The MIT Supply Chain Excellence Awards are given annually to outstanding graduating supply chain management or industrial engineering majors at select institutions that have partnered with the MIT Center for Transportation and Logistics’s Supply Chain Management master’s program to expand opportunities for students to pursue graduate study and advance the field of supply chain and logistics.

Dr. Maria Jesus Saenz, the Executive Director of the MIT SCM master’s program, described the celebration as “a way to recognize the excellence of the undergraduate students from the partner universities we have with us. We have been working with these universities for more than a decade to recognize all of this talent, energy, and potential in terms of leadership and future impact on the supply chain world.”

Dr. Saenz was joined by supply chain management and engineering faculty and department chairs from Arizona State University, Lehigh University, Michigan State University, Monterrey Tech (Mexico), Penn State University, Purdue University, Syracuse University, Howard University, and Texas A&M University to recognize the fellowship recipients from their respective programs.

The program also featured remarks from a previous Supply Chain Excellence award recipient who is currently completing her master’s degree at MIT. Morgan DeHaan, who was awarded a fellowship in 2018, said,, “The award is a huge accomplishment, and I hope that you all feel very proud of yourselves and excited about the opportunity to study here at MIT in just a few short years.”

Concluding the ceremony, Dr. Saenz told awardees, “We are happy to be able to recognize this excellence with all these brilliant students and also to help them in their journey to provide a great footprint in the supply chain industry.”

This year, the MIT Supply Chain Excellence Awards program has provided more than $1.1 million in fellowship funding to 51 awardees from Arizona State University, Howard University, University of Illinois Urbana-Champaign, Lehigh University, Michigan State University, Monterrey Institute of Technology and Higher Education (Mexico), Penn State University, Purdue University, Syracuse University, and Texas A&M University.

Awardees can redeem their awards by applying and being admitted to the SCM program after gaining two to five years of postgraduate professional experience. Fellowship awards may be applied toward SCM master’s program tuition at MIT, or at MIT Supply Chain and Logistics Excellence (SCALE) network centers in Spain, Malaysia, Luxembourg, or China.

By Maria del Pilar Pardo Rodriguez and Elise Fredericks 

Editor’s Note: The SCM thesis The Influence of Manager-Centric Competencies on the Performance of Micro and Small Enterprises in Latin America was authored by Maria del Pilar Pardo Rodriguez and Elise Fredericks and supervised by Dr. Vytaute Dlugoborskyte and Dr. Josué C. Velázquez Martínez (josuevm@mit.edu). For more information on the research, please contact the thesis supervisors.

Micro and small enterprises (MSEs) are a vital component of the social and economic fabric in Latin America. However, these firms are often susceptible to high failure rates due to low productive output, limited access to resources, and a lack of managerial skills. Therefore, understanding the factors which enable the survival and growth of MSEs is an important step towards closing the existing standard-of-living gap in developing countries.

What factors best enable the survival of these firms? What attributes of MSEs are most impactful in promoting long-term success? In collaboration with the Low Income Firms Transformation (LIFT) Lab at the MIT Center for Transportation & Logistics, we investigated which competencies—such as record-keeping ability, supply chain management expertise, and capacity for innovation—most significantly affect firm performance within the context of Latin America. We also studied how integrative practices—across suppliers, customers, and the firms’ internal employees—enable business success among MSEs in the region.

Motivated by similar studies conducted across different geographies, we administered a questionnaire to collect real-time, empirical data from the firm owners (decision-makers) of each surveyed MSE. The intent of the questionnaire was to assess the existence of business (firm-centric) competencies, behavioral (manager-centric) competencies, and integrative practices within the firm. Then, using statistical modeling techniques such as multivariate linear regression and analysis of variance, we regressed each competency against six different parameters (sales, profitability, number of total employees, number of paid employees, number of customers, and number of suppliers), each of which serve as a proxy for predicting firm performance.

MSE owners as game changers

The data sample collected from 45 MSEs in Latin America demonstrates that three of the firm-centric competencies—customer integration, supplier integration, and proactive innovativeness—have a significant influence on firm performance. The other firm-centric competencies we measured showed only a marginal direct effect on firm performance. However, when taken in context with the behavioral characteristics of an MSE owner, all firm-centric competencies exhibited a significant effect on the selected performance parameters.

Our research produces three main insights. First, our results show multiple instances where a significant and direct relationship does not exist between certain competencies and firm performance. However, when those same competencies are combined with the characteristics and behaviors of the decision-maker, the combinatory effect produces a net change on firm performance. Effectively, this suggests that the performance of MSEs in Latin America is highly dependent on the interaction between firm competencies and the personal characteristics of the firm owner.

Second, our results show that to achieve higher levels of profitability and sales, managers must alter their behavior according to the different stakeholders they engage with. For example, integration with customers requires that a leader be authoritative so that the customers do not make too many demands on the business.

In contrast, our research suggests that MSEs should openly collaborate with their suppliers instead of asserting a position of dominance, as this type of behavior might deter suppliers from doing business with the firm, thereby negatively affecting sales and profitability. Ultimately, managers must be willing to adapt to and leverage the complexities and dynamics of each business relationship to see substantive financial growth.

Lastly, the firm-centric competencies that showed a significant and direct effect on firm performance (customer integration, supplier integration, and proactive innovativeness) are less likely to demonstrate an indirect, multiplicative effect when combined with the personal traits of a manager. We argue that these attributes are sufficient to affect firm performance on their own. For that reason, MSEs must invest ample attention and resources to take full advantage of the benefits of these competencies.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

Supply Chain Management Review

By Ibrahim AlArfaj and Yalcin Arslan 

Editor’s Note: The SCM thesis Enhancing Supply Chain Operating Models Through Segmentation was authored by Ibrahim AlArfaj and Yalcin Arslan and supervised by Dr. Özden Tozanlı. For more information on the research, please contact MIT SCM Program Executive Director Maria Jesus Saenz.

Inherently complex and uncertain supply chains—combined with constantly changing customer needs—create many challenges for companies, including supply and demand volatility, stock-keeping unit proliferation, and expanding distribution channels. Given these challenges, one-size-fits-all supply chain operating models cannot meet the distinct requirements of products, customers, and distribution channels. Companies now seek ways to customize their operating models to cost-effectively meet demand at the right time, at the right place, and in the right quantity.

Segmentation is a valuable tool for designing supply chain strategies that meet the unique characteristics and needs of products, customers, and distribution channels. Our study focuses on product segmentation in the food and beverage industry. We clustered products based on varying characteristics and developed supply chain strategies for each segment to improve cost, service level, and sustainability metrics.

Handling the complexity of food and beverage

Food and beverage retailers have a variety of products with different characteristics such as perishability, diverse sources and varying demand patterns. Given this complexity, manually segmenting products requires selecting a few key variables, which can be relatively subjective and incomplete.

With this in mind, we designed a data-driven methodology that integrates data analysis, machine learning and simulation to develop a robust segmentation strategy. Using data from a global food and beverage retailer, we applied our methodology to more than 450 products.

These products are characterized by demand volume, demand volatility, lead time, cost, seasonality, shelf life, and storage temperature. Through this approach, we identified distinct segments; developed customized inventory and forecasting strategies; and evaluated cost, sustainability and service level trade-offs of each strategy.

The slow, fast, and complex

Our analysis resulted in three product segments, each having unique inventory and forecasting strategies.

The first segment is the slow-moving items segment consisting of low-volume, medium-volatility, and non-perishable items. Slow-moving items stay in the distribution centers (DCs) for extended periods due to low demand. Therefore, we recommend just-in-time inventory where the materials are sent directly from suppliers to stores based on each store’s immediate needs. Given their infrequent deliveries, eliminating slow-moving items’ inventories in the DCs reduce inventory costs without impacting total transportation costs or service levels.

The second segment is the fast-moving items segment including high-volume, low-volatility, and highly perishable items. These items should be stored in facilities closest to the stores. Also, forecasts should be disaggregated for these storage facilities to accurately meet the demand of each area. As fast-moving items have high inventory turnover rates, these strategies improve the service level with a small increase in inventory costs.

The third segment is the complex items segment consisting of highly volatile and seasonal items. These items should be pooled in large DCs to reduce inventory risks. Seasonal items can be moved closer to customers in their respective seasons. Lastly, forecasting can be improved by aggregating the demand forecasts at larger storage facilities and for a longer period. These demand and inventory aggregation strategies reduce inventory risks and decrease costs.

Applying the product segmentation strategy can positively impact the entire supply chain.

First, the number of stock-keeping units in each DC will be reduced, enabling more streamlined warehouse operations.

Second, additional supply chain strategies such as building micro-fulfillment centers for fast-moving products and signing Vendor Managed Inventory contracts for slow-moving items can further improve cost and service level metrics.

Finally, modifying the segmentation strategy in different markets facilitates product introductions to new markets and enables focused growth. These strategies can reduce inventory, improve service levels, and decrease distance traveled to enable long-term improvements in supply chain efficiency and responsiveness.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

Supply Chain Management Review

By Mykola Oleksyn and Tony Kook

Editor’s Note: The SCM thesis Better Contract = Better 3PL Performance was authored by Mykola Oleksyn and Tony Kook and supervised by Dr. Mehdi Farahani (mehdihos@mit.edu) and Dr. Maria Jesús Sáenz (mjsaenz@mit.edu). For more information on the research, please contact the thesis supervisors.

Fast-moving consumer goods (FMCG) companies compete in a low-margin business environment. As a result, cost-efficient supply chains are critical for driving profitability and maintaining a competitive edge.
FMCG companies usually outsource their supply chain management to third-party logistics providers (3PL) and spend a whopping 7.5% of revenues on such services. Unsurprisingly, FMCG companies put pressure on 3PLs to lower their costs.

The compensation package and the relationship between a 3PL and an FMCG company are typically governed by a performance-based contract. Well-designed contracts promote a value-driven relationship between the buyer and the supplier. However, poorly designed contracts may create misaligned incentives and lead to subpar 3PL performance.

For our capstone project, while working with a global FMCG company, we studied the financial impact of switching from a performance-based contract, pain/gain share (PGS), to a value sharing contract (VSC). The PGS model shares the cost savings and budget overruns with the 3PL, while the VSC model shares the risk and reward based on the supplier’s operational efficiencies and cost savings.

Under the new model (VSC), two-thirds of the total 3PL compensation depends on cost-related key performance indicators (KPIs). By contrast, under the previous contracts (such as PGS), only about one-third of overall compensation depended on cost KPIs.

Can’t always get what you want

The VSC model is built on the idea that increasing the degree of risk/reward sharing and creating stronger incentives for achieving cost performance goals will improve the efficiencies of supplier operations. Our FMCG sponsor company wanted better cost performance, so it started paying more for cost savings and performance improvements. The idea sounds simple and quite logical. But did it work? Did the FMCG get what it wanted?

We used the difference-in-differences (DID) model to compare the changes over time between the cost performance (cost per pallet) in the periods before and after the contract changed. We used the least absolute shrinkage and selection operator (LASSO) method and insights from stakeholder interviews to determine the variables that best explain the variance in cost performance of the 3PL. The variables used were pallet volume, labor costs and forecast errors.

After validating the required assumptions and conducting robustness checks on the DID model results, we found no causal link between the new contract and the changes in the cost-per-pallet performance of the 3PL. The findings suggest that offering extremely high rewards for the outcome you want (in this case, lower costs) might not always get to the desired outcome.

We synthesized our insights from a literature review, our stakeholder interviews, and our quantitative analysis to create a framework that will help managers better understand and improve existing 3PL contracts. Our framework presents the key elements and trade-offs of a value-driven 3PL service contract.

Get what you need

Our 3PL service contract framework proposes that achieving the contract’s goal relies on mutually consistent execution of the three key components: performance measures, compensation structure, and governance processes. In addition, we describe the key features that define each primary component. We may also think of such features as levers that define key trade-offs inherent in the contract (“pushing” one lever impacts other levers).

• Performance measures define what gets measured.
  Features: KPI selection, goal-setting processes, and evaluation processes

• The compensation structure is built on performance measures and aligns the metrics with incentives.
  Features: base-level compensation, risk/value sharing plan, KPI compensation weight setting

• The governance process is responsible for turning the contract from just a document into the essential cornerstone of a business relationship.
  Features: managing control mechanisms, data governance, and contract complexity.

We suggest that 3PL service contract management requires a balanced approach. Choosing a favorite metric might force managers to play Whac-A-Mole, fighting unintended consequences. Instead, managers can benefit from our three-part framework to learn how key components and levers of contract design and execution are interrelated.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

Supply Chain Management Review

By Ken Critchlow and Pedro Benitez · January 25, 2023

Editor’s Note: The SCM thesis Get Smart: Reinventing Plastic Recycling in a Collaborative, Circular Supply Chain was authored by Kenneth Critchlow and Pedro Benitez and supervised by Dr. Eva Ponce (eponce@mit.edu) and Dr. Edgar Gutierrez-Franco (edfranco@mit.edu). For more information on the research, please contact the thesis supervisors.

The United States generates roughly 36 million tons of plastic waste each year, but only 8% ends up being recycled. The remainder is landfilled, incinerated, or escapes collection systems altogether and pollutes lands and waterways.

The detrimental effects of plastic pollution and overflowing landfills are well known and have been a source of public scrutiny for years, resulting in calls to action to curb the use of virgin plastics. The CPG industry is one of the largest generators of plastic waste. To answer these calls, it has committed to substitute virgin plastic with post-consumer recycled (PCR) plastic by as much as 50% over the next decade. However, due to poor recycling rates and inefficient recycling practices, the supply of high-quality PCR plastic is too little to meet the collective goals of the CPG industry.

To increase their supply of PCR plastic, CPG companies are investing in research on circular supply chain frameworks for their plastic packaging. The questions they are asking include:

How will these circular networks be structured?

Can they increase the amount of plastic waste recovered in comparison to traditional curbside recycling programs?

And most importantly, can they be profitable?

To answer these questions, a circular supply chain network supported by partnerships between CPG companies, e-commerce retailers, and recycling sorting facilities was investigated.

Package delivered, plastic collected

The advent of e-commerce and the growth of last-mile deliveries has created a network of delivery vans that visit households each day carrying packages to consumers, thus creating a valuable resource: empty backhaul space in delivery vans. Every package delivered creates space for a small amount of plastic waste which can be collected from households by the delivery driver.

Arranging this type of collection system requires not only spare van capacity but also a network for consolidating and transporting plastic waste to nearby sorting facilities. One option is to consolidate plastic waste in compaction dumpsters stationed at each last-mile delivery center. Full dumpsters can then be shipped to the nearest traditional sorting facility. However, today’s traditional sorting facilities are designed to process single-stream recycled waste and fall victim to high sorting costs and material losses.

An alternative option is to build smaller-scale, high-efficiency smart sorting facilities that accept only plastic waste. These smart facilities rely on automated sorting technology such as optical scanners and are strategically located near last-mile delivery centers. As a result, they can achieve lower sorting costs and material losses and can receive plastic through full dumpster shipments or direct drop off by last mile delivery vans.

To this end, a profit maximization mixed-integer linear programming model was developed to determine the optimal network design of last mile delivery centers and traditional and smart sorting facilities. The model was tested using a case study set in New Jersey.

Right place, right type

Results of the New Jersey case study determined that an e-commerce supported circular supply chain with smart facilities generated a net profit of $30,000 and recycled 21% more plastic than traditional curbside recycling programs.

The quantitative model also identified that the utilization of smart facilities drastically improved the profitability and plastic yield of the network. When compared to an e-commerce network that utilized only traditional sorting facilities, the addition of smart sorting facilities increased total system profits by 139% and increased recycled plastic by 21%. At the same time, the number of sorting facilities in the network was reduced from 17, to just 7 facilities.

Results of the study indicate that circular supply chains for plastic waste can be both profitable and recycle more plastic than traditional curbside collection programs, supporting CPG industry sustainability goals.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

Supply Chain Management Review

By Joaquin Hidalgo and Meiling Chen · August 18, 2022

Editor’s Note: The SCM thesis Trash or Treasure: An Analysis of Airline Catering Food Waste was authored by Austin Iglesias Saragih and Syed Tanveer Ahmed and supervised by Dr. Christopher Mejía Argueta (cmejia@mit.edu) and Dr. Elenna Dugundji (elenna_d@mit.edu). For more information on the research, please contact the thesis supervisors.

In 2011, the Food and Agriculture Organization estimated that around one-third of the world’s food, estimated at 1.3 billion tonnes, was either lost or wasted every year. In addition, millions of people worldwide are suffering from hunger, and the global COVID-19 pandemic has only contributed to the problem further with extended food insecurity issues.

Although food waste management practices vary across industries, the story is not significantly different. One industry that stands out for its global reach and its ability to serve over a billion customers every year is the airline catering industry. A seldom-researched industry, it has the unique potential to significantly impact food waste production and management. With air passenger traffic projected to double over the next two decades, the airline catering industry urgently needs to explore the underlying causes of food waste produced in its catering kitchens and develop concrete strategies to better manage it going forward.

A unique player

The sponsoring company for this research, a global leader in the airline catering industry, was looking to find innovative and disruptive solutions to address their global food waste. Spanning 60+ countries, operating 200+ catering kitchens, and serving more than 700 million passengers every year (as of 2019), the company is uniquely positioned to have a sizeable impact on this global issue.

Food waste in the airline catering industry is heavily regulated and strictly enforced due to the many health risks of mishandling organic products moving across borders. As a result, most of the food waste generated by these kitchens is often compacted, incinerated, or disposed of in landfills. Our sponsoring company has increased its efforts at proper food waste disposal; however, these efforts are usually fragmented and lack a comprehensive approach.

Data and organic waste management

Our research focused on addressing organic waste management and proposing innovative solutions that our sponsoring company can leverage to reduce the food waste generated in its catering kitchens. We performed a systematic review of innovative solutions and the potential impacts (e.g., economic, operational, and environmental) of improved food waste management.

We then applied a system dynamics framework and machine learning with two research goals in mind. First, to identify where food waste is being generated in the catering kitchens; and second, to formulate innovative solutions that can help minimize both cost to the company and the environment.

We found that the portioning and packing area and the production area within the catering kitchens account for over 75% of the organic waste generated in the catering processes. This first insight enabled us to recommend prevention strategies such as standardization and lean frameworks to the sponsoring company and highlight where the focus should be in its internal processes.

But what happens when the waste is already generated? We explored eight different organic waste solutions and evaluated their efficacy through simulation focusing on their financial and environmental impacts. The solutions explored included: composting, animal feed, biogas, and even food bank donations, all of which had varying levels of maturity and implementation costs.

Through this exercise, we found that biogas as an organic waste solution yields the best results from both a cost and environmental impact perspective. Yet it is still not widely available across the globe and therefore unfeasible as a global strategy. Consequently, we used these results to craft a decision map for the company that allows them to select the best waste solution depending on the catering unit’s characteristics.

Finally, to provide the sponsoring company with an appropriate data-driven scaling approach, we leveraged a machine learning algorithm called k-means clustering. This allowed us to group the different catering kitchens based on their waste characteristics and operational strengths, and provide them with a blueprint on how to scale our recommended waste management solutions effectively.

We expect this research will enhance collaboration across companies in a joint commitment to reducing food waste and contribute to more sustainable operations for the airline catering industry.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

Supply Chain Management Review: https://www.scmr.com/article/trash_or_treasure_an_analysis_of_airline_catering_food_waste1/blogs

What’s the real cost of free one-day shipping?

Just in time for Amazon Prime Day, the environmental cost of one- and two-day shipping, and how consumers have been responding to that impact, is getting some attention. This issue, the subject of an ongoing project from the Sustainable Logistics Initiative, “‘Green Button Project’ Consumer Preference for Green Last Mile Home Delivery”, has been featured on CNN Business; KXLY.com in Spokane, Wash.; and KCBS radio in San Francisco.

Josué Velázquez Martínez was interviewed on KCBS to discuss this research. Listen here.

“Hiding in plain sight” – the longevity economy 

Adults ages 50 and up make up a full 70 percent of buying power in the United States. And globally, the buying power of adults ages 60 and older is so large that it trails only the U.S. gross domestic product and that of China. More wealthy and more educated than any generation before it, the boomers represent a “new emerging market of expectations.” AgeLab founder and director Joseph Coughlin recently appeared on the Institutional Real Estate, Inc. podcast to talk about the longevity economy and how the baby boomer generation is redefining aging. Listen here.

Millennials and money: the financial literacy gap

The BBC World Service’s Business Daily program is looking at a financial literacy gap between millennials and other generations. AgeLab researcher Martina Raue was interviewed on the program to outline one solution: financial mentors for young people. Listen here.