Supply Chain Master: Prof. Hau Lee | Summary and Q&A

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August 27, 2010
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Stanford Graduate School of Business
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Supply Chain Master: Prof. Hau Lee

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Summary

In this video, the concept of the bullwhip effect in the auto supply chain is explained. It refers to the amplification and distortion of information as it travels up the supply chain, causing larger swings in orders compared to the market. This effect makes it difficult for suppliers to plan production, inventory, and transportation, leading to increased costs. The importance of industry-academic collaboration, the progress of China in supply chain management, the role of emerging economies, and the future direction of research in making supply chains more sustainable are also discussed.

Questions & Answers

Q: What is the bullwhip effect and why is it important in the auto supply chain?

The bullwhip effect refers to the amplification and distortion of information as it travels up the supply chain, resulting in larger swings in orders compared to the market. This phenomenon is important in the auto supply chain because it makes it difficult for suppliers to plan production, inventory, and transportation. As a result, it leads to increased costs and inefficiencies.

Q: Why is the bullwhip effect called the bullwhip effect?

The bullwhip effect is called so because it can be depicted graphically, similar to how a whip behaves. Just like the movement of a whip, where the handle moves minimally while the tip moves significantly, the bullwhip effect illustrates how a small fluctuation in market demand can result in much larger swings in orders as they travel up the supply chain.

Q: How do fluctuations in orders impact suppliers in the auto supply chain?

Fluctuations in orders caused by the bullwhip effect can make life difficult for suppliers. The amplification of orders' magnitude makes it challenging for suppliers to plan production, inventory, and capacity, as well as transportation. As a result, it increases costs and creates inefficiencies for suppliers in the auto supply chain.

Q: How does the professor contribute to broadening the field of supply chain management?

The professor has contributed to broadening the field of supply chain management by expanding its scope beyond logistics and transportation to include various disciplines. Through years of research, the field now encompasses channel marketing, information integration, product design, process design, accounting systems, economics, and more. This multidisciplinary approach has made supply chain management a comprehensive research area.

Q: How has the professor tried to link theory and practice in the field of supply chain management?

The professor emphasizes the need for close collaboration between academia and industry to bridge the gap between theory and practice in supply chain management. He has actively worked in industry, including a sabbatical at Hewlett-Packard's supply chain team, to understand real-world supply chain problems. Additionally, he has established the Supply Chain Forum at Stanford, inviting industry members to exchange ideas and collaborate with academics. This continuous interaction between industry and academia is crucial for driving supply chain practice forward.

Q: Can you discuss the progress China has made in improving supply chain management?

China has traditionally been known as the factory of the world, contributing mostly to manufacturing in the supply chain. However, in recent years, companies have recognized that China is not just a manufacturing partner but also a market and a source of innovation. Stanford, in collaboration with Fudan University and Cisco, has established the Supply Chain Leadership Institute in China to train executives in running their supply chain beyond manufacturing. China's progress in supply chain management involves integrating themselves into the entire supply chain, from product design to distribution. While they still have room to grow, recognizing their potential beyond manufacturing is crucial for both China and multinational companies.

Q: What progress has China made in improving supply chain management?

China has made significant progress in manufacturing as a reliable partner for many industries. They have expertise in cost control and managing factories. However, they are still in the early stages of understanding and integrating themselves into the broader supply chain. The concept of an end-to-end supply chain, encompassing product innovations, design, and distribution, is relatively new to many in China. While they have a way to go, there is a recognition that China's role is evolving, and both multinationals and local companies should work together towards a win-win situation.

Q: Why are emerging economies important in the field of supply chain management?

Emerging economies are crucial in the field of supply chain management because, as supply chains become increasingly globalized, these economies become integral parts of many industries' supply chains. They serve as supply sources, manufacturers, assembly hubs, and even markets. Integrating these emerging economies effectively and responsibly into the supply chain requires understanding and addressing their unique social and environmental challenges.

Q: How do emerging economies feature in the professor's work?

Emerging economies have become an integral part of the professor's work due to the growing globalization of supply chains. They are not only important as supply sources and manufacturers but also as potential markets and sources of innovation. The professor believes in integrating these emerging economies into supply chains while promoting environmentally and socially responsible practices. His research aims to create a sustainable business approach that preserves the environment and fosters social accountability.

Q: What is the future direction of the professor's work in supply chain management?

Given the increasing importance of global supply chains and the integration of emerging economies into these chains, the professor's future research will focus significantly on how emerging economies can progress from a business perspective. Concurrently, there will be a focus on ensuring environmental and social responsibility within supply chains. The goal is to build a more sustainable world where profitable and efficient supply chains coexist with environmental preservation and social accountability.

Takeaways

The bullwhip effect in the auto supply chain is a common phenomenon that causes amplification and distortion of information as it travels up the supply chain. This leads to larger swings in orders compared to the market, making it challenging for suppliers to plan and increasing costs. The professor's efforts in expanding the field of supply chain management and bridging theory and practice through industry collaboration have been vital. China's progress in supply chain management involves recognizing their potential beyond manufacturing and integrating themselves into the entire supply chain. In general, emerging economies play a crucial role in global supply chains and need to be integrated responsibly. The professor's future work focuses on making emerging economies an integral part of the supply chain while ensuring environmental and social responsibility.

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