A model for comparing supply chain schedule integration approaches

Abstract

In this paper, we address two research questions relevant to the integration of a manufacturer's production schedule with its suppliers. (i) 'What are the cost implications of different levels of supply chain integration?' (ii) 'Does the increase of forecast effectiveness mitigate some of the shortcomings of a lower degree of supply chain integration?' A stochastic cost model is used to evaluate the total system cost under a variety of environmental factors. Experimental results indicate that the penalty of developing purchasing and scheduling policies without consideration of the flexibility capabilities of the suppliers could be significant. The cost comparisons of our experiment show that such a penalty can be reduced substantially if companies adopt an intermediate level of supply chain integration. Within the intermediate level of integration, the critical path approach is more effective than the tier-1 approach, except when lead time in the critical path is short and the suppliers are moderately flexible. Another finding of this study shows that increased forecast effectiveness helps mitigate the shortcomings of lower levels of integration. However, it cannot replace the value of a higher level of supply chain integration.