluable in broadening the industry's understanding of these issues, the research methodology also proposes more rigorous analysis of the data, depending largely on the availability of relevant data from the industry. For example, we can attempt to do a principal components type analysis to rank the key global factors that influence the main objectives of the firms' GSCs, if we are able to obtain quantitative or appropriate qualitative and meaningful measures of these objectives and factors from the firms. Alternatively, we can do a few detailed case studies to examine how the factors ranked as being important drivers of value creation/destruction in GSCs have actually affected firm profitability in the past. An important factor that needs to be kept in mind is that there has been fairly rapid globalization in the industry, and that while historical data may lend support to some of the factors that our research considers relevant, there may not as yet be sufficient historical information to validate the relevance of other factors.
8. Report writing and presentation of results.
   The last stage of the research involves report-writing and creation of educational and training materials for the industry.
   
   

• The presentation of a semantic GSC model, that will describe in detail the various components of a GSC, their interactions and the points at which value creation and value destruction could potentially take place.
• Research reports detailing the objectives and drivers of global supply chains, and a ranked list of critical areas and factors to improve the efficiency and flexibility of global supply chains.
• Educational material that describes the current state and the drivers of global supply chains in the paper industry.
• Training of a Ph.D. graduate who knowledgeable about global economic and trade issues, GSCs and will be familiar with the pulp and paper industry. It is anticipated that such graduate would a highly desirable and valuable employee for corporations in the pulp and paper industry.

The proposed research makes several important contributions towards advancing research in the area of integrated global supply chain design in general and to the designing of global supply chains with specific reference to the paper industry. First, it extends the boundaries of the existing supply chain literature by explicitly adopting an interdisciplinary approach and integrating the supply chain literature with the body of knowledge regarding trade and tax polices and their impact on the globalization of production in the economics literature. Second, the development of the semantic GSC model seeks to bridge the gap in the industry's knowledge and understanding of the changes and evolution of GSCs, and how they influence industry profits. Third, the methodology developed can be used as teaching tools in the classroom. This proposal also includes research projects by and training of graduate students.

The outputs and contributions to industry and other groups parallel the academic contributions listed above.

• This model will foster increased understanding of the global supply chain issues and opportunities for economic efficiencies by all companies in the pulp and paper industry.
• Educational materials suitable for technology transfer to the pulp and paper industry. An industry specific short course on supply chain management and design can be offered through the Continuing Education department of the Georgia Institute of Technology.
• The Ph.D. student will knowledgeable about global economic and trade issues, GSCs and will be familiar with the pulp and paper industry. It is anticipated that such graduate would a highly desirable and valuable employee for corporations in the pulp and paper industry. Member of CPBIS will have early access to the best and brightest undergraduate and master students in the School of Industrial and Systems Engineering and the School of Economics. The School of Industrial and Systems Engineering is the largest such program in the United States was ranked the best undergraduate program in its engineering specialty nine times in the last 10 years and ranked the first graduate program during the last ten years.

The outputs of this research are especially geared towards addressing key issues related to the increasing globalization of supply chains in paper and pulp industry and its impact on the profitability of U.S. firms. First, the development of the semantic GSC model in a user-friendly format will enhance greatly the industry's understanding of GSCs and their impact on profitability. Second, our analysis of global supply chains explicitly includes changes in tariff and non-tariff barriers as well as tax structures, exchange rates and risk factors. Hence, firms using this analysis can project and forecast the impact of different trade and tax policy scenarios, exchange rates and risk factors in optimally configuring their supply chains. In a dynamic global economy, organizations need to respond rapidly to changes in their business environment. This analysis will enable firms to increase their flexibility, reduce their response time and take advantage of opportunities that result from international policy changes, thus enhancing value creation at the firm and industry levels. It can also provide valuable insight regarding the optimal degree of vertical integration, which is important in the light of the recent spate of mergers and acquisitions. Third, the training of graduate students and the use of the GSC methodology in the classroom will enhance the skilled workforce available to the industry.

Potential Year 2 Extension: A valuable extension of this research in Year 2 that would greatly benefit both the industry as a whole, as well as individual firms, is the development a detailed mathematical, normative model of the global supply chain for pulp and paper industries. We will work closely with industry partners to validate the supply chain model, based on the firms' strategic needs. The research will identify new supply chain configurations for the case studies and quantify their associated profit opportunities. We will be using benchmarking of historical systems and sub-component validation techniques as tools to validate the overall model. To achieve the objective of designing and configuring integrated global supply chains in the paper industry and increasing their efficiency and profitability, the research will develop the necessary components of a design methodology. These components include the database structure, a comprehensive model of the supply chain with all its factors and constraints, and the necessary design algorithms to find the best tradeoffs. The typical models for supply chains are large-scale non-linear mixed integer programming formulations and the design algorithms belong to the class of global optimization algorithms. The methodology will be validated through case studies with industrial partners. Data will be collected from industrial partners, benchmarks will be developed for their current supply chain, and the financial consequences of improvement strategies will be computed and compared to the actual implementation.

The methodologies and models developed through these case studies will have a wide range of applicability, as they can be adapted to the needs of other firms in the industry, as well as to different product lines. The design methodology will incorporate explicitly the inevitable change and variability of real world economic conditions. This will enable the tradeoff between efficiency and flexibility of the supply chain under consideration. This in turn will yield some strategic recommendations regarding the most profitable degree of vertical integration vs. outsourcing for individual firms in the industry. Another advantage to industry is that the development of such a model by academic researchers ensures that the firm-specific model will not be a black box. The firms will have access to the details of the model as well as a firm-specific database, which they can continue to refine in future years to meet their strategic and tactical decision-making and informational needs.

Duration: 1 year