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Holmström, Jan; Holweg, Matthias; Lawson, Benn; Pil, Frits K.; Wagner, Stephan M.The digitalization of operations and supply chain management

Published in:Journal of Operations Management

DOI:10.1002/joom.1073

Published: 01/12/2019

Document VersionPublisher's PDF, also known as Version of record

Please cite the original version:Holmström, J., Holweg, M., Lawson, B., Pil, F. K., & Wagner, S. M. (2019). The digitalization of operations andsupply chain management: Theoretical and methodological implications. Journal of Operations Management,65(8), 728-734. https://doi.org/10.1002/joom.1073

ED I T O R I A L

The digitalization of operations and supply chainmanagement: Theoretical and methodological implications

Abstract

The digitalization of intra- and inter-organizational pro-

cesses offers significant opportunity for research in the

field of operations and supply chain management

(OSCM). This essay summarizes the contributions of the

special issue articles, highlighting their focus on additive

manufacturing and the encapsulation of design and pro-

duction information in a digital artifact. We conceptualize

the digital artifact as containing the digital genes of the

associated physical object. Digital encapsulation thus

involves the integration of product design information

with additional information on how that design is to be

translated into a physical object, delivered to the cus-

tomer, and used. Building on insights from the special

issue articles, we identify three pathways by which digital

encapsulation affects OSCM practice, as well as theory

elaboration and extension. First, digital encapsulation

allows each unique digitally encapsulated artifact to be

acted on independently by OSCM systems. Second, digital

encapsulation enables the redistribution of activities

across organizational and geographic landscapes. Third,

digital encapsulation facilitates interactivity of the digital

artifact with external environment inputs. We conclude

with a number of directions for future research.

KEYWORD S

digitalization, encapsulation, object orientation, operations and supply

chain management theory

1 | INTRODUCTION

The diffusion of digital technologies can manifest as digi-tization (the straightforward replacement of discrete

processes or tools with digital analogues) or digitalization(the use of digital information to fundamentally revisitintra and inter-organizational decision-making, pro-cesses, and architectures). In our special-issue call, weinvited articles that addressed digitalization, and pres-ented a number of potential avenues for contribution tooperations and supply chain management (OSCM) the-ory. We outline the findings from the articles and providea theoretical perspective on how they serve as a stepping-stone for future research in the OSCM field by situatingthem in a landscape of merging physical and digital oper-ational environments.

Three research articles and two technical notes com-prise the special issue and collectively focus on one spe-cific digital technology: additive manufacturing (AM).Friesike, Flath, Wirth, and Thiesse (2019) investigate theemerging practice of design remixing in AM, exploringhow a more fluid boundary between product design andmanufacturing processes shifts economies of scale frommanufacturing to design. Hedenstierna et al. (2019) pro-pose a novel mode of operation for additive manufactur-ing that facilitates capacity pooling in a network ofgeneral-purpose manufacturers. Roscoe, Cousins, andHandfield (2019) address the challenges of aligning pro-cess and organizational architectures as AM capabilitiesare developed at an aerospace company. Baumers andHolweg (2019) use a series of experiments to investigatethe role of scale in AM, while Heinen and Hoberg (2019)explore opportunities created by the digitalization ofspare parts and its implications for inventory manage-ment and after-sales operations.

In the next section, we discuss the contributions ofthe special issue articles and elaborate on the commontheme that emerges: the digital merger of productdesign and production-process information. This mergerexemplifies broader shifts for OSCM enabled by digitali-zation. We conclude with a discussion of the implica-tions of digitalization for OSCM theory and methodsdevelopment.

The copyright line for this article was changed on 16 December 2019after original online publication.

Received: 11 November 2019 Accepted: 11 November 2019

DOI: 10.1002/joom.1073

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any

medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

© 2019 The Authors. Journal of Operations Management published by Wiley Periodicals, Inc. on behalf of The Association for Supply Chain Management, Inc.

728 J Oper Manag. 2019;65:728–734.wileyonlinelibrary.com/journal/joom

2 | REVIEW OF THE SPECIALISSUE CONTRIBUTIONS: DIGITALENCAPSULATION AS ANEMERGING THEME

A central thread of the articles in the special issue (SI) isthe bridging of physical and digital spheres that derivesfrom the encapsulation of product design and production-process information into unique digital artifacts: “digitalencapsulation.” Digital encapsulation is addressed in allthe SI articles but is particularly salient in Friesike et al.(2019) and Hedenstierna et al. (2019). These articlesexplore the use of digitally encapsulated artifacts to revisitestablished design and manufacturing processes, and pro-vide examples of how digital encapsulation can open newavenues for theory elaboration in OSCM.

Encapsulation is a general system construct that iswidely applied in the study of product modularity in theproduct-design literature, and of object orientation in theinformation-systems literature. In both the modularityand object-orientation domains, the encapsulation con-struct involves standard interfaces for interacting withother system elements while permitting modificationswithin the encapsulated artifact. Digital encapsulationadds the integration of product design and production-process instructions to create a stand-alone digital arti-fact. The digital artifact owns the information on whichthe physical object depends, and can define and controlthat object over its lifecycle (Boyapati, Liskov, & Shrira,2003; Främling, Ala-Risku, Kärkkäinen, & Holmström,2007). In its simplest form, such information is limited toproduction-process instructions; but it can also encom-pass other OSCM-related information like customerrequests, logistics guidance, and product-lifecycle data.The digitally encapsulated artifact can be conceptualizedas containing the genes of the associated physical object.These genes define how the artifact interacts with itsenvironment, and how its digitally encapsulated informa-tion is expressed in a physical world. This additionalcharacteristic of information ownership and controlextends digital encapsulation beyond the traditionalapplication of modularity (Ulrich, 1995).

In the same way that complexity of technical systemscan influence organizational knowledge-processing struc-tures (Colfer & Baldwin, 2016; Henderson & Clark, 1990),digital encapsulation similarly alters how knowledge isstored and shared, with implications for organizational gov-ernance decisions. In their SI article, “The micro-foundationsof an operational capability in digital manufacturing,”Roscoe et al. (2019) observe empirically the knowledge-management challenges presented by AM when it is intro-duced in an aerospace company. Using a mixed-methodapproach, the authors develop a knowledge-based

framework to explore how structures, processes, and individ-uals interact to underpin a new operational capability inAM. The organization benefited from an approach that wasconsensus based yet hierarchical, combining cross-functionalteams with centers of excellence.

Collectively, the SI articles highlight the ability of dig-itally encapsulated artifacts to integrate and store productand process information, to direct lifecycle processes, andto dynamically bridge the demands of the physical worldwith virtual models and representations (Figure 1). Theseabilities present three implications for OSCM research:(a) rethinking how activities are organized when digitalartifacts are unique and independent (Section 2.1);(b) redistributing activities across value chain actors andgeography (Section 2.2); and (c) transitioning from closedto open, interactive systems (Section 2.3).

2.1 | The organization of unique,independent digital artifacts

In “Assessing the potential of additive manufacturing forthe provision of spare parts,” Heinen and Hoberg (2019)use data from an industrial-equipment manufacturer toexamine the potential impact of an incremental switchoverof spare parts inventory to additive manufacturing ondemand. They find that the encapsulation of design andmanufacturing data into a unique digital artifact enablesthe organization to revisit the role of inventory in high-vari-ety, low-volume settings: Incremental replacement of high-variety, slow-moving spare parts produced via batchmanufacturing processes, with on-demand production ofparts via additive manufacturing can lead to significant costsavings, without sacrificing customer service. This incre-mental switchover also raises surprising operational issues,like how to manage warehouses and material-handling sys-tems designed and built for handling large batches ratherthan individual items.

The advantage of digitalization in spare-parts manage-ment reflects a broader opportunity offered by digitallyencapsulated artifacts that are unique and independentfrom other artifacts: the ability to asynchronously organizeactivities. This characteristic presents the option to organizeand execute activities independently for each artifact andthe physical object it represents, and where needed, to rep-licate the resulting efforts across processes. The dependen-cies in complex production systems that drive sequentialexecution of processes are no longer binding. Tool-basedmanufacturing, for example, traditionally separates processdesign from tooling (Hopkinson, Hague, & Dickens, 2006).With AM, the product and production-process require-ments are reflected in a single digital artifact. Extendingdigital encapsulation to logistics facilitates asynchronous

EDITORIAL 729

operation in the supply chain, where digital objects andinformation on product flow are exchanged between equip-ment and service providers—often via real-time locationsystems—to inform needed next steps (Ala-Risku, Collin,Holmström, & Vuorinen, 2010).

Traditional product development and manufacturingengineering activities focus on a product as a class. Evenwhen improvements to product and process designs are exe-cuted concurrently, each product of a given type is managedthe same way. With digitalization, each unique digital artifactcan be translated into an equivalently unique physical object,making feasible continuous design and manufacturing modi-fications on an object-by-object basis. This allows for stan-dardization or customization across all products in a class,making the design and manufacturing process for each prod-uct amenable to adjustment as new inputs are received.

Heinen and Hoberg (2019) describe how digitalizationallows a firm to move away from scale imperatives, whilequestioning of what scale considerations—if any—arepresent with digitalization. In their article titled “Theeconomics of additive manufacturing,” Baumers andHolweg (2019) use a series of experiments to assess therelationship between quantity, quality, and cost in anAM setting. They find some indication of conventionaleconomies of scale, but only within a given build and to apoint well below maximum utilization because of failurecosts. However, with the independence associated withdigitally encapsulated artifacts there is no constraint toincreased variety within the build as setup costs are forthe build, and not the individual products.

2.2 | The redistribution of activitiesacross organizations and geography

The article “Economies of collaboration in build-to-model operations” by Hedenstierna et al. (2019) examinesthe relationship between Shapeways, a provider of addi-tive manufacturing services, and Panalpina, a logisticsservice provider. The article uses an analytical-modelingapproach to compare a new build-to-model operation toconventional make to stock and build-to-order opera-tions. The authors seek to understand the effects of intro-ducing build-to-model operations into a network ofgeneral-purpose manufacturers. Manufacturers in thenetwork pool capacity through bidirectional outsourcing,alternating roles as outsourcer and subcontractor.Pooling is possible because the AM digital file containsall information necessary to print the physical object.This ability to reallocate work allows manufacturersoperating 3D printers to respond better to demand fluctu-ations without incurring additional capacity cost, gener-ating “economies of collaboration.”

Hedenstierna et al. (2019) provide an example of theredistribution of activities across value chain actors cau-sed by digitalization, providing insight into howmanufacturing in the presence of digitalization differsfrom conventional manufacturing. In a conventional con-text, the pattern of global supply networks and inter-firmrelationships has been shaped substantively by the invest-ments of buyer and supplier firms in specialized assetsand processes (Williamson, 2008). The efficacy of digitalencapsulation is not, however, predicated on the samerigid supply structures, and the very nature of AM meansthat assets are much more general purpose. Further, aselements of the product and production system are digita-lized, processes and decisions that, by necessity, werecentralized can now become distributed (Gress &Kalafsky, 2015). The reduced reliance on scale of digitaltechnologies such as AM, further facilitates distributed,small-batch production of a greater variety of compo-nents. As a result, significant structural changes of theindustrial landscape can emerge, including the redistri-bution of manufacturing locales, power shifts across thesupply chain, disintermediation of key actors, and theentry of new actors.

As the redistribution of work across organizationsand geographies reshapes physical OSCM processes,managing the associated information flows will also pre-sent new challenges for firms. Digitalized processes gen-erate new streams of information that have value,particularly when they flow across organizationalboundaries: Firms may not wish to share this informa-tion openly with other external actors. As information isconsolidated in digital artifacts, it becomes more diffi-cult to secure, creating new intellectual property risksand potential leakage of firm capabilities. The well-recognized challenges of divergent incentives amongsupply-chain partners, such as those associated with thesharing and use of demand information (de Treville,Shapiro, & Hameri, 2004), will thus likely increase.OSCM theory on relational governance has long consid-ered how to incentivize coordination and cooperationbetween partners (e.g., Dyer, Singh, & Hesterly, 2018):Digitalization is expected to further fuel theory develop-ment in this area.

2.3 | Transitioning from closed to open,interactive systems

In the study titled “Creativity and productivity in productdesign for additive manufacturing,” Friesike et al. (2019)study Thingiverse, the open-source maker community, toexamine the interactions between designers and users ofthe designs, in an open-system context. Their analysis of

730 EDITORIAL

over 200,000 open designs and design improvements forAM examined specifically the degree and mode of reuseimprovement. The authors seek to understand the effect ofremixing: the process of creating new products based oncombinations of existing designs. The article shows thatremixing in AM shifts economies of scale from manufactur-ing to design, driven by the reuse and incremental improve-ment of the digitally encapsulated artifact. The studyillustrates how digital encapsulation permits a more open,interactive system, and in so doing, highlights the limita-tions of closed systems, typified by traditional, tool-basedmanufacturing processes and supply chains.

The tension between OSCM processes based on stableand established inter-organizational interfaces (e.g., totransfer knowledge or manage incentives) and the moreopen and less deterministic systems centered around digi-tal encapsulation presents substantive opportunities fortheory elaboration. For example, as the desire for person-alization increases, the capacity of firms to embrace theircustomers' heterogeneous preferences becomes a focalconstraint. Digital encapsulation presents a pathway toopen the closed systems on which many firms rely,reducing the associated need for predictability and deter-minism. By digitally encapsulating the informationneeded for manufacturing, delivery, and use of the indi-vidual product, customers have a greater opportunity toengage not only in product design, but also in processdecisions (e.g., Srinivasan, Giannikas, McFarlane, &Thorne, 2018). Customer involvement is just one exampleof the increased scope for interaction in operationaldecision-making and engagement with the external envi-ronment permitted by digitalization.

3 | LOOKING FORWARD

Digitalization provides an opportunity to enrich the fieldand practice of OSCM. It challenges us as scholars to revisitour theory, and how we approach research in our field.While there are opportunities for new theory development,it is important to recognize that well-established theory canplay a crucial role as we seek to understand the implica-tions of digitalization for OSCM. The sharing of digitallyencapsulated artifacts offers the opportunity to addressissues in conventional high-volume, sequential production(Schonberger & Brown, 2017), while reinforcing traditionalOSCM concepts around flow (Schmenner & Swink, 1998;Suri, 1998; Yin, Stecke, Swink, & Kaku, 2017). Digitaliza-tion, where digitally encapsulated artifacts interface withconnected production-control systems, allows real-timeinformation access, empowering the firm to visualizechanges in demand and resource availability, and to iden-tify bottlenecks and process variability in a way not

previously possible. Such product-process interactions, forexample, can support Seru principles, facilitating morerapid and economical reconfiguration of manufacturingassets (Yin et al., 2017).

Although we have described how new forms of intraand inter-organizational exchange may emerge from encap-sulation, encapsulation is not a full explanation. Approachesto encapsulation are influenced by a broader set of factorsincluding industry standards, competing interests betweensuppliers and buyers, trust, and process flexibility. The pro-cess changes associated with digitalization have cascadingconsequences. As managers engage in sensemaking andrealign intra and inter-organizational processes and gover-nance, researchers have an opportunity to observe and iden-tify causal factors at work. Digitalization within and acrossfirms will continue to place conventional OSCM systemsunder stress. The empirical discontinuities and incongruitiesthat manifest as key actors transition to new modes of strate-gizing, managing, and interacting present rich opportunitiesfor theory elaboration.

3.1 | Emerging research directions

A number of the SI articles adopt a design-science approach,exploring novel ways of working in real-world settings as abasis for theory development, exemplified by insights on theimplications of general-purpose manufacturing for capacitypooling across manufacturing networks (Hedenstierna et al.,2019) and reuse for economies of scale in design (Friesikeet al., 2019). The contributions extend beyond proposals foroperational practice and toward theoretical insights thatserve to strengthen and extend the corpus of OSCM theory(Oliva, 2019). Digital encapsulation encourages the use ofgeneral-purpose equipment, which has implications for theproduction-location decision (Schonberger & Brown, 2017;Yin et al., 2017), facilitating outsourcing to localized produc-tion centers (Sasson & Johnson, 2016).

The pathways allowed by digital encapsulation repre-sent but a subset of the implications of digitalization forOSCM. When integrated with other technologies such asreal-time location systems, cloud-based platforms, or theInternet of Things, digital encapsulation allows eachindividual product to be modeled, tracked, and con-trolled. This ability to control an individual product'slifecycle from design to production to use to withdrawalfrom service facilitates the proactive engagement offirms in designing products for long-term adaptability toevolving customer requirements (Engel, Browning, &Reich, 2017). Digital encapsulation in combination withartificial intelligence may facilitate autonomous opera-tion, shifting the role of the decision maker in OSCM.Finally, the encapsulated nature of digital artifacts

EDITORIAL 731

facilitates the integration of object-oriented processesinto OSCM research and practice in a way not previ-ously attainable. In Table 1 we outline some of the manyopportunities for further research on the digitalizationof OSCM.

3.2 | Outlook

Although the SI articles are limited to additivemanufacturing, they collectively illustrate the technologi-cal, organizational, and societal changes that

TABLE 1 Future research questions for the digitalization of OSCM

Impact on processes over the product life cycle

Design Manufacturing Delivery and use

Transformationpathways of digitalencapsulation forOSCM

IndependenceEach digitallyencapsulated artifactcan be unique andacted uponindependently ofothers.

• Will more generalpurposemanufacturingtechnology shifteconomies of scalefrom maximizingmanufacturing assetreuse to designknowledge reuse?(e.g., Friesikeet al., 2019)

• What happens withthe concept of aproduct generationwhen individualproducts can beupdated on anongoing basis?

• What is the role ofeconomies of scaleand scope indigitalization ofmanufacturing asproduct diversityincreases? (e.g.,Baumers &Holweg, 2019)

• What are theimplications ofhandling digitallyencapsulated artifactsfor core OSCMconcepts such asinventorymanagement and lotsizing?

• Does increasedautonomy allow forfurther specialization,but limit valuecreation/servicedelivery of supplychain actors?

• With increasedindependence, willspecialization ofactors and localoptima requirebroaderorganizational searchefforts?

RedistributionDigitally encapsulatedartifacts allow forthe redistribution ofactivities acrossorganizational andgeographiclandscapes

• How can digitallyencapsulated artifactsbe used to improvethe performance of acommunity ofdesigners? (e.g.,Friesike et al., 2019)

• What are the risksassociated with thetransfer of digitallyencapsulated designand manufacturingknow-how?

• How can digitallyencapsulated artifactsbe used to improveperformance of thesupply chain? (e.g.,Hedenstiernaet al., 2019)

• With theredistribution andrestructuring ofmanufacturinglocales, what are theimplications forpower,disintermediation,and entry points fornew players?

• How can digitallyencapsulated artifactsbe used to supportbusiness models forthe sharing economy?

InteractivityThe digitallyencapsulated artifactcan be an interactiveparty in the process

• What new designpractices becomefeasible? (e.g.,Friesike et al., 2019)

• Does the inclusion ofuser experience openup a new avenue forincrementalcustomization?

• How to interfacebetween interactivebuild-to-model andconventionalmanufacturing? (e.g.,Heinen &Hoberg, 2019)

• How does theinteraction betweenindividuals, processes,and structures createdynamic capabilities?(e.g., Roscoeet al., 2019)

• What are new ways ofinvolving interactivedesign forproduct use?

Abbreviation: OSCM, operations and supply chain management.

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digitalization is likely to engender. The perspective of dig-ital encapsulation allowed us to highlight the contribu-tions of the SI to OSCM theory: AM exemplifies how newdigital technologies provide opportunities to digitallyencapsulate key OSCM information for transfer acrossactors in space and geography, and to permit control ofopen and interactive systems. This application presentsopportunities to revisit firm boundaries, how organiza-tions interact with one another and their customerswithin the supply chain, and the nature and location ofhow value is created.

Jan Holmström1

Matthias Holweg2

Benn Lawson3

Frits K. Pil4

Stephan M. Wagner5

1Department of Industrial Engineering and Management,Aalto University, Espoo, Finland

2Saïd Business School, University of Oxford, Oxford, UK3Cambridge Judge Business School, University of

Cambridge, Cambridge, UK4Katz Graduate School of Business, Learning Research &Development Center, University of Pittsburgh, Pittsburgh,

Pennsylvania5Department of Management, Technology, and Economics,

Swiss Federal Institute of Technology Zurich, Zürich,Switzerland

CorrespondenceFrits K. Pil, Katz Graduate School of Business, Learning

Research & Development Center, University ofPittsburgh, PA 15260.

Email: fritspil@pitt.edu

ORCIDJan Holmström https://orcid.org/0000-0002-2596-0337Matthias Holweg https://orcid.org/0000-0001-9403-1681Benn Lawson https://orcid.org/0000-0002-8489-1984Frits K. Pil https://orcid.org/0000-0001-5267-2042Stephan M. Wagner https://orcid.org/0000-0003-0471-5663

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Digital

InteractivityDigitally encapsulated artifacts can be

an interactive party in the process

EncapsulationDigitally encapsulated

artifacts own and control the information of the

associated physical objects over the objects’

lifecycle

FIGURE 1 Pathways enabled by digital encapsulation

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