Optimizing Process-Improvement Efforts for Supply Chain Operations under Disruptions: New Structural Results

Abstract

Rampant disruptions have probed the fragility of supply chains: Renewed perspectives and comprehensive operational models are needed to enhance resiliency and sustainability in business. This paper proposes a new inventory management model that explicitly integrates process improvement efforts to improve supply chain sustainability through the better use of capital (materials, assets, and technology) and labor (workforce and know-how). Under a desired service-level constraint, we study reducing setup (fixed) costs when they are expressed in terms of economic production functions of two (input) decision variables: the level of capital (e.g., process change, and technology investments) and the level of labor required. This research is motivated by lean manufacturing practices, which rely on shaping the operating environment and operating optimally within that business environment. Based on mathematical modeling and analysis, we provide closed-form optimality expressions and structural results that lend themselves to decision insights. In particular, we provide, along with illustrative numerical examples, results on the sensitivity of setup-reduction efforts to demand rates, variability, and explicit expressions for determining the required labor and capital resources. A generalization of the model for carbon emissions is also presented.