Industrial engineering focuses on efficiency and cost reduction, which can lead to unintended consequences when optimization is not aligned with social and environmental issues. That’s why engineers should also serve human needs, as stated in Georgia Tech’s mission “to develop leaders who advance technology and improve the human condition” and focus on “making a positive impact in the lives of people everywhere.”
In an article published in a recent issue of the ISE magazine from the Institute of Industrial and Systems Engineers, the moral complications of supply chain optimization are discussed by Chen Zhou, associate chair for undergraduate studies and associate professor in the H. Milton School of Industrial and Systems Engineering (ISyE).
“Over the years, ISE has developed many tools for logistics and supply chain, analytics, manufacturing, ergonomics, quality improvement and work system design,” Zhou wrote in the article. “However, the challenge in modern society is that improvements in cost reduction and efficiency improvement are not sufficient to supply human needs.”
This misalignment is easily visible in the case of food deserts, where convenience stores and fast-food restaurants thrive because of their low costs and high efficiency. They do not provide sufficient nutrition, but supermarkets and family restaurants cannot compete against them because fresh produce has a shorter shelf life and is difficult to transport and store.
Another key example is the healthcare system, which is filled with invisible contracts that lead to high healthcare costs when pricing information is not transparent. Between hospitals and patients, there are other players – value added networks, group purchasing organizations, and pharmacy benefit managers – who are all optimizing their interests.
Georgia Tech Senior Design students have found a lot of waste in hospitals that arises when insurance companies are not concerned about product charges if their costs are covered by premiums, leading to potential overconsumption of medical services. This case of supplier-induced demand is just one instance of many moral hazards in the healthcare system.
To create supply chains designed to meet human needs, industrial engineers need to lead the way. “ISEs have an advantage to supplement their tools on cost and efficiency with a few more tools, such as a deterrent to moral hazards and the internalization of externalities, to address some of the most important social and environmental issues,” Zhou noted.
This article is provided for informational purposes only with permission of the Institute of Industrial and Systems Engineers from the July 2021 issue of ISE magazine, Copyright©2021. All rights reserved.
H. Milton Stewart School of Industrial and Systems Engineering