Efficient versus Responsive Supply Chain Choice: An Empirical Examination of Influential Factors

Contemporary strategies in operations management suggest that successful firms align supply chain assets with product demand characteristics in order to exploit the profit potential of product lines fully. However, observation suggests that supply chain assets often are longer lived than product line decisions. This suggests that alignment between supply chain assets and demand characteristics is most likely to occur at the time of initial market entry. This article examines the association between product demand characteristics and the initial investment in a supply chain at the time of market entry. We characterize supply chains as responsive or efficient. A responsive supply chain is distinguished by short production lead‐times, low set‐up costs, and small batch sizes that allow the responsive firm to adapt quickly to market demand, but often at a higher unit cost. An efficient supply chain is distinguished by longer production lead‐times, high set‐up costs, and larger batch sizes that allow the efficient firm to produce at a low unit cost, but often at the expense of market responsiveness. We hypothesize that a firm's choice of responsive supply chain will be associated with lower industry growth rates, higher contribution margins, higher product variety, and higher demand or technological uncertainty. We further hypothesize that interactions among these variables either can reinforce or can temper the main effects. We report that lower industry growth rates are associated with responsive market entry, but this effect is offset if growth occurs during periods of high variety and high demand uncertainty. We report that higher contribution margins are associated with responsive market entry and that this effect is more pronounced when occurring with periods of high variety. Finally, we report that responsive market entry also is correlated positively with higher technological demand uncertainty. These results are found using data from the North American mountain bike industry.     

Competition under capacitated dynamic lot-sizing with capacity acquisition

Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot-sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies of scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions.     

Ordering and pricing policies in a manufacturing and distribution supply chain for fashion products

In the paper, we develop a model of manufacturing and distribution supply chains that are operating to meet price-sensitive random demand for products with short life cycles such as fashion products. Two specific scenarios are considered. The manufacturer-controlled scenario is one where the distributor shares price-sensitive random demand with the manufacturer, and the manufacturer controls the supply chain stocking decisions and bears the risk of overstocking costs. The distributor-controlled scenario works in the opposite direction. Prevailing wisdom suggests that the manufacturer should control supply chain decisions (e.g., via vendor-managed inventory). Our results indicate that such an arrangement is against the interest of a distributor selling short life-cycle products. Furthermore, we find that the total supply chain profit is generally higher when the distributor controls the supply chain stocking decisions and bears the risk of overstocking costs.     

Considering stochastic lead times in a manufacturing/remanufacturing system with deterministic demands and returns

In this paper we study a manufacturing/remanufacturing system with stochastic lead times and a constant demand. We base our approach on previous research in which we have developed models to describe an inventory system with stochastic lead times. In this paper, we first adopt this method to manufacturing/remanufacturing situations, where there are essentially two supply sources for replenishing serviceable inventory. We then provide a solution procedure when a cycle ordering policy is used. Secondly, we investigate the possibility to use a dual sourcing ordering policy in which each order is split between a manufacturing and a remanufacturing process. Finally, we compare the two ordering policies and illustrate how the lead-time patterns influence the economic consequences.     

Inventory control in a two-echelon dual-channel supply chain with setup of production and delivery

This paper considers a two-echelon dual-channel supply chain model with setup of production and delivery and develops a new inventory control policy for the supply chain. Previously, a two-echelon supply chain model without setup of production and delivery is considered and a one-for-one inventory control policy is applied to the supply chain. In the inventory control policy, production is stopped when the warehouse inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. Moreover, delivery to the retailer is stopped when the store inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. The total cost that consists of inventory holding costs and lost sales cost is considered, and setup costs are not considered in the total cost. Once setup costs are introduced, the one-for-one inventory control policy is no longer appropriate. Then, this paper develops a new control policy for the two-echelon dual-channel supply chain with setup of production and delivery. As performance measure, the total cost that consists of inventory holding costs, lost sales cost, and production and delivery setup costs is considered, and the total cost calculated on the basis of Markov analysis demonstrates the effectiveness of the proposed control policy.     

Efficient location of industrial activity cells in a global supply chain

Inefficient locations for production, distribution and reverse logistics plants will result in excess costs no matter how well material requirements planning (MRP), inventory control, distribution and information sharing decisions are optimized. In this paper we study ways in which aspect of activity cell location decisions can be analyzed within an extended MRP model. This model has previously been extended by including distribution and reverse logistics components in a compact form, presented in Grubbström et al. (2007). Our aim is to demonstrate the basic differences between an approach to location problems with MRP “under the same roof” as the global supply chain, in which transportation time delays and direct transportation costs have substantial influence. We discuss possibilities of how to present location aspects in the supply chain model obtained from combining input–output analysis and Laplace transforms in four sub-systems, namely manufacturing, distribution, consumption and reverse logistics, and show how the transportation costs and lead time influenced by the location of all these activities affect the resulting net present value (NPV). Our aim is to build a model supporting decisions concerning the structure of a supply chain as an alternative to a mixed integer programming formulation. The model developed is based on the use of continuous functions describing spatial distributions of cost and customer demand. Continuous functions are embedded in the MRP extension previously introduced in Grubbström et al. (2007).Location decisions influence (i) production costs, because timing influences the cost of activities involved in creating a product, cf. (Grubbström and Bogataj, submitted for publication), and (ii) logistics costs, which refer to the procurement and physical transmission of materials through the supply chain. In this current paper we wish to combine both of these aspects into a comprehensive model, where we show the interaction between the “space of flows” and the “space of places” as Giovanni Arrighi distinguishes one from the other in his book The Long Twentieth Century.     

Short life-cycle deteriorating product remanufacturing in a green supply chain inventory control system

Due to global warming, environmental consciousness and shortening product life-cycles, more attentions have been paid to ecological protection and resource utilization. Green products and production process designs significantly influence the environment and resource re-usage. The relevant EU regulations, such as WEEE and EuP, have reduced negative effects by controlling the disposals and the resource re-usage. In this study, green product designs and remanufacturing efforts are investigated when we develop an integrated production inventory model with short life-cycles. A numerical example is provided to illustrate the theory. We have shown that new technology evolution, remanufacturing ratios and system’s holding costs are critical factors affecting decision making in a green supply chain inventory control system.     

An economic production and remanufacturing model with learning effects

Managing inventory in reverse logistics has been receiving much attention in recent years. One inventory problem that has been of interest to researchers is the production and remanufacturing model, where used items are collected and remanufactured to satisfy customer demand. The available models in the literature do not discuss the learning effects in production and remanufacturing processes. This may not be true in industries where labour costs and learning costs are expensive. By modelling these learning effects, management may use established learning models to better utilize capacity, manage inventories, and coordinate production and distribution throughout the chain.This paper extends the production, remanufacture, and waste disposal model by assuming learning to occur in both production and remanufacturing processes. However, this paper also assumes that improvements due to learning require capital investment. Mathematical models are developed, numerical examples are provided, and results are discussed.     

Coordinated supply chain scheduling

A mixed integer programming approach is proposed for a long-term, integrated scheduling of material manufacturing, material supply and product assembly in a customer driven supply chain. The supply chain consists of three distinct stages: manufacturer/supplier of product-specific materials (parts), producer where finished products are assembled according to customer orders and a set of customers who generate final demand for the products. The manufacturing stage consists of identical production lines in parallel and the producer stage is a flexible assembly line. The overall problem is how to coordinate manufacturing and supply of parts and assembly of products such that the total supply chain inventory holding cost and the production line start-up and parts shipping costs are minimized. A monolithic approach, where the manufacturing, supply and assembly schedules are determined simultaneously, is compared with a hierarchical approach. Numerical examples modeled after a real-world integrated scheduling in a customer driven supply chain in the electronics industry are presented and some computational results are reported.     

A review of the extensions of a modified EOQ model for imperfect quality items

Imperfect items in the raw material and production stages of a supply chain directly impact the coordination of the product flow within a supply chain. In response to this concern, production and inventory lot sizing models, which incorporate imperfect items into their formulation have become an important and growing area of research. The contribution of Salameh and Jaber (2000) is one of the fundamental models on lot sizing when procured items are of imperfect quality. Over the past decade, there has been a noticeable amount of interest in the EOQ model for imperfect items that was set forth in Salameh and Jaber (2000). Several researchers have published adaptations and extensions of this original model that address supply chain coordination, quality improvement and yield management, and the impact of human error on production and inventory systems. In this paper, we summarize the current body of research that has extended the Salameh and Jaber (2000) EOQ model for imperfect items. Some possible future research directions are identified at the end of the paper.     

Inventory service-level optimization within distribution network design problem

We propose a sequential heuristic approach to optimize inventory service levels in a two-stage supply chain. The proposed approach deals with service level and inventory decisions, simultaneously with network design decisions, and incorporating unfulfilled demand costs in a previous inventory-location model. A two-step formulation is considered, where the first step optimizes service level and the second step addresses location and inventory decisions. Each algorithm iteration solves an inventory-location model for a fixed service level, and then the service level is updated in order to reach an equilibrium condition between operating system and unfulfilled demand costs. The algorithm converged in three iterations for a set of sample instances, obtaining the same outcome in comparison with a more intuitive, exact, but more time-consuming search procedure.     

Channel coordination with the newsvendor model using asymmetric information

In this paper, after surveying short-term two-echelon supply channel coordination methods, we present an extended version of the newsvendor model in which the supplier has to fulfil all demand of the customer, even if this calls for an additional setup of production. Given uncertain demand forecast, the solution is an optimal production quantity that minimises the expected total cost including setup, inventory holding and obsolete inventory costs. Then, the model is studied in a decentralised setting where the customer has private information about the demand forecast, while the supplier knows the various cost factors. We suggest such a coordination protocol and payment scheme that provides both partners the right incentive for minimising the total cost: the customer is interested in sharing her unbiased demand forecast and uncertainty, while the supplier's rational decision concurs with the overall optimum. Hence, local decisions based on asymmetric information coordinate the channel in the global sense. The results are also demonstrated by taking some real-life test cases from an industrial study that motivated our work.     

Lead time reduction strategies in a single-vendor-single-buyer integrated inventory model with lot size-dependent lead times and stochastic demand

This paper studies alternative methods for reducing lead time and their impact on the safety stock and the expected total costs of a (Q,s) continuous review inventory control system. We focus on a single-vendor-single-buyer integrated inventory model with stochastic demand and variable, lot size-dependent lead time and assume that lead time consists of production and setup and transportation time. As a consequence, lead time may be reduced by crashing setup and transportation time, by increasing the production rate, or by reducing the lot size. We illustrate the benefits of reducing lead time in numerical examples and show that lead time reduction is especially beneficial in case of high demand uncertainty. Further, our studies indicate that a mixture of setup time and production time reduction is appropriate to lower expected total costs.     

Optimal production–inventory strategies for a HMMS-type reverse logistics system

The aim of the paper is to find optimal inventory policies in a reverse logistics system with special structure. It is assumed that demand is a known continuous function in a given planning horizon and return rate of used items is a given function. There is a constant delay between the using and return process. We investigate two stores. The demand is satisfied from the first store, where the manufactured and remanufactured items are stored. The returned products are collected in the second store and then remanufactured or disposed. The costs of this system consist of the quadratic holding costs for these two stores and the quadratic manufacturing, remanufacturing and disposal costs.The model is represented as an optimal control problem with two state variables (inventory status in the first and second store) and with three control variables (rate of manufacturing, remanufacturing and disposal). The objective is to minimize the sum of the quadratic deviation from described inventory levels in stores and from described manufacturing, remanufacturing and disposal rates. In this form, the model can be considered as a generalization of the well-known Holt et al. (Planning Production, Inventories, and Work Forces, Prentice-Hall, Englewood Cliffs, NJ, 1960) model with two warehouses. After solving the problem, we give some numerical examples to represent the optimal path in dependence of the demand rates.     

The relationship between UK manufacturers’ inventory levels and supply,internal and market factors

A major survey of UK manufacturing plants was carried out to explore the relationships between certain factors and inventory levels. These factors include procurement lead time, customer delivery lead time, manufacturing lead time and levels of predictability of raw materials availability and customer demand levels. The sample for the study comprises UK manufacturing plants in different industrial sectors including engineering, process, electronics, household products and food sectors. The results of a correlation analysis show that supply chain management issues such as the procurement lead time and the frequency of raw materials delivery are significantly linked with the inventory level of manufacturing plants. Also, manufacturing lead times were found to be associated with inventory levels but there was no significant relationship between customer delivery lead times and inventory levels.     

A multi-item supply chain with credit periods and weight freight cost discounts

It is possible to realize considerable savings by aggregating the replenishment of a variety of items in a multi-item supply chain. This joint multi-item replenishment policy has already been widely applied in a variety of industries. This type of policy may make it possible for the retailer to take advantage of transport economies of scale by the utilization of freight discounts for greater weight. In addition, a supplier will often extend forward financing to a retailer. In this paper, a multi-item supply chain with a credit period and weight freight cost discounts is considered. The retailer bears the freight costs, but the freight carrier provides freight-transport discounts that are positively related to the weight of the cargo transported. From both the individual and the channel perspectives, we deal with the dual problems of determining the ideal supplier credit period, and of the best way for the retailer to make multi-item replenishment and pricing decisions, while still maximizing profits. We outline the optimal properties and develop algorithms for solving the problems described, as well as discuss the impact of the freight cost discounts, the inventory holding cost, and the interest rate on the behavior of both parties.     

On the replenishment policy when the market demand information is lagged

We consider a situation where the most up-to-date information on the market demand and the inventory levels is not available to a replenishment decision maker in a single echelon of a supply chain. The objective of the decision maker is to minimise the sum of the inventory and the production costs. An intuitively attractive strategy under this setting might be to reduce the information time lag as much as possible by utilising information technologies such as RFID. We call this strategy the Time lag Elimination Strategy (TES). However, this course of action requires investment in information systems and will incur a running cost. We propose an alternative strategy that has similar economic consequences as the TES strategy, but it does not require new information systems. We call this strategy the Controlling Dynamics Strategy (CDS). The benefit coming from CDS is quantified and is compared to that from TES. We also quantify the benefits gained from the combined use of these two strategies. A new ordering policy is introduced that is easy to implement without any forecasting systems and can reduce the production cost significantly.     

The role of free economic zones in global supply chains—a case of reverselogistics

Schengen border crossings are moving from former European borders southeastwards. These changes influence some socioeconomic positions of regions and availability of human resources in the nodes of global supply chains. Free Economic Zone (FEZ) has been considered as a tool to make the flow of goods and the flow of human resources less exposed to risk. Considering the production function in activity cells of a global supply chain, the perturbations of NPV of activities in total chain are expressed in cases, where the availability of human resources and perturbations of lead time takes place, both of which are the result of activities at border crossings. The extended MRP approach with an extension to distribution and reverse logistic part of a supply chain is used to develop the model for evaluating the influence of the lead-time perturbations and perturbations in availability of properly skilled human resources in different regions separated by Schengen borders. Tax exemption in an FEZ is presented as a compensation for the negative impact of Schengen border on the net present value of a global supply chain and consequently as the compensation for shortages and costs of properly skilled workers. The paper gives answer to the question, what is the level of reduction of tax burden in the FEZ of accession countries, which is only a compensation for the higher labour costs, additional administrative costs and the cost of risks assumed at border crossings. We have explained why we are not able to talk about an unfair competition of producers in an FEZ’s atall.     

Impact of RFID information-sharing strategies on a decentralized supply chain with reverse logistics operations

The integration of environmental practices in a supply chain has been study for the past few decades. However, most of the work relies on centralized decisions made by one player. Few papers address the complex dynamics of environmental decentralized supply chains and how these dynamics can affect environmental and economic outcomes. To study this problem, we consider a supply chain with a manufacturer and two different suppliers: a recycled-material and a raw-material supplier. The players make individual inventory decisions to satisfy demand and reduce cost. Further, this supply chain encompasses stochastic elements such as in demands, returns, and collection leadtimes. These decentralized decisions and random factors can cause underperforming results; therefore, new inventory models and technologies are needed to help companies increase coordination within these systems. We model the implementation of Radio Frequency Identification (RFID) in the supply chain to determine if real-time inventory monitoring and information sharing can help the system attain higher environmental benefits (more returns) and higher economic benefits (less cost). We study two scenarios through a simulation-based analysis: No RFID and RFID. Numerical studies show that environmental benefits are significantly increased with the attainment of more returns. However, although economic benefits are realized, they are less significant than the environmental benefits. Further regression and sensitivity analyses on the cost performance measures reveal that economic benefits depend on several drivers inside the system. We present managerial insights that illustrate what configurations within this complex system can lead to the achieving of environmental as well as economic benefits.     

Lot sizes in a capacity constrained facility—a simulation study of stationary stochastic demand

This paper considers the scheduling of several different items on a single machine, in literature known as the economic lot scheduling problem, ELSP. One of the characteristics of this problem is that the demand rate is deterministic and constant. However, in a practical situation demand usually varies. In this paper we examine if a deterministic model can be used if demand is stationary stochastic. A dynamic programming approach from Bomberger (Manage. Sci. 12(11) (1966) 778) and a heuristic method from Segerstedt (Int. J. Production Econom. 59(1–3) (1999) 469) are used to calculate lot sizes for four items. The production of these items is simulated with different variations in demand rates. Our conclusion is that a deterministic model of this kind can be used in a practical situation where the demand rate is stationary stochastic, but the models must be complemented by a decision rule; which item to produce and when to produce it. In our tests the heuristic method and the dynamic programming approach perform rather similarly with respect to costs and inventory levels, but the dynamic programming approach results in more backorders when there is small variation in demand rates. This study indicates that the model used for determination of lot sizes is of less importance than the decision rule used for identification of the item to produce and when to produce it.