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Understanding supply chain robustness
Guilherme E. Vieira1
[email protected] / [email protected] ProfessorPontifical Catholic University
of ParanaPRBrazil
Reynaldo Lemos
MS StudentPontifical Catholic University ofParanaPRBrazil
Abstract:This paper reviews important concepts behind supply
chain (SC) problems and instability, which lead to the
need to design and operate more robust supply chains.
Based on several works reviewed, a supply chain is
considered robust when it is insensitive to variations ornoises in not so regular operating conditions. Those
adopting robust-oriented approaches (techniques) will
have more chance to stay successful in the market.
Key-words: Supply chain,robustness, performance.
I. INTRODUCTIONUncertainty is one of the most challenging and
important problems in supply chain (SC) management
(SCM) (Mo and Harrison, 2005). Indeed, it is a primary
difficulty in the practical analysis of SC performance. Inthe absence of randomness, the problems of material and
product supply are eliminated; all demands, production,
and transportation behavior would be completely fixed,and therefore, perfectly predictable (Sabria and Beamon,
2000). And because supply chain performance is
inherently unpredictable and chaotic, supply chain
practitioners often must seek safety mechanisms toprotect against unforeseen events. Significant efforts
have been used to expedite orders, to check order status
at frequent intervals, to deploy inventory just-in-caseand to add safety margins to lead times, among several
1 Corresponding author. Address:
Industrial Engineering, 2 Andar Bloco
3 Parque Tecnologico, Imaculada
Conceicao 1155, Pontifcia Universidade
Catolica do Parana, 80215-901, Curitiba,
Parana, BRAZIL. E-mail:
[email protected] Telephone: +55 41
3271 1333, Fax: +55 41 3271 1345.
other creative ways to counter the occurrence of
unforeseen events (Gaonkar and Viswanadham, 2004).Existing ERP (Enterprise Resources Planning), SCM
and other B2B (Business-to-Business) solutions are
designed to improve efficiency of supply chains but not
to enhance their reliability or robustness under
uncertainty. However, a supply chain should be
designed for robustness and therefore robustly controlled
in order to be and to stay competitive. In fact, under the
intense competitive scenario prevalent todaycompetition is no longer between companies bu
between supply chain networks with similar productofferings, serving the same customer (Gaonkar and
Viswanadham, 2004).
Supply chain robustness is needed but how exactly
can one make a supply chain more robust? In theliterature, one can find two main approaches to analyze
robustness: Analytical models (mainly based on linear
and non-linear mathematical models) and simulation-based approaches. From these, the first one is by far the
most commonly used. Many researchers have modeled
supply chain robustness as an optimization mathematicamodel, often considering probability of occurrence of
different scenarios. Then, the optimal values for
parameters like quantity shipped from site to site or
quantity to be produced are determined (Mo andHarrison, 2005; Gaonkar and Viswanadham, 2004; Yu
and Li, 2000; Bertsimas and Thiele, 2004; and Leung e
al., 2007). On the other hand, Tee and Rossetti (2002use simulation to assess system robustness while many
have used discrete computer simulation to evaluate
supply chain performance only (Reiner, 2005; Tee and
Rossetti, 2001; Vieira and Cesar, 2005; Vieira, 2004
and Vieira and Cesar, 2004).In practice, a company often carries (safety)
inventory (from raw-materials to finished goods) to
protect itself from running out of stock owing to
uncertainty (i.e., long lead times, demand fluctuations
etc.) and eventually not meeting demand, andconsequently, not selling as much product as it could
(besides having to pay penalty fees for late deliveries
and/or having its image deteriorated). However, carrying
too much inventory to minimize the risk for theseproblems, however, has its obvious negative financia
(and operational) implications. A robust supply chain
can better deal with random events that cause theseproblems at a lower cost.
The paper reviews important concepts about supply
chain and SC robustness, explains some of the causes of
SC problems and instability and describes ideas behind
the design for robustness and design of experiments
(DOE) that can be used to analyze SC robustness. Fina
considerations and suggestions for future research aregiven at the end.
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II. SUPPLY CHAIN ROBUSTNESSThe objective of a robust supply chain is to ensure
that the supply chains network structure and itsmanagement (and control) policies will operate well
under a wide variety of situations which leads towards
risk minimization of undesirable outcomes. During the
initial steps of a supply chain structure design, the useroften assumes that the design is optimal based on a
series of assumptions (expected demand, lead time, etc)and will operate as efficiently and effectively aspossible. Perhaps even more important, if performed
properly, design for robustness will ensure that the
selected supply chain design will, under less thanexpected or unusual circumstances, not perform
unacceptably poor (Hicks, 1999). This should not be
confused with simple variance. Random variance may
have been introduced in the first design phases toproduce more realistic approaches. So, design for
robustness is not centered on randomness and its effects;
rather, it is the evaluation of the results of changing
some of the external given data assumptions (Hicks,
1999). It is known that demand is not a hundred percent
predictable and despite the best forecasting systemavailable, a forecast will always have errors. So, the
randomness of the demand is to be taken into account at
the earlier stages of the supply chain design and
operation. However, if the demand reaches unexpectedvariation levels, the supply chain must be robust enough
to deal with this variation so that the undesirable
outcomes can be minimized (note that avoiding thisunexpected randomness is out of someones control).
According to Mo and Harrison (2005), the concept of
robust design was first introduced by Genuchi Taguchi
in the 1960s, and was subsequently accepted in the fieldof experimental design and quality control. The basic
idea of robust design is to make a manufacturing process
insensitive to noise factors. Taguchi divided variablesinto two categories: design factors and noise factors.
Design factors are controllable decisions affecting a
process while noise factors are those variablesrepresenting field sources of variation. The goal is to
design a product or process to be robust to noise. One
way to determine a robust design is to find a set of
design variables that provides the minimum deviationfrom a target value of the response when noise variables
are considered at different levels.
Gaonkar and Viswanadham (2004) state that in aperfect world, the plans generated by the channel (a
dominant organization in a supply chain) master would
allow all the partners to synchronize their activities andbusiness processes leading to greater efficiencies and
profits for everyone. For example, components would
arrive at the assembler site on time for production to
start, adequate inventory of all components would be
available before production and demand would be
deterministically predictable. However, in the practicaworld, uncertainty rules. Consequentially, sales routinely
deviate from forecasts; components are damaged in
transit; production yields fail to meet plan; and
shipments are held up in customs. In truth, schedule
execution as per plans generated by supply chain
planning is just a myth.
Supply chains need to be robust at three levels,
strategic, tactical, and operational, and they need to beable to handle minor regular operating deviations and
major disruptions at each of these levels as seen in Table1. For example, at the operational level, companies
require decision support systems that can act on
information from various partners regarding various
deviations and disruptions to reschedule activities so thathe business processes are synchronized and deliveries
are undertaken within customer delivery windows and
cost limitations. At the tactical level, plans need to haveredundancies in terms of human and machine resources
and also logistics and supply organizations. At the
strategic level, more reliable partners with intrinsiccapabilities in deviation and disruption handling, and the
skills and ability to adapt to changing market conditions
will be preferred and selected (Gaonkar and
Viswanadham, 2004).Table 1. Types of deviations (Gaonkar and Viswanadham, 2004)
Planning Level Type of Event Example
Strategic Deviation Logistics/Manufacturing
Capacity addition
Disruption Supplier bankruptcy
Tactical Deviation Order forecast
Disruption Port strike
Operational Deviation Lead-time variation
Disruption Machine/Truckbreakdown
The strategic level relates mainly to the design of the
physical supply chain, in term of, for instance, numberof participants in each SC echelon (level) and their
locationit should, therefore, be addressed more closelyduring the SC design phases. Supply chain designmodels determine strategic decisions, such as the most
cost-effective location of facilities (including plants and
distribution centers), flow of goods, services
information and funds throughout the supply chain, and
assignment of customers to distribution centers (Mo andHarrison, 2005; Sabria and Beamon, 2000). These types
of models do not seek to determine required inventorylevels, and customer service levels (Sabria and Beamon
2000). Gaonkar and Viswanadham (2004) also focused
on the design of robust supply chains at the strategic
level through the selection of suppliers that minimize thevariability of supply chain performance in terms of cost
and output.
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Tactical and operational planning deals mainly with
policies and methods adopted by the SC members tocreate and maintain robustness. The main aspects that
can be considered in these classes are probably related to
production planning and scheduling, sourcing
variability, demand uncertainty and forecasting, and
selection and use of transportation operators.
Hicks (1999) and Mo and Harrison (2005), however,
focus on design supply chain robustness whereas this
research focuses on the operational side of SCrobustness, which could also be called supply chain
operations robustness. According to Sabria and Beamon(2000), the main purpose of the optimization at the
operational level is to determine the safety stock for each
product at each location, the size and frequency of the
product batches that are replenished or assembled, thereplenishment transport and production lead times, and
the customer service levels. The research concentrates
on the sourcing, planning, scheduling and demandaspects of a supply chain operation from the robustness
point-of-view. Within this category, supplier and
production lead-time variances, collaboration aspects,risk management and scheduling robustness are of
particular interest in the overall aspects of this study.
In order to quickly adapt to fluctuating market
demands, the resource allocation and the scheduling(configuration) of a flexible manufacturing system
(FMS) should not simply be optimized for the current
production plan, rather, it should ideally be optimizedfor robustness against the variation in production plans,
so that the system can deal with the variation with
minimal reconfiguration while achieving consistently
efficient production under all production plans of
interest (Saitou et al., 2002; Saitou and Malpathak,1999). Saitou and Malpathak (1999) specifically define
the FMS robustness as the insensitivity of production
performance against variations in the production plan.
(Analyzing robustness from this point-of-view is also a
very interesting research area, but is not part of thisresearch.) The reader is also encouraged to look at
[Saitou and Qvam, 1998; Bulgak et al., 1999; and
Shang, 1995) for more information on FMS robustness.
The ideas from Saitu et al. (2002) and Saitou andMalpathak (1999) can certainly be extrapolated to supply
chain systems, where minimal reconfiguration of
resources (suppliers, transporters, distribution centers,manufacturing plants), production, and transportation
schedules in face of unexpected events make a robust
supply chain. In this case, decision variables are
resource allocation and production schedules (plans).
The less changes that are applied to these variables, the
more robust the system is. In the case of a SC, there are
other decision variables, such as supplier re-allocation,new supplier contracts, re-allocation of transportation
routes, re-assignment of production from a plant to
another, re-assignment of product from one DC toanother or even from on retailer to another. It is a
combination of factors: One will try to minimize
changes to production schedules/plans, collection and
distribution plans, suppliers. Reallocating material from
one site to another (plant to plant, or DC to DC, for
instance) can help the chain better deal with the
unexpected event(s) and consequently, minimize
disruptions and negative consequences of these eventsThe better and faster the SC can do this, the more robust
it will be.For a SC to be considered robust, it is not enough to
have only one link of the chain be robust (if this is
possible) but all the main participants of the supply
chain must strive for robustness as a unit. SC robustnesdepends heavily on the cooperation (collaboration) of its
participants. Imagine a disaster event happening in one
part of the country. The population demand for barenecessities in that region would vary (in this case, grow)
much more than planned. Retailers may want to re
allocate goods from other sites; their transportationsystem must be able to cope with these new
transportation needs. Industries would need to focus
more on the needs of that part of the country, and
consequently, the respective suppliers of these
industries. The whole chain would have to bemobilized, prepared and willing to collaborate to
minimize the effect on the service level that the disasterwould cause.
Another (simpler) situation would be when it takes
much longer to receive a shipment from a supplier then
expected (especially when it involves international
suppliers, since the distance, bureaucracy, and paperworks can really make it more difficult to manage)
Stages downstream will have to deal with this
unexpected delay. For some industry sectors, even
upstream stages are affected as well. This is usually the
case with car assembly plants. A late shipment from asupplier can make the car maker re-schedule its
production and as a consequence, other suppliers will
have to deal with the new MRP and deliver the
unexpected goods to the car maker.
III. MAIN CAUSES OF SUPPLY CHAINPROBLEMS AND INSTABILITY
As mentioned previously, random factors in a supplychain can reach undesirable levels and combinations
asserting the need for a SC designed and operated for
robustness. Some of the problems that cause instability
and perturb the systems performance are related to thefollowing factors.
Supplier lead time.Poor product quality received from supplier.
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Demand variations.Production stoppages due to random machine
failures, workers strike, severe weather conditions.
From these, supplier lead time and demand variations
are probably the most important aspects for most
companies, and for this reason, these variables are given
more attention in this research. (A more general reviewof problems for instability is given by (Gaonkar and
Viswanadham, 2004). A classification of disruptions
modes that occur in a supply chain, causing instabilityand performance degeneration are shown in Table 2.Table 2. Modes of disruptions (Gaonkar and Viswanadham, 2004)
Modes of Disruptions Description
Supply side Delay or unavailability of materials
from suppliers, leading to a shortage of
inputs that could paralyze the production.
Transportation Delay or unavailability of either inbound
or outbound transportation to move goods
due to carrier breakdown or weather
problems.
Facilities Breakdown of machine, power or water
failure leading to delay or unavailability of
plants, warehouses and office buildings.
Breaches in freight or
partnerships
Violation of the integrity of cargoes,
products (can be due either to theft or
tempering with criminal purpose, e.g.
smuggling weapon inside containers) or
company proprietary information.
Failed
Communications
Failure of information and
communication infrastructure due to line,
computer hardware or software failures or
virus attacks, leading to the inability to
coordinate operations and execute
transactions.
Wild demand
fluctuations
Sudden loss of demand due to economic
downturn, company bankruptcies, war, etc.
Based on its nature, uncertainty in the supply chainmay manifest itself in three broad forms - deviation,
disruption and disaster (Gaonkar and Viswanadham,
2004). A deviation is said to have occurred when one ormore parameters, such as cost, demand, or lead-time
within the supply chain system stray from their expected
or mean value, without any changes to the underlying
supply chain structure. A disruption occurs when thestructure of the supply chain is radically transformed,
through the non-availability of certain production,
warehousing and distribution facilities or transportationoptions due to unexpected events caused by human or
nature. A disaster is defined as a temporary irrecoverableshutdown of the supply chain network due to unforeseen
catastrophic system-wide disruptions.In general, it is possible to design supply chains that
are robust enough to profitably continue operations in
the face of expected deviations and unexpecteddisruptions. However, it is impossible to design a supply
chain network that is robust enough to react to disasters.
However, to better manage the uncertainties in thesupply chain it is necessary to identify the exceptions
that can occur in the chain, estimate the probabilities of
their occurrence map out the chain of immediate anddelayed consequential events that propagate through the
chain and quantify their impact. In this context, it
becomes important to identify the possible exceptions in
a supply chain and their consequences before proceeding
to the development of analytical models (Gaonkar and
Viswanadham, 2004).
Robust optimization generates supply chain solutions
that maintain their optimality under minor deviations inenvironmental conditions (Gaonkar and Viswanadham
2004). In other words, supply chain robustness is relatedto the ability of the SC to maintain it expected
performance, despite some unexpected deviations or
disruptions.
Since robustness is the insensitivity of productionperformances (Saitou and Malpathak, 1999), or the
ability to maintain a certain performance level, despite
unpredicted harmful uncertainty, an analysis to measureSC robustness needs to consider appropriate
performance metrics. Performance measures that can be
used must consider indicators commonly used byindustries, such as inventory levels, customer order lead
times, and customer service level. Besides these, an
indicator of the bullwhip effect is also an interesting
measure.
IV. DESIGN FOR ROBUSTNESS ANDEXPERIMENTAL DESIGN
According to Park (1996), robust design is anengineering methodology for optimizing the product and
process conditions so that they are minimally sensitive to
different causes of variations, and which produce high-
quality products with low development andmanufacturing costs. Taguchi extensively uses
experimental designs primarily as a tool to design
products which are more robust (less sensitive) to noisefactors. Taguchis parameter design is an important too
for robust design. His tolerance design can be also
classified as a robust design. In a narrow sense robus
design is identical to parameter design, but in a widersense, parameter design is a subset of robust design.
Two major tools used in robust design are:
Signal-to-noise ratio, which measures qualitywith emphasis on variation;
Orthogonal arrays, which accommodate manydesign factors (parameters) simultaneously.
The overall quality system should be designed toproduce a product (process, or, in this case, a supply
chain) that is robust with respect to all noise factors (i.e.
undesirable and uncontrollable sources that cause
deviation from target values in products (or process)functional characteristics). In order to achieve
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robustness, the product and the process should be
designed so that they are minimally sensitive to noisefactors (Park, 1996).
Experiments are carried out by researchers or
engineers in all fields of study to compare the effects of
several conditions or to discover something new. If an
experiment is to be performed most efficiently, then a
scientific approach to planning it must be considered.
The statistical design of experiments is the process of
planning experiments so that appropriate data will becollected, the minimum number of experiments will be
performed to acquire the necessary technicalinformation, and suitable statistical methods will be used
to analyze the collected data. The statistical approach to
experimental design is necessary if one wishes to draw
meaningful conclusions from the data. There are twoaspects to any experimental design: the design of the
experiment and the statistical analysis of the collected
data (Park, 1996).There are five different types of designs which differ
according to the experimental objective they meet as
follows (NIST/SEMATECH, 2007).Comparative objective: If you have one or
several factors under investigation, but the primary
goal of your experiment is to make a conclusion
about one a-priori important factor, (in the presenceof, and/or in spite of the existence of the other
factors), and the question of interest is whether or not
that factor is "significant", (i.e., whether or not thereis a significant change in the response for different
levels of that factor), then you have a comparative
problem and you need a comparative design solution.
Screening objective: The primary purpose ofthe experiment is to select or screen out the fewimportant main effects from the many less important
ones. These screening designs are also termed main
effects designs.
Response Surface (method) objective: Theexperiment is designed to allow one to estimate theinteraction between factors including even quadratic
effects and to develop the (local) shape of the
response surface. For this reason, they are termed
response surface method (RSM) designs. RSMdesigns are used to (a) find improved or optimal
process settings, (b) troubleshoot process problems
and weak points, and (c) Make a product or processmore robust against external and non-controllable
influences. "Robust" means relatively insensitive to
these influences.
Optimizing responses when factors areproportions of a mixture objective: If you have
factors that are proportions of a mixture and you want
to know what the "best" proportions of the factors are
so as to maximize (or minimize) a response, then you
need a mixture design.
Optimal fitting of a regression modeobjective: If you want to model a response as a
mathematical function (either known or empirical) of
a few continuous factors and you desire "good"
model parameter estimates (i.e., unbiased and
minimum variance), then you need a regression
design.
The term `Screening Design' refers to anexperimental plan that is intended to find the few
significant factors from a list of many potential ones
Alternatively, one may refer to a design as a screeningdesign if its primary purpose is to identify significant
main effects, rather than interaction effects, the latter
being assumed an order of magnitude less important
(Tee and Rossetti, 2001).The basic purpose of a fractional factorial design is to
economically investigate cause-and-effect relationships
of significance in a given experimental setting. For
example, an experiment might be designed to determinehow to make a product better or a process more robus
against the influence of external and non-controllablinfluences (NIST/SEMATECH, 2007). Park (1996also mentions that fractional factorial designs that use
orthogonal arrays are often employed in order to screen
the important factors that impact product (or process)performance.
Experiments might be designed to troubleshoot a
process, to determine bottlenecks, or to specify whichcomponent(s) of a product are most in need of
improvement. Experiments might also be designed to
optimize yield, or to minimize defect levels, or to movea process away from an unstable operating zone. Allthese aims and purposes can be achieved using fractiona
factorial designs and their appropriate design
enhancements (NIST/SEMATECH, 2007). Park (1996)states that fractional factorial designs are often inevitable
in industrial experiments since there are many factors
concerned, and the number of possible experiments islimited owing to cost and time.
Existing fractional factorial layouts are quite limited
and difficult to use. Robust design adds a new
dimension to conventional experimental design
Taguchi developed the foundations of robust design andthe concept of robust design has many aspects, among
them are (Park, 1996):1. Finding set of conditions for design variableswhich are robust to noise;
2. Achieving the smallest variation in a productsfunction about a desired target value;
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3. Minimizing the number of experiments usingorthogonal arrays (OA) and testing for confirmation.In fact, use of OA is indispensable for robust design.
V. FINAL CONSIDERATIONSSupply chain robustness is still a concept not
perfectly defined in the literature, at least, not in the
logistics or supply chain field. However, it is something
enterprises should pursuit in order to stay alive in thethough competitive world of nowadays. This paper
brought together some of the concepts and ideas that canbe used to design and operate a robust supply chain.
Future studies can consider, for instance: used of
Taguchis robust parameter design approach in order tobetter estimate the appropriate level for the design
parameters to deal with the noise factors; Response
surface design and analysis to model and evaluate SC
robustness; analysis of the relationship between supplychain robustness and its bullwhip effect.
VI. ACKNOWLEDGEMENTSThe corresponding author would like to thank the
Pontifical Catholic University of Parana (PUCPR) andthe Coordenao de Aperfeioamento de Pessoal de
Nvel Superior(CAPES, grant number BEX3466/06-0)
for the financial support given to this research project.
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