Proactive inventory policy intervention to mitigate risk within cooperative supply chains

Takako Kurano,Gary W Black,Kenneth N Mckay

doi:10.5267/j.ijiec.2013.11.006

Abstract

Article history: Received July 2 2013 Received in revised format September 7 2013 Accepted November 23 2013 Available online November 27 2013 This exploratory paper will investigate the concept of supply chain risk management involving supplier monitoring within a cooperative supply chain. Inventory levels and stockouts are the key metrics. Key to this concept is the assumptions that (1) out-of-control supplier situations are causal triggers for downstream supply chain disruptions, (2) these triggers can potentially be predicted using statistical process monitoring tools, and (3) carrying excess inventory only when needed is preferable as opposed to carrying excess inventory on a continual basis. Simulation experimentation will be used to explore several supplier monitoring strategies based on statistical tests, specifically runs up and down and/or runs above and below tests. The sensitivity of these tests in detecting non-random supplier behavior will be explored and their performance will be investigated relative to stock-outs and inventory levels. Finally, the effects of production capacity and yield rate will be examined. Results indicate out-of-control supplier signals can be detected beforehand and stock-outs can be significantly reduced by dynamically adjusting inventory levels. The largest benefit occurs when both tests are used together and when the supplier has sufficient production capacity to respond to downstream demand (i.e., safety stock) increases. When supplier capacity is limited, the highest benefit is achieved when yield rates are high and, thus, yield loss does not increase supplier production requirements beyond its available capacity.

Highlights

The recent economic crisis has forced many manufacturing firms to restructure their business models by reducing inventory levels, preventative maintenance and employing other cost cutting strategies. These practices have reduced the robustness of supply chains and, in turn, many customers find themselves increasing their own inventory levels to compensate or reacting just-in-time to impacts associated with supply chain disruptions
This exploratory paper will examine a proactive approach to supply chain risk management using a dynamic inventory policy based on cooperative supplier monitoring
This review focuses on key areas underlying the motivation and methodology used in this paper, namely supply chain risk management, inventory control in supply chains, supply chain modeling approaches, inventory monitoring using statistical methods, and the trend towards increased cooperation and information sharing among supply chain partners

Summary

Introduction

The recent economic crisis has forced many manufacturing firms to restructure their business models by reducing inventory levels, preventative maintenance and employing other cost cutting strategies These practices have reduced the robustness of supply chains and, in turn, many customers find themselves increasing their own inventory levels to compensate or reacting just-in-time to impacts associated with supply chain disruptions (e.g., stock-outs). When operational information about key parameters (e.g., inventory level, yield rate) is shared with a partner, he can be more proactive in establishing his own inventory risk control policies in accordance with an acceptance risk level This exploratory paper will examine a proactive approach to supply chain risk management using a dynamic inventory policy based on cooperative supplier monitoring. What effect do operational factors such as supplier yield rate and production capacity have on the ability to successfully employ the supplier monitoring strategy?

Literature Review

Research Synthesis and Problem Summary

Methodology

Experimental Design

Experimental Results and Discussion