Strategic aspects in Supply Management

Vice President Purchasing Automotive

Schaeffler Group
Dr.-Ing. Florian Schupp
International Procurement
TU Berlin, 06.05.2011
Automotive Industry Aerospace
Three Brands Working Together
Total sales 2010: approx. > ! 9 Bn. approx. 65,000 Employees
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Clutch
release system
Dual Mass
Flywheel
CVT Components
Torque Converter
Components for Clutch
and Transmission systems
SAC
Dual Clutch System
dry/wet
Sensor - wheel bearing
Tandem angular
contact ball bearings
Deep grooved
ball bearings
Wheel-Modules
Transmission
bearings
Tapered
roller bearings
Mass-reduced
balance shaft
Tooth chain
primary drive
Ball screw drive
Variable
valve timing
Finger follower w.
hydraulic pivot element
Hydraulic
tappet
Strut bearing
Drawn
needle bearing
Overrunning
alternator pulley
Timing chain
drive
Shifting system
Engine and Transmission
Components
Product Portfolio
Purchasing Automotive
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Strategic Aspects in Supply Management
Agenda
Purchasing Strategy
Innovation
Supplier Quality Management
Psychological aspects
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Strategic Aspects in Supply Management
Use of the strategy term in business practice
l Analysis of the strategies of 11 large companies over decades, i.e. of
Volkswagen, Air Canada, building construction companies, a
supermarket chain and the military strategy of the USA in Vietnam.
l Aim: comprehension of strategy development and the process of
strategy generation.
l Result: in business practice the strategy term is often defined
differently to its actual use.
l When asked which strategy a company follows, the answer is usually
derived from the description of consequent behaviour in the past.
l The term is used to describe future-oriented planning of past actions.
n the best case one therefore often has implicit or automatic strategies.
Study by Mintzberg
Source: Mintzberg (2001): Strategie als Handwerk;
in: Montgomery; Porter (Hrsg.): Strategie; Wirtschaftsverlag Ueberreuter
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Strategic Aspects in Supply Management
Characteristics of a strategy
l The intentional use of a strategy targets fundamental changes in the
market environment and competitiveness by the deployment of resources.
l A strategy is intentional, reflected and well-founded.
l As a result of strategies fundamental changes can
be achieved in a short period of time.
l The success of a strategy depends on the knowledge about culture,
view, attitude and characteristic behaviour pattern of
competitors and suppliers.
l A strategy is the development of an action plan, whereas there
has to be a consistent relation between the current status and
the final target linked with the over-all comprehensive target.
Strategy
Sources: Henderson (2001): Geht es um Strategie - schlag nach bei Darwin; in: Montgomery;
Porter (Hrsg.): Strategie; Wirtschaftsverlag Ueberreuter
Hinterhuber (1996): Strategische Unternehmensfhrung; Band 1; Walter de Gruyter
Newman et al. (1989): Strategy; South Western
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Strategic Aspects in Supply Management
Over-all target: Gain market power, strengthen procurement position
Create preferences
n Create comparability of
prices and conditions
n Allow change of suppliers
n Increase competition by
means of fair and clear
sourcing rules
Buyer Supplier
Benefit from
market powers
Flexibility
Transparency
Commitment
n Enhance product
differentiation
n Create dependencies
n Undermine sourcing
processes
Source: Siemens (2000)
Source: Schupp (2004):
Versorgungsstrategien in der Logistik. Konzeption eines modularen
Entscheidungsmodells;
Deutscher Universittsverlag, Wiesbaden
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Strategic Aspects in Supply Management
Market structure negotiation power depends on relative importance
Negotiation Power
of Buyer
Purchasing
volume by supplier
D e c r e a s e I n c r e a s e
Optimize
importance of
Buyer
Enforce
degree of
competition
Bonus Malus
Source: Siemens (2000)
Source: Schupp (2004):
Versorgungsstrategien in der Logistik. Konzeption eines modularen
Entscheidungsmodells;
Deutscher Universittsverlag, Wiesbaden
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Strategic Aspects in Supply Management
Source: Darkow / Schupp (2002): Ableitung von E-Procurement Strategien aus einem Versorgungsportfolio,
in: Baumgarten et al.: Logistik-Management; Springer
Number of suppliers Sole Single Dual Multiple
Complexity of input factor Element Module System
Market size Local n economic area Global
Supply method Buffer stock Demand orientated
Synchronized
production
Structure of
procurement organisation
ndividual Joint
Location of
value-added-service
External nternal
Supplier potential Technology leader nnovator Follower
Pricing Market orientated Cost orientated Partnership approach
IT-integration of supplier Tight / common software Loose / standardized interfaces
Morphological box for strategy concepts in procurement
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Strategic Aspects in Supply Management
There are 3 types of suppliers [1]
Innovators:
Are those companies that constantly bring up new technologies, materials and respective product
ideas.
Technology leaders:
Don't have to generate such ideas by themselves, but can be characterized by the fact that they
enhance innovations fast, improve them and bring them towards a market maturity. This demands
sufficient development and production capacities in order to provide a needed quantity of new
material to the customers with enough flexibility. This capability for a broad introduction of new
materials is not given at innovators.
Fast Followers:
Are characterised by high production capacities and highly efficient standardisation processes.
[1] Vgl. Arnold (1996), Darkow / Schupp (2002b);
Schupp (2004): Versorgungsstrategien in der Logistik, Deutscher Universittsverlag, Wiesbaden 2004, S. 63f
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Strategic Aspects in Supply Management
The power of ...
Source: Schupp (2004):
Versorgungsstrategien in der Logistik. Konzeption eines modularen
Entscheidungsmodells;
Deutscher Universittsverlag, Wiesbaden
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Strategic Aspects in Supply Management
Choose the right partner(s)
Source: For the perfect partner, first get your maths right, The Times of ndia, Bangalore, 26.08.2009, p. 19
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Strategic Aspects in Supply Management
Date and then reject before to start searching for love
Source:
For the perfect partner, first get your maths right, The Times of ndia, Bangalore, 26.08.2009, p. 19
C. Cresswell, Mathematics and Sex, Sydney
The strategy:
Date and then reject minimum 12 potential partners out of 100 candidates before to start searching for
love.
Result:
75% chance to actually find a partner and staying with him.
Good to know:
1) t is not about right or wrong, it is about patterns.
2) Mr. or Mrs. Right do not just come into your life. We have to work on it.
3) Romantic attachments already improve the chances to find a perfect partner.
By the way: t was proven that even in a world where we meet many people, 12 is still a valid number.
Transfer into Purchasing auctions:
f you want to get 4 partners at the same time, start searching out of min. 100, better 400
and finally date with 48.
Stay on the market, if you need to introduce new technologies.
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Strategic Aspects in Supply Management
Date with
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Strategic Aspects in Supply Management
To get
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Strategic Aspects in Supply Management
Agenda
Purchasing Strategy
Innovation
Supplier Quality Management
Psychological aspects
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Strategic Aspects in Supply Management
Aspects of efficient buyer-supplier relationships
P. F. Johnson, M. R. Leenders, A. Day, The University of Western Ontario:
The opportunity to gain competitive advantage through excellence in supplier management is
well-established in the literature and there has been considerable interest by academics and
practitioners in how to best leverage buyer-supplier relations (Carr and Pearson 1999).
Generally, the literature has classified buyer-supplier relationships into two categories:
Cooperative and competitive (Choi and Wu 2009).
Cooperative relationships are characterized by a long-term commitment, shared common
goals, two-way information sharing and a high level of trust (McAlister 1995; Hartley et al.
1997; Uzzi 1997). Research on cooperative relationships has included buyer-supplier
partnerships and alliances (Johnston et al. 2004). n contrast, competitive relationships are
characterized by a short-term orientation, where the purchaser makes decision primarily on
the basis of price (Tsay and Agrawal 2004).
Kruse, nextpractise (2010):
Future business success requires collaboration in a network approaches and buyer-supplier
development partnership rather the control of buyer-supplier relationship. The Partnership
approach is in already accepted in the brains of all experts,
but at the same time the partnership approach is not rolled-out yet.
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Strategic Aspects in Supply Management
Aspects of efficient buyer-supplier relationships
H. Schiele et al. (2010), University of Twente:
Preferred customer status has positive effect on supplier innovativeness, also prices are better if
preferred customer status.
Aydin Inemek, Paul Matthyssens (2010), University of Antwerp:
Collaborative buyer-supplier relations enhance innovation. Crossfunctional links foster supplier
innovation. But: Collaborative communication is not enough. Only own design responsibility by the
supplier and collaborative communication lead to a benefitial result.
R. Large et al., University of Stuttgart (2010):
Successful environmental management correlates positively with the success of the purchasing
activities in the case where supplier evaluations are part of the purchasing processes. Positive
correlation only if focus company is credible in environmental management.
W. Strbe et al., University of Utrecht (2009):
Creativity is hard work: First think by yourself, good mood enhances creativity, self-confidence,
optimistic, environment and situation are decisive, hard work, expertise, broad interest and openness
prerequisites for creative moves.
Interesting:
"Wer im Labor eines Nobelpreistrgers forscht, erhht die Wahrscheinlichkeit, selbst einmal auf einen
auergewhnlichen Gedanken zu kommen und Nobelpreistrger zu werden."
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Strategic Aspects in Supply Management
Which aspect decides about market leadership?
55%
6 5%
6 7%
6 9 %
70 %
71%
74 %
79 %
8 5%
4 5%
Speci al i zat i on
Quant i t y
No. of count ri es
Tradi t i on
Sal es
Prest i ge
Broad product port f ol i o
Brand awareness
Qual i t y l eadershi p
Technol ogy l eadershi p
Source: Hidden champions, Hermann Simon, Campus Verlag, Frankfurt, New York, 2007, S. 76
Study of the Fraunhofer nstitute
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Strategic Aspects in Supply Management
Purchasing leverages on the bottom-line of a company
2,9%
3,7%
3,7%
5,7%
2,9%
Good supplier
relat ionship
P rocess
improvement
Globalizat ion
P ooling of demand
P roduct
opt imizat ion
Source: S.C. Schumacher, H. Schiele, M. Contzen, T. Zachau, Die 3 Faktoren des Einkaufs, Wiley Verlag, 2008, S. 252ff
H. Schiele, nnovationen von und mit Lieferanten, Conference proceedings, CPO Treffen, Gtersloh, 24.11.2008
h&z, BME and BM study of 101 companies, average 7.9% R&D expenses,
average sales 840 Mio. C p.a., average number of employees 2988
No significant differences in results by sector and purchasing volume
Successful companies with regards to innovation have 14 innovation contributing suppliers
Less successful companies with regards to innovation have 7 innovation contributing suppliers
Conclusion: Supplier contributed innovation to be added to the Purchasing targets
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Strategic Aspects in Supply Management
Die Dampfmaschin - Innovation is key
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Strategic Aspects in Supply Management
Sources
Sources page 3:
Holger Schiele, Jasper Veldman, Lisa Httinger (2010): Supplier nnovativeness and Supplier Pricing:
The Role of Preferred Customer Status, PSERA conference in Lappeenranta 2010, School of
Management and Governance, University of Twente, Netherlands
Aydin nemeka, Paul Matthyssens (2010): The impact of global buyer-supplier relationships on supplier
innovation, PSERA conference in Lappeenranta 2010,
University of Antwerp, Faculty of Applied Economics, Department of Management, Antwerp 2000,
Belgium
University of Antwerp, Faculty of Applied Economics, Department of Management and University of
Antwerp, Management School, Antwerp 2000, Belgium
R. Large et al. (2010): kologisches Lieferantenmanagement und Beschaffungserfolg, Stuttgart 2010
W. Strbe, University of Utrecht, J. Frster, University of Amsterdam, E. Hirt, ndiana University (2009):
Kreativitt ist harte Arbeit, several publications, SZ Nr. 12, 16.01.2009, p. 16
Sources page 2:
P. Fraser Johnson and Michiel R. Leenders (2010), Supplier Relationship Management, PSERA
conference in Lappeenranta 2010, The University of Western Ontario, London, Ontario, Canada
Alan Day, State of Flux, London, United Kingdom
Kruse (2010): Hauptvortrag 20.10.2010, Deutscher Logistikkongress, Berlin
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Strategic Aspects in Supply Management
Sources
Carr, A.S., Pearson, J.N., 1999. Strategically Managed Buyer-Supplier Relationships and
Performance Outcomes. Journal of Operations Management 17 (5), 497-519.
Choi, T.Y., Wu, Z., 2009. Triads in Supply Networks: Theorizing Buyer-Supplier-Supplier
Relationships. The Journal of Supply Chain Management 45 (1), 8-25.
Hartley, J.L., Meredith, J.R., McCutcheon, D., Kamath, R.R., 1997. Suppliers' Contributions
to Product Development: An Exploratory Study. EEE Transactions on Engineering
Management 44 (3), 258-267.
Johnston, D.A., McCutcheon, D.M, Stuart, F.., Kerwood, H., 2004. Effects of Supplier Trust
on Performance of Cooperative Supplier Relationships. Journal of Operations Management
22 (1), 23-38.
McAllister, D., 1995. Affect- and Cognition-Based Trust as Foundation for nterpersonal
Cooperation in Organizations. Academy of Management Journal 38 (1), 24-59.
Tsay, A.A., Agrawal, N., 2004. Channel Conflict and Coordination in the Ecommerce Age.
Production and Operations Management 13 (1), 93-110.
Uzzi, B., 1997. Social Structure and Competition in nterfirm Networks: The Paradox of
Embeddedness. Administrative Science Quarterly 42 (1), 35-67.
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Strategic Aspects in Supply Management
Agenda
Purchasing Strategy
Innovation
Supplier Quality Management
Psychological aspects
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Strategic Aspects in Supply Management
Are the supply targets in competition to each other
and
does the zero defect optimum really exist?
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Strategic Aspects in Supply Management
Juran, Juran
Source: Optimum Quality Costs and Zero Defects: Are They Contradictory Concepts? by Arthur M. Schneiderman
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Strategic Aspects in Supply Management
Zero Defects optimum
Zero defects
optimum
Source: Optimum Quality Costs and Zero Defects: Are They Contradictory Concepts? by Arthur M. Schneiderman
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Strategic Aspects in Supply Management
One answer might be found in 6 Sigma
...is a methodical approach for process improvement
...replaces stomach feeling by knowledge
...is based on numbers, data and facts
...uses statistical tools
...has the target to reduce the variance in the ,kill variation"
...centers the processes towards customer requirements
6 Sigma is:
Grgler, Neubauer (2006): A&D SE Expert Days, Einfhrung Six Sigma,
Was ist 6 Sigma, S. 4
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Strategic Aspects in Supply Management
What is 6 Sigma?
Sigma* is mathematically seen a measure of variance
Six Sigma is one of the highest requirements to the process
quality and refers to 3.4 failures by 1 million opportunities
*Sigma also stands for standard deviation
2 308.537
3 66.807
4 6.210
5 233
6 3.4
!
PPM
process
capability
defects per million
opportunities
3,85 mean
of industrial sector
in Germany
Tpfer (2004): Six Sigma,
Projektmanagement fr Null-Fehler-Qualitt in der Automobilindustrie, S. 13
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Strategic Aspects in Supply Management
The history of Six Sigma
[1] Tpfer (2004): Six Sigma,
Projektmanagement fr Null-Fehler-Qualitt in der Automobilindustrie
[2] Schmieder (2003): Vorsichtige Annherung Studie: Anwendung von Six Sigma
in Deutschland; in QZ, 48. Jg. (2003), S. 698-700
1987
n The number of users increases steadily
n Six Sigma is established as method standard
n A study of the year 2003 shows
that the majority of 6 Sigma users
in Germany are large enterprises;
2/3 are in the automotive industry.[2]
1991/1992 1993/1994 1995/1996 1997/1998 1999/2000 2001/2002
Adobe Acrobat 7.0
Document
Companies linked to the Automotive industry
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Strategic Aspects in Supply Management
Relation between 6 Sigma levels and Quality Costs
2 308.537
3 66.807
4 6.210
5 233
6 3.4
!
PPM
process
capability
defects per million
opportunities
not applicable
25-40% of net sales
15-25% of net sales
5-15% of net sales
<1% of net sales
Quality costs
http://www.4managers.de/themen/six-sigma/
Six Sigma.: Prozesse optimieren, Null-Fehler-Qualitt schaffen, Rendite radikal steigern
von Mikel Harry, Richard Schroeder, Campus Verlag 2000
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Strategic Aspects in Supply Management
Relation between 6 Sigma levels and Quality Costs
Project benefits out of Six Sigma projects:
,Estimated $6 Bio. savings by Six Sigma in total" (General Electric 1995-2000)
,Estimated $16 Bio. savings" (Motorola 1987-2003)
,20% improvement with regards to specification adherence in the
T-Help desk process" (Swiss Life)
,Reduction of process cost by 40% during processing of insurance certificates "
(Skandia Lebensversicherung AG)
,mprovement of booking ratio by 10%"(GE Money Bank)
Significant cost reductions at 98% of the projects at Siemens A&D.
Six Sigma.: Prozesse optimieren, Null-Fehler-Qualitt schaffen, Rendite radikal steigern
von Mikel Harry, Richard Schroeder, Campus Verlag 2000
Tpfer (2004): Six Sigma,
Projektmanagement fr Null-Fehler-Qualitt in der Automobilindustrie, S. 23
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Strategic Aspects in Supply Management
Excursus out of the military world:
The paradon of the point of culmination and overexpansion
Grgler, Neubauer (2006): A&D SE Expert Days, Einfhrung Six Sigma,
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Strategic Aspects in Supply Management
The paradon of the point of culmination and overexpansion
Basis A
Basis B
Border
Supply lines
Grgler, Neubauer (2006): A&D SE Expert Days, Einfhrung Six Sigma,
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Strategic Aspects in Supply Management
The paradon of the point of culmination and overexpansion
Basis A
Basis B
Old border
Supply lines
New border (overstressed)
pullback force
Strategy paradoxon: The further the advance and the greater the victory the
more difficult it will be (as long as the opponent still has enough Hinterland,
therefore dependent on the theater level)
point of culmination =
peak of strength
Grgler, Neubauer (2006): A&D SE Expert Days, Einfhrung Six Sigma,
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Strategic Aspects in Supply Management
Excursus out of the military world: Conclusion for Purchasing and SQM
n f the Buyer pushes too hard on PPC/PPV and the PPM level cannot follow, each PPC/PPV
victory brings both closer to the defeat in form of running away/giving up of the supplier or
supply interruption due to bad quality performance.
n f the SQM pushes too hard on the PPM level and the PPC/PPV cannot follow, each PPM
victory brings both closer to the defeat in form of a supplier that is not competitive any more
and consequently cannot be used any more.
A sustainable success can only be achieved
together between AP/Buyer and SQM
1
There might be a point where no substantial further
improvement can be achieved with given resources.
Minimum in such a case, a supplier has to be developed.
2
3
nteresting: The winners of the supplier awards in the
past years have shown a quality level of 0 or 0.x ppm.
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Strategic Aspects in Supply Management
What are the roles of the Buyer and Supplier Quality Manager
in the spirit of 6 Sigma?
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Strategic Aspects in Supply Management
The target of Six sigma is:
Grgler (2006): Was ist Six sigma; Frth 2006; S. 13
h
i
g
h
high
l
o
w
low
C
e
n
t
e
r
i
n
g
Variance
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Strategic Aspects in Supply Management
The roles of Purchasing and SQM are:
h
i
g
h
high low
C
e
n
t
e
r
i
n
g
Variance
ppc/ppv
ppm/
incidents
Buyer: Responsible for centering or for shooting at the sweet spot
of the supplier portfolio with regards to ppc/ppv
SQM: Responsible for a low variance and high performance or shooting
for the few best suppliers in ppm/incidents
Problem 1: The desire of the buyer is to maximize ppc/ppv
Problem 2: The fear of the SQM is to get a higher variance and lower ppm
and more incidents
Grgler (2006): Was ist Six sigma; Frth 2006; S. 13
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Strategic Aspects in Supply Management
No matter if the zero defects optimum really exists or not, additional resources to support
further expansion are not likely to be invested.
.e. that only an enhanced collaboration between Buyer and SQM and a consequent
supplier development can improve the result.
Does the Zero Defects optimum really exist for a company?
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Strategic Aspects in Supply Management
Agenda
Purchasing Strategy
Innovation
Supplier Quality Management
Psychological aspects
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Strategic Aspects in Supply Management
Mind your business the brain and choice
Source:
http://www.bized.co.uk/current/mind/2006_7/140507.htm
Huhnen, C.M. and Knutson, B. (2005) The neural basis of financial risk taking.
Knutson, B. Rick, S. Elliott Wimmer, G. Prelec, D. and Loewenstein, G. (2007) Neural predictors of purchases. Neuron (53) 147-156.
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Strategic Aspects in Supply Management
Panic vs. Desire Why both buyers and SQMs need common processes
Source: Die Welt, 14.05.2007
A study of Psychology Professor Brian Knutson, University of Stanford, 2007
Test 1:
The test persons got 20 USD and 3 investment alternatives for their choice.
The corresponding brain activities were registered in a MRT.
a) The secure investment: 1 USD return per round and this guaranteed
b) A company share: A probable 10 USD return, but in the worst case a loss of 10 USD
c) A company share: A probable 10 USD loss, but in the best case a gain of 10 USD
Boundary condition: t is not evident which one is the share with the probable return and vv.
Results:
After only a few runs the scientists were able to predict the investments of their test persons.
The test persons that invested in the secure option showed brain activity in the nsula,
the panic centre of our brain.
The test persons that invested in the risky option showed brain activity in the Nucleus accumbens,
were neurologists locate excitement, desire and happiness.
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Strategic Aspects in Supply Management
But ...
Source: Die Welt, 14.05.2007
... ndependant of fear or desire all decisions have been led by instincts.
t was never the case that the brain region was used that is responsible for pragmatism
or rationality.
Both emotions were found almost in the same ratio with slightly more fear than desire.
The brain signals were even able to be measured before the decision itself, i.e. the actions
of the test persons have been predictable.
Conclusion:
n order to ensure a minimum of pragmatism or rationality,
1) systematic approaches for business decisions have to be applied:
Sourcing process, and sourcing rules, e-auctions, etc.
2) the different players have to be meaningfully grouped together:
The buyers and SQM have to work together as closely as possible
3) supply targets have to be aligned:
Both buyer and SQM have to have both apr/ppv and ppm/incidents targets
in their personal target agreements
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Strategic Aspects in Supply Management
Test 2
Source: Die Welt, 14.05.2007
Same starting point with 20 USD to be invested.
The test persons had to spontaneously invest within seconds in:
Shoes, hand bags, pairs of skies or sweets.
Too high prices alarmed the nsula (fear, panic).
Attractive and at the same time cheap products brought the nucleus accumbens to play.
Also in this test 2 the fear was predominant.
Conclusion 1: Think twice before you buy.
But:
f the test persons were too conservative, after a few runs without buy
the brain area for desire reacted and bought also at higher prices.
Conclusion 2:
SQMs: Watch your buyer colleagues carefully when they make supplier decisions
after long negotiations.
Buyers: Define good target costs together with the BU and SQMs.
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Strategic Aspects in Supply Management
Humans and Capuchin monkeys
Sources: Hubertus Breuer, Affen auf Schnppchenjagd, Primaten verhalten sich hnlich
irrational wie Menschen, wenn Sie einen Vorteil vermuten, Sddeutsche Zeitung, 27.02.2009, S. 16
Laurie Santos, Keith Chen, Venkat Lakshminarayanan, Yale University,
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Strategic Aspects in Supply Management
Monkeys behave as irrational as humans when anticipating an advantage
Source: S.J. Brams, M.A. Jones, C. Klamler, Better ways to cut a cake, in: Notices of the American Mathematical
Society, vol. 53, number 11, page 1314 21, 2006
Blue and red candies (M&Ms), cognitive dissonance:
Capuchin monkeys to choose blue or red candies with same chocolate content.
n the first test phase the monkeys chose without preference for blue or red.
But, after a while the monkeys did not chose those candies
any more that they rejected by pure chance in the earlier phase of the test.
Conclusion: The monkeys were more and more convinced about their earlier candy colour decision
and rejected the non-selected colour of the earlier phase. The monkeys therefore acted irrationally.
Transfer into Purchasing auctions: Continuously challenge preferred (lists) and previously not
selected suppliers.
Bonus rather than malus:
Experimenter A offered 2 grapes to the monkeys, Experimenter B offered 1 grape to the monkeys.
But in the moment of transaction experimenter A every 2nd time held 1 grape back and experimenter
B vice versa gave out 2 grapes instead of 1. For the monkeys it would have made no difference to buy
at A or B.
Nevertheless the monkeys quickly chose to buy from experimenter B.
Conclusion: Aversion to loss leads to bonus orientation.
Transfer into Purchasing auctions: Use bonus instead of malus
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Strategic Aspects in Supply Management
Monkeys behave as irrational as humans when anticipating an advantage
Source: S.J. Brams, M.A. Jones, C. Klamler, Better ways to cut a cake, in: Notices of the American Mathematical
Society, vol. 53, number 11, page 1314 21, 2006
Readiness to assume risk:
Experimenter C offered 2 grapes. Experimenter D offered 3 grapes, but from time to time
gave out only 1.
The monkeys chose to buy from experimenter D.
Conclusion: The fear to loose return leads to higher risk.
Transfer into Purchasing auctions: Auction big cakes and 100% rather than 70% and 30%.
Fear to loose ownership:
Monkeys value an object that they own more than an object that they do not own.
Conclusion: Sales and purchase price differ.
Transfer into Purchasing auctions: The incumbent supplier will be more aggressive than
the new one.
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Strategic Aspects in Supply Management
Better ways to cut a cake
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Strategic Aspects in Supply Management
Listen to preferences
Source: S.J. Brams, M.A. Jones, C. Klamler, Better ways to cut a cake, in: Notices of the American Mathematical Society,
vol. 53, number 11, page 1314 21, 2006
The parents test:
How to cut the cake in a fair way amongst 2 kids? One to cut, one to choose.
But: What happens if the cake is 50% covered with icing and 50% with chocolate topping?
One kid loves chocolate, but no icing, the other kid likes both toppings.
While getting 50% in quantity, 1 kid might find his piece of cake less valuable because
of the lack of preferred topping.
Solution:
Both kids first have to inform about their preferences by valuing each part of the cake.
Then each kid gets a piece of the cake that is equally valuable to the geometric half of the cake.
.e. the chocolate loving kid would get a good part of the chocolate half, but not all.
The 2nd kid would get the complete half with icing topping.
The remaining part will be shared by a value of 50:50.
Result: Both kids have achieved a success. Both kids even might think that they have got
more than the geometric half of the cake.
By the way: The method is also deception proof, as the one who pretends wrong preferences
finally will get less return than it would have been the case with true preference statements.
Transfer into Purchasing auctions: Listen to preferences of your suppliers and you will get lower prices.