 Okay, welcome everybody. Hello global supply chainers. It's Arthur here with Chris and we're here today to introduce Dr. Alexis Bateman and Dr. Roberto Perez-Franco. Alexis is joining us from California and Roberto is joining us from Australia, so it's going to be over to you, Alexis. Great. Thanks, Arthur. Thanks, Chris. So we have a truly global call right now. We're in three locations and coming to meet with you on our second live event, so I'm really glad you guys could join us. I just wanted to give a few numbers where we're at in the course, so obviously you guys, you know, if you're here, it's SE3x supply chain dynamics. Right now we're sitting at about 1,900 people total enrollment, about 1,037 verified. The median age learners is about 30. The breakdown of what education levels there's about 13% with high school diploma or less, 50% with bachelors and 35% with advanced degrees, and 23% of the course is female. Woo-hoo! And 178 countries are represented with U.S. representing about 20%, India 11%, Brazil 3%. So just some quick stats on the makeup of the course. It's always really cool to see such the diversity. So today, we're actually going to go into week four, supply chain strategy. So we've been through, you know, the last three weeks, complexity, process analysis, moving into system dynamics, and then into the bullet effect and supply contracts. And then in this most recent week, we hope you had a chance to look through some of the videos and materially dived into supply chain strategy. And this is a really great week because it starts to bring together a lot of the different components and see how everything gets tied together. And another thing that is really interesting about it that's different from some of the other weeks is there's really no right answer. You know, a lot of the cases that we have addressed in the past, you know, we we apply a model or you know, different scenarios and we can sort of generate a right answer. Whereas the supply chain strategy is weighing a lot of pros and cons. And so you know, I like to feel that I know quite a bit about supply chain strategy, but I would prefer that we brought in an expert. So we're bringing back our Roberta Perez Franco. He was our our colleague and remains our colleague and he is now actually been at five for last five minutes, excuse me, five months. He's been a senior researcher, senior research fellow in supply chain strategy at the Center for supply chain and logistics at Deakin University in Melbourne, Australia. Before that, he was the director of the supply chain strategy lab and supply chain 2020 project here at the MIT Center for Transportation and Logistics, and he worked here. He worked on supply chain strategy projects at MIT after his PhD here. Roberto received a master's in logistics and supply chain management from MIT in 2004 under the direction of Dr. Chris Caplis. And he got a PhD in engineering systems also from MIT in 2010 under Professor Yossi Shafi. So those are obviously very familiar names to you guys. He has excellent training and then he completed his PhD thesis in the area of supply chain strategy. And he's been working in supply chain strategy for over a decade now. So he truly is an expert. And he's he actually wrote the two articles that we asked you to prepare in advance this call pixel artist and Laminix on supply chain strategy. So I'm going to turn it over to Roberto to give you sort of an overview of supply chain strategy and some kind of lead ins and then to kind of dive into the case and the questions we'll be talking about. Roberto. Yes, thank you Alexis and thank you also to Arthur and to Chris. Good to see you guys again. I miss MIT a lot and I miss you guys a lot. To all the students around the world, welcome to the session. It's a pleasure for me to be here with you. I hope you had a chance to go over the pixel artists and Laminix columns. These columns have a different titles, longer titles, but basically I will refer to them as pixel artists and Laminix and they were published in a magazine, a supply chain management review. And they are based on real cases that I conducted while I was at MIT working on supply chain strategy. And just as a little introduction to the subject of supply chain strategy, I want to say that just like Alexis said, this is where you have to lift yourself from the detail of execution of operations and start looking at the bigger picture. The idea is that your supply chain functions within the context of a larger organization. And this organization has strategic objectives that it's pursuing. And it's very easy as a supply chain person to get distracted by all the details. Start thinking about how can I optimize this, minimize that, make this more efficient, whatever. But you have to keep in mind that the solution may not be what the number, the optimal number is telling you, because you have to consider other things and there are trade-offs. I'd like to illustrate the weirdness of strategy using an example. There is a company with which we did a project. It's a luxury goods, luxury apparel. It sells like jackets for men and the kind of thing. And they discovered that they could manufacture a jacket for men in China with a better quality and at a lower cost than they could in Italy. It was a better product. But customers didn't want to buy it. They wanted to buy the Italian jacket, even though it was inferior in quality and higher in cost. Because what the customer wanted was the perception of luxury, not the actual quality of the product. So this is the kind of thing that you have to consider when you deal with strategy. It is dealing with untangibles in many senses. So to help you get your feet wet, thinking about strategy, I have asked you to go over these two columns. Now, if you didn't have the time to go over both, if you only went through one of them, that's fine. Don't worry. Because in the breakout session, we will have the chance to discuss one of two questions. I'm going to give you two questions and you'll have the choice of discussing one question, the other one or both. It's up to you. Let me start with a brief introduction of the cases and then I'll tell you the questions. I'm going to start first with the pixel artist case. These are, of course, fictional names, but they are based on real companies. But they are fictionalized names and the details have been fictionalized. The industries have been disguised and the products have been disguised. So let's start with the pixel artist. Pixel artist is basically a leader in what is flat displays for computers and digital televisions. And they basically are innovators, designers and manufacturers of high performance displays. And also they have a lot of IP, intellectual property, in this area. And they have a legendary supply chain, which is widely acknowledged both inside the company and outside as a key to the success of the company, the supply chain. And it's considered like a world-class example of supply chain excellence. And they see supply chain as one of their core competencies. Now, this seems like a blessing, but it can also be a curse, as you will see in the case. They have a corporate supply chain group inside the company that looks after the supply chain for the core business of the company. And this supply chain group, this corporate supply group has selected a few preferred suppliers that have been qualified on the basis of their ability to deliver in volume and to work with the company to give preferential prices and that kind of thing. And it works wonderfully for the core business. If you read the case, you already know that there's more to pixel artists than the core business, though. And the idea with the preferred suppliers is that the company can reduce the costs and promote compliance and increase customer service if they only work with these few like four or five preferred suppliers that have been pre-qualified by the corporate supply group. But markets change. And in electronics, markets change particularly fast. So around 2007, something happened that was a new product type that was born, which is these smartphones and tablets. And pixel artists thought, well, should we be making screens for smartphones and for tablets? Back in the day, 2007, this didn't look like much of a market. So they thought, you know what, let's focus on our computers, on our TVs. This is not going to go anywhere, this phone thing. And boy, they were wrong. They were really wrong because that has grown and now phones and tablets are actually replacing computers and replacing TVs as people get their entertainment or their information through their phones and tablets. So this was a big mistake, big strategic mistake from pixel artists when they underestimated the size and growth potential of the phone and tablet market. So they promised that they will never again make this mistake and that they will be on top of innovation in the industry and they would go fast and furious after the next big thing. They started scanning the horizon for the next big thing and they have identified that the next big thing is wearables. Now, what is wearables? It's a very new area, but it seems to be basically things that you wear that have electronics, watches, necklaces, rings, shirts, shoes, glasses, anything you can put on and it's going to interact with you electronically or connect through the internet with something. That's what they're after. It's a very ill-defined area. It's a very new area. There are no leaders right now in the wearables, something that pixel artists are not used to. They are used to being the big fish, but they say, okay, let's pursue this area of wearables and they have created this new group called the Wearables Business Unit. It's created from scratch and they have been tasked with the mission of making pixel artists a leader in wearable electronics. Also, pixel artists has told the corporate supply chain group, your mission in regards to wearables is to support this business unit so that they can be successful. Wearable has the unit of becoming a leader in this new area of the wearable electronics. That's what the wearable business unit has to do. What the corporate supply chain group has to do is to support this business unit in whatever they need. Fast forward a year and a half into the future after the launch of the wearables business unit and let's take a look at how things are working for these two groups of people. They are really not working because they are not communicating well. There's a lot of tensions in between. There is a lot of friction and distrust. Every time you have a conflict, you have to look at both parts. So, if we ask the corporate supply group what's going on, they're going to tell you, well, you know, the wearables people, they ignore us. They don't give us a seat at the table. We tell them, use our corporate, our preferred suppliers and they ignore that. They just go and pick their own suppliers. They don't listen to us. They don't take our advice. I only find out about the products when they have already been launched. How can I help them if they don't let me know about the products and they don't let me into the table? Poor me. I'm a victim, right? Okay. That's the point of view of the corporate supply chain group. If you ask the wearable business unit what's going on, you will find out that their opinion is that this market is something that the corporate supply chain group doesn't understand. This is a market where speed is key and where you have to be fast to the market and you have to be innovative. It doesn't matter if your product is going to be 5% or 10% cheaper because what you need to do is have the product in the market with the right features. An innovation in wearables is happening all around the world in little garages in Germany or little new companies in the United States or who knows, anywhere it could happen. Some guy working with trinkets could come up with the next new idea and you need fast access to these new ideas and you need a flexible IP process which pixel art is not characterized for being particularly nimble in terms of the legal access to their IP. Because I must access IP fast, it's easier for me to use my current provider because I have, if you read the case, this is all in the case, nothing new here, but basically what wearables is saying is your supply processes and your supply strategy is not a good fit for me. Now, that's what the wearables people say. So we have a story with two sides and this conflict and we could say basically that the mission with which they were tasked, at least on the collaboration front, is failing. Now, the question I have for you in this case, the question I want you to consider and take a note of this, is in the pixel artist case, was the wearable business units justified in pursuing a supply chain strategy independently from the time tested, widely held as excellent strategy of the corporate supply chain group? That's the question for you. Is the wearable business unit being rogue or are they justified and why? I want you to consider that question. Remember, the pixel artist has become a leader already, thanks to the corporate supply group. So this newcomer, disrespecting them is not sitting well with the company. Let's now move to the other case, the case of Laminix. In the case of Laminix, we're talking about a different industry that specialty laminates. The idea is that, so if you have a TV or a car and somebody breaks that TV or that car with a bat, it will chatter, but it will not, the pieces of glass will not fly away and hurt you because there is this film on the surface that is keeping the glass together. This is called a laminate. And Laminix is one of three leaders in this area. And they have basically a supply chain strategy that is pursuing lowest product cost, best customer service and lowest working capital at the same time. Now, the problem with this is that because they use an approach of using large-scale manufacturing plants, not only large-scale, the largest in the world, this makes them a little inflexible in terms of production. And it creates this three-way conflict among these competing objectives of slowest inventory, best service, and lowest cost. Because you cannot pursue all three at the same time without a clear pick in order. Now, this is in the case. I'm not giving anything away when I tell you that. But what we need to understand here is that they had a good period in the 2000s when the price of oil was really high because the main material in their production is oil. They had a windfall because they had very good scale efficiencies of scale, economies of scale. And they were ahead of everybody else because they were using these huge plants which were more efficient and where they were able to produce the laminates at a lower cost and their profits were very big. However, when the price of petroleum goes down, their advantage erodes and the markets start to change. And other things, besides cost, start to become important. Then you have the case of this main customer, very important customer of laminates called Videoflat that comes to them with a proposal and says, hey, look, I'm going to make this TV that is twice as big as the normal TV. I need to cover it with a film. This has to be ready in one year. I want you to be my supplier. Can you do it? And laminate says, yes, let's do it. I'll do it for you. I'll prepare this laminate that is twice as big in 12 months. They go to work and in the little pilot plant, they manage to create the large laminate. It's working well. Then they move it to the big production plant and something goes wrong. The laminate starts to do this. It will not lay flat, but it will go like that. It will bend in the middle. It will bow in the middle. And this is a problem because imagine if you have a TV and it has a big, ugly bubble of air in the middle of the screen. You have to throw that TV away. Because of the little film that costs just a couple of dollars, you have to throw a TV that costs hundreds of dollars because of that manufacturing effect. So you cannot have this bent laminate. And the company tries to fix this, but they fail. And nobody seems to do anything about it. And the time comes to the liver, and they cannot deliver. And then the customer walks away, not very happy. They find another supplier who does this thing in a few months, and they manage to deliver on something that laminates could not deliver in one year. So the question is, what went wrong here? And what could have been done differently? But the question that I want you to consider today is a little before that, a little before the key question of the case. It is not what could they have done, but should they have accepted this contract in the first place? And here I want Arthur to show us a little slide to provide some additional material that is not in the case study. So if you look at this slide, this is summarizing the business strategy of laminates. I know this because I work with laminates, the real company. And they share with me their business strategy. And it basically boils down to four pillars. They want to retain their market share and grow at the same time that they grow with the markets. And they want to command high prices at the same time that they minimize final cost. And the idea here is that they are a publicly traded company. They want to maximize profit so that they can give money to their stakeholders. And how do you maximize profit? Two things. Number one, increase volume. Number two, grow margin. If you have more volume and more margin, you're going to have more profit. How do you grow the volume? Well, one thing, don't lose your current market share, retain your current market share. Number two, grow your market. Create a new market and now you have more volume. That's how you grow volume. Now how do you grow margin? Two ways. Number one, charge a higher price. But you need to be able to have a rationale for charging more, such as giving better service or giving a high quality product, which is what they do. And also, the other thing you do to increase your margin is that you push cost down. And how do you do this? Well, economics of scale. So here you can see clearly, by minimizing cost. Here you can see clearly how they plan to increase their profits. So this is their business strategy. And this is really what this company was doing in real life. Now here's the question that I want you to consider. When Videoflat comes for the first time to Laminix and says, Hey, I have this idea for a TV that is wider. Can you do this for me? Should Laminix have accepted that proposal? Actually, I'm going to phrase the question a little different. How does accepting the Videoflat contract align with the business strategy of Laminix? Look at this business strategy and ask yourself, is accepting the Videoflat proposal aligned with this or misaligned with this? If I reject this proposal, is rejecting this proposal better aligned with this than accepting the proposal? Or is accepting more? So you see what I'm trying to say is like, I have the choice of accepting this or rejecting this proposal. Which one of those two decisions will be better in line with my business strategy? So those are the two questions that I want you to ponder. And the way we're going to do this is that there are breakout rooms. I understand this is not the first hangout. So you know the mechanics by now, you will go to the breakout rooms. And I want you to discuss either one of the two questions or both, whatever you decide to do. Again, recapping the pixel artist question is, was the wearable business unit justified in pursuing a strategy that was independent from the corporate group? And the second question for the Laminix case is how does accepting or rejecting this proposal fit with the Laminix business strategy? Those are two questions for you. Have fun discussing it. Look at the trade-offs. Look at the bigger picture. Like Alexis said, strategy is about the big picture. It's about the trade-offs involved in this decision. Discuss that and come back in, should we say 20 minutes, Alexis? Yeah, 20 minutes. And then you will be asked to send Alexis and Arthur your thoughts on the answers to both questions. Perfect. Was wearables justified in pursuing their own strategy? And should Laminis have accepted the proposal based on alignment with their strategy? Unless there is any questions, I think that's it. We can go to the breakout room. Okay. We'll see you in about 20 minutes.