Economy of Chain with Factories in Containers

The realization of factories the size of shipping containers allows for new business models other than the “Economies of Scale” business model traditionally applied in the chemical industry. One of these new business models is the “Economy of Chain” business model: cost savings through supply chain integration. The “Economy of Chain” project, led by Delft University of Technology, has investigated the competitiveness of local container-based production networks in the chemical industry.

Economy of Chain
Supply chain integration involves that supply chain partners deploy their factories at a shared site and cooperate in a local production network to process raw materials directly into finished products. This mode of operations benefits among others from the elimination of internal transport costs and the reduction of non-value-added unit operations, but cannot benefit from economies of scale to the extent that the traditional large-scale plants can.

In the ISPT (Institute for Sustainable Process Technology, project “Economy of Chain” the competitiveness of local container-based production networks in the chemical industry was researched. The project was a collaboration between BearingPoint, Delft University of Technology (coordinator), DSM, Dutch Institute World Class Maintenance, Rotterdam School of Management, Tebodin, and Tri-Vizor. The project has quantified this new complex multi-disciplinary concept through a cost-benefit analysis. This has been a validation of the belief that flexible supply network collaboration is the next step up from modularization and that the future lies in this form of collaboration.

Cost-benefit analysis cannot represent aspects as competition and cooperation among supply chain partners or market dynamics. Therefore researcher Gerben Bas developed an agent-based model to model the market dynamics of a realistic production chain. “This is the first time a global multi-tier supply chain has been modelled as a sequential decentralized market”, says Telli van der Lei, assistant professor Strategic Engineering Asset Management at Delft University of Technology and project leader. The model has proven its added value for researching value drivers of economies of chain that could not be researched with other methods.

The project has introduced a new modeling paradigm to the industry partners, who value its usefulness in business modeling to explore different types of competitive supply chain networks and the conditions for their emergence.

In the follow-up of the “Economy of Chain” project a number of project partners will collaborate anew to sophisticate the agent-based model. This extension will enhance the representation of the operations in the agent-based model, which will allow it to include more aspects of economies of chain and will improve its validity. The goal of this follow-up is to get more insights in the value drivers of economies of chain and how these economies can be realized, as to enable the transition towards decentralized and flexible supply network collaboration.