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    Understanding supply chain robustness

    Guilherme E. Vieira1

    [email protected] / [email protected] ProfessorPontifical Catholic University

    of ParanaPRBrazil

    Reynaldo Lemos

    [email protected]

    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.

    mailto:[email protected]:[email protected]
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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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