Redesigning a closed-loop supply chain exposed to risks

Abstract

Supply chain management includes coordination and motivation of independently operating partners. Therefore, it is important to align logistics structures, processes and incentives, especially when making major changes involving those components. Traditionally, cost, quality, and service have served as prioritized performance indicators for supply chains, but lately risk is also taken into consideration (Tang, 2006), especially when studying risk-exposed supply chains. This paper presents a case study of a cash supply chain (CSC). A CSC provides society with notes and coins (Rajamani et al., 2006), which typically involves two parties working together: a central bank and a group of private actors (private banks and logistics service/security providers). Together, they form a closed-loop supply chain (see Guide and Van Wassenhove, 2006), which through their storage facilities and transport means supply cash to their customers (ATMs, bank branches, and retailers), whom in turn enables society's cash consumption. The CSC studied in this paper has during the last couple of years gone through several design changes in network structure (e.g. reducing number of storage facilities), processes (outsourcing), and incentive mechanisms (payment schemes and policies). Most design changes were carried out in order to decrease number of transports from and to central bank storage facilities, nevertheless some of them led to unintended effects (so-called misalignments). Therefore, the purpose of this paper is to present a model that determines effects caused by design changes in a CSC. (C) 2011 Elsevier B.V. All rights reserved.