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performance evaluation

M. Barada,*, D. Even Sapirb

a

Department of Industrial Engineering, Faculty of Engineering, Tel Aviv University, Ramat Aviv, 69978 Tel Aviv, Israel

b

Israeli Defense Army, Israel

Abstract

This paper examines potential beneﬁts of ﬂexibility in logistic systems. It brieﬂy reviews ﬂexibility concepts and

existing ﬂexibility frameworks before suggesting a bottom-up framework for ﬂexibility in logistic systems. Then, one

among the proposed system logistic ﬂexibility types, denoted here trans-routing ﬂexibility, is quantitatively investigated.

The research focuses on ﬂexibility’s beneﬁts exclusive of cost considerations. Logistics dependability, a customer

oriented logistic performance measure is introduced. The analysis is framed in a multi-factor design of experiments

(DOE) that considers factors representing changes in operational and environmental conditions of a logistic system and

design factors, such as trans-routing ﬂexibility, acting as countermeasures to changes. The model stems from a military

logistics scenario easily adaptable to an industrial or service environment. Using DOE to examine the important

interactions between the factor effects contributes to a better understanding of the logistics decision problems and their

eventual solutions.

r 2003 Elsevier B.V. All rights reserved.

has been very limited. Andersson (1991) referred

Flexibility in logistic systems may well represent to ﬂexibility as synonymous to change and not as a

a potential source of improved efﬁciency. How- countermeasure for coping with changes and

ever, contrary to ﬂexibility in manufacturing variations. In logistic channels the way of thinking

systems, which has been widely researched, it has been mainly inﬂuenced by time-based strate-

seems that research on ﬂexibility in logistic systems gies, see e.g. Billesbach and Hayen (1994) and

has been conspicuous by its absence (Jensen, Dougherty and Pittman (1995). Quick response

1997). In a broad way ﬂexibility has been deﬁned was the main goal of a logistic system. To ensure

as ‘an attribute of a system technology for coping quick response in highly competitive situations,

with the variety of its environmental needs’ as demanded by the time-based strategy, sup-

(De Groote, 1994). As such, the research of pliers resorted to increased service levels, thereby

increasing costs.

*Corresponding author. Fax: +972-3-6407669. A different way of thinking for meeting

E-mail address: barad@eng.tau.ac.il (M. Barad). the time-based constraints is through increased

0925-5273/03/$ - see front matter r 2003 Elsevier B.V. All rights reserved.

doi:10.1016/S0925-5273(03)00107-5

156 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

ﬂexibility. From a performance perspective, ﬂex- the logistic systems and design factors, such as

ibility is a powerful system ingredient that enables logistics ﬂexibility, acting as countermeasures to

stable performances under changing conditions. change.

Most of the logistic systems characteristics exhibit The remainder of this paper is organized as

changes and uncertainties. Increasing ﬂexibility in follows: Section 2 reviews ﬂexibility in the litera-

logistic systems can be regarded as a strategy for ture while Section 3 presents a framework for

improving the system responsiveness to changes. ﬂexibility in logistic systems. A model for explor-

The main goal of this paper is to emphasize and ing eventual beneﬁts of trans-routing ﬂexibility is

illustrate the importance of flexibility in logistic developed in Section 4. Section 5 describes a multi-

systems. To achieve this goal, a framework for factor experimental design and Section 6 concludes

ﬂexibility in logistic systems has to be envisaged. the paper.

To get further insight into the potential beneﬁts of

ﬂexibility in logistic systems, a quantitative more

detailed example, eventually illustrating the bene- 2. Flexibility in the literature

ﬁts of a speciﬁc logistic ﬂexibility type within the

deﬁned frame is also necessary. Hence, we model In recent years the literature on ﬂexibility has

and examine in some depth a speciﬁc logistic tremendously increased. The majority of the

ﬂexibility type, which we denote trans-routing published articles deal with ﬂexibility of manufac-

flexibility. This ﬂexibility type combines principles turing systems. Naturally this shows the complex-

of transshipment, routing ﬂexibility and decision ity of this concept as well as its importance. There

ﬂexibility. We investigate the performance of a has even been a proliferation of papers that review

logistic system possessing trans-routing ﬂexibility the ﬂexibility literature (e.g. Gupta and Goyal,

focusing on ﬂexibility’s beneﬁts exclusive of cost 1989; Sethi and Sethi, 1990; Suarez et al., 1991;

considerations. We deem that conventional, cost Kaighobadi and Venkatesh, 1994; Barad and Nof,

oriented logistic performance measures prevailing 1997; De Toni and Tonchia, 1998; D’Souza and

in most logistic systems may not always be Williams, 2000). The published reviews consider

appropriate. Instead, we suggest as an advanta- different aspects of ﬂexibility such as deﬁnitions,

geous alternative, a customer oriented logistic classiﬁcation and measurement of ﬂexibility,

performance measure, emphasizing quick response choices, interpretation and requests for ﬂexibility.

delivery through reduced supply uncertainty dur- In spite of this proliferation of reviews or rather

ing a replenishment cycle. We introduce such a because of it, there is less and less agreement

measure, logistics dependability, which we deﬁne as among the authors even on the basic ﬂexibility

the probability that there is no supply shortage classiﬁcation tools such as ‘types’, ‘dimensions’

until the end of a replenishment cycle, under given and ‘measures’. It seems that as far as the

starting conditions and inventory policy during the ﬂexibility taxonomy is concerned each paper starts

replenishment cycle. Logistics dependability seems from scratch.

to be particularly appropriate for non-proﬁt

organizations, including military systems. 2.1. Flexibility measuring dimensions

We deﬁne a twofold objective. (1) To utilize the

manufacture oriented and decision-making ﬂex- The two most agreed upon dimensions for

ibility literature for suggesting ﬂexibility types measuring ﬂexibility of any type are range and

pertinent as design factors in logistic systems and response (Slack, 1983; Gerwin, 1993; Upton,

(2) to quantitatively analyze the effect of one such 1994). The range dimension measures the variety

factor, namely trans-routing ﬂexibility, on the of available alternatives for the system adaptation,

system logistics dependability. The analysis is so that it may continue to operate. This dimension

framed in a multi-factor design of experiments is associated with the system effectiveness and is

(DOE) that considers factors representing changes typically measured by counting the number of

in operational and environmental conditions of options or by a normalized index. The response

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 157

dimension measures the easiness with which the On the range dimension machine ﬂex-

adaptation can be carried out in terms of the ibility is measured as the set of different

reaction time (or cost) needed to respond to tasks it is capable of performing. This

the change that occurred. This dimension may be measure, also known as the machine

thus associated with the system efﬁciency. Addi- versatility, can be normalized as a ratio

tional measuring dimensions were suggested by of all tasks that the manufacturing system

other authors. For example, Shewchuck (1998) can perform. On the response dimension

suggested ‘operational’, ‘action’ and ‘state’ as it is measured in terms of the duration of

additional dimensions of ﬂexibility; Upton de- its preparation tasks (setup). These may

noted the response dimension as ‘mobility’ and be related to the time needed to change

also added ‘uniformity’ of the range alternatives as tools in a tool magazine, the positioning

a third measuring dimension. A third dimension as time of a tool, etc.

proposed by Olhager and West (2002) was The ﬂexibility of a material handling unit

‘distension’ of the existing ﬂexibility range. can be regarded as similar to that of a

machine. Its range dimension measures

2.2. Flexibility types in manufacturing systems the variety of tasks that the unit is

capable of performing. Its response di-

Flexibility types in the manufacturing literature mension measures the preparation dura-

can be reviewed through different frameworks. tion for switching from task to task.

Some of these frameworks have a top-down The transportation network ﬂexibility

hierarchical structure viewing ﬂexibility through considers only its range dimension. Chat-

a manufacturing strategy or a market perspective. terjee et al. (1986) suggested measuring it

The ‘classical’ early approach to ﬂexibility frame- as the ratio of all feasible transportation

works has a bottom-up structure related to a paths to the number of paths in a

manufacturing hierarchy. See Olhager and West universal linking network of the system.

for a more detailed review of ﬂexibility frame- (b) The system ﬂexibility types are composites of

works. Typically, both top-down and bottom-up the basic ﬂexibility types at the manufacturing

ﬂexibility frameworks consist in a three level system level. Here we brieﬂy consider routing

hierarchy with a common second level, the system ﬂexibility. This ﬂexibility type supports deci-

level. To keep our review as concise as possible, we sions at a tactical level for responding quickly

limit it to the bottom-up manufacturing oriented to changes, disruptions or failures. In order to

hierarchy, to which a bottom-up logistic oriented utilize the system routing ﬂexibility, informa-

hierarchy is easily adaptable. According to this tion is needed on the system status, its control

structure (see e.g. Sethi and Sethi, 1990; Benjaafar capabilities and on the on-line human parti-

and Ramakrishnan, 1996) the three hierarchical cipation in decision-making.

ﬂexibility levels are: basic, system and aggregate Routing ﬂexibility is the capability of

levels. processing a part through varying routes,

or in other words by using alternative

(a) The basic ﬂexibility types comprise ﬂexibility

machines. For a given number of ma-

of the system components. The main compo-

chines in the system routing ﬂexibility will

nents of a manufacturing system are its

increase with the individual versatility of

machines, the material handling units and

the machines in the set. The rationale of

the transporting network (Barad and Nof,

routing ﬂexibility is to cope with short-

1997).

term disturbances, such as breakdowns

Machine ﬂexibility is the most fundamen- and changes in requirements by enabling

tal ﬂexibility type. It is easily grasped as a alternative manufacturing options. To

concept and easily measured on the two realize these options not only versatile

ﬂexibility dimensions mentioned above. machines are needed but also ﬂexible

158 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

network and on-line control. their position upon receipt of new information. It

(c) The aggregate ﬂexibility types represent the can be viewed as a device enabling decision-makers

aggregated attributes of the manufacturing to respond effectively to future changes, by

system technology enabling it to cope with the minimizing the degree of their future commitment.

variety of changes and needs at the strategic In many decision situations, decision-makers may

level, hence at a long-term range. Here we be more concerned about minimizing risk than

only consider marketing ﬂexibility and expan- they are about maximizing expected values. The

sion ﬂexibility as pertinent to our short author proved that given perfect information and

review. under plausible conditions the expected risk of a

decision strictly decreases with an increase in its

Marketing ﬂexibility is deﬁned as time/

ﬂexibility. Two approaches to the decision timing

cost for introducing a new product. It is

were considered in Benjaafar (1994), one is

associated with external decisions and

planning-based while the other is real time-based.

intended to quickly respond to the

From a ﬂexibility viewpoint a planning-based

challenges imposed by the competitive

decision approach has no ﬂexibility. Under this

market conditions and by the demanding

approach the activities are carried out in a deﬁned

customers.

order selected through the optimization of certain

Expansion ﬂexibility is concerned with

global performance measures. Typically this

the easiness of modifying the capacity of

means selecting a minimum cost program. Such

a manufacturing system, enabling its

approach is justiﬁed in a deterministic environ-

adaptation to perceived future changes

ment where changes are not expected. Most often

in product demand.

this is not the case. By contrast, a ﬂexible or

opportunistic approach enables making decisions

2.3. Flexibility in sequential decision-making in real time. Decisions are made close to the time

when actions are carried out and maximum

Another way to look at ﬂexibility is from a information is available. Thus, pre-commitment

sequential decision-making perspective. Flexibility to actions whose outcome is uncertain is mini-

research in decision theory has been carried out on mized.

the value of ﬂexibility in sequential decisions under A ﬂexible approach to multi-stage decision-

uncertainty (see e.g. Pye, 1978; Mandelbaum and making is justiﬁed in an uncertain environment

Buzacott, 1990). A ﬂexible decision is amendable where future information on values and costs is

in the future whereas a non-ﬂexible decision is expected. Such an environment is relevant in

irreversible. Hence, ﬂexibility may limit the risk of manufacturing as well as in logistics, investment,

an early commitment to an alternative whose value marketing, product development and other areas.

is uncertain. According to Shannon (1948), max-

imal uncertainty occurs when there is an equal

2.4. Flexibility in logistic systems

probability for each action in a given set of

alternative actions. Minimal uncertainty occurs

Following are some attempts to deﬁne ﬂexibility

when there is but one possible action, i.e. there is

in logistic systems.

no uncertainty. Each additional possible action

increases the level of uncertainty. Benjaafar et al.

(1995) deﬁne ﬂexibility in multi-stage decision- 2.4.1. Military logistics flexibility

making as the degree of future decision-making Kress (1999) mentioned several types of changes

freedom an action leaves, once it is implemented. that the military logistics ﬂexibility has to cope

In other words, the ﬂexibility of an action can be with: the quantities of the needed resources, their

measured as a function of the number of actions mix, timing and location. He distinguished be-

that are possible at each of the subsequent stages. tween intrinsic ﬂexibility and structural ﬂexibility.

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 159

Intrinsic flexibility is associated with the versa- 2.4.3. Flexibility-like approaches in supply chains

tility of the transportation equipment and with 2.4.3.1. Transshipment. This approach involves

the versatility of the logistic products. Each may movement of stock between locations at the same

be measured on a range dimension, considering echelon level where physical distances between the

the capability of the transportation equipment demand locations and the supply locations are

to carry a variety of products and that of a small (see e.g. Herer and Tzur, 2001). Transship-

logistic product to satisfy a variety of end users ment supports agility (Fisher, 1997), and thus

needs. provides operational ﬂexibility to the logistic

Structural flexibility refers to the structural system. This capability can be interpreted in the

properties of the logistic deployment among sense of physical postponement of assigning the

several given hierarchical command levels at the stock to a speciﬁc location. Appropriate perfor-

theater of military operations. It considers mance measures for appraising this policy are

the capacity of the transferring channels among savings in stock holding costs and in delivery time

the command levels and is determined by the when out of stock.

distribution of assets among these levels. Its

objective is to enable ﬂexibility in decision-making 2.4.3.2. Postponement. Ernst and Kamrad (2000)

by postponing assets allocation to the end users, deﬁne fundamental characteristics that inﬂuence

i.e. the combat units. Kress suggests an index for the operation of supply chains. Since postpone-

measuring and comparing potential structural ment implies capability of keeping products in

ﬂexibility of various deployment postures. their generic form as long as possible, we may

interpret it as ﬂexibility in sequential decision-

making.

2.4.2. Inter-organizational logistics flexibility

Jensen deﬁned inter-organizational logistics

ﬂexibility as the key logistics activities, speciﬁed 3. A framework for ﬂexibility in logistic systems

and ordered by one set of actors in the channel and

executed by another set of actors belonging to the We have seen that the attempts to research

logistic channel. The degree of ﬂexibility is ﬂexibility in logistic systems have not added

determined by the size of the choice set for novel angles to the analysis and measurement of

execution and planning in the logistic dimensions, this concept. Though not presented as such, in

available for the executive set of actors. Logistic fact they rely on ﬂexibility elements deﬁned in

dimensions are time, quantity and eventually manufacturing systems and in sequential deci-

packaging and load carriers. According to this sion-making. Here are some ﬁndings of our

author, the degree of executive ﬂexibility increases review.

with the number of different time distributions and

quantities while planning ﬂexibility increases with * Flexibility types in military logistic systems

increasing possibilities for advance planning and presented in Kress rely on their respective

with the number of activities that can be planned parallels in manufacture or in decision areas.

in advance. The name ‘intrinsic’ ﬂexibility is used as a

It should be mentioned that this interpretation general term to denote what is called in

of ﬂexibility is opposed to ﬂexibility in sequential manufacturing systems ‘ﬂexibility of a trans-

decision-making where planning in advance is portation unit’ or ‘ﬂexibility of a product’.

associated with lack of ﬂexibility. Also, pick-up ‘Structural’ ﬂexibility actually describes ﬂexible

times and delivery times within time intervals, sequential decision-making in hierarchically

instead of at points of time, do not provide structured logistic systems.

executive ﬂexibility but rather a relaxation of the * Flexibility in marketing channels focuses

requirements within the marketing channel, or in on ﬂexible supply and demand constraints

other words ﬂexibility of requirements. (Hemaida and Kwak, 1994; Jensen, 1997) and

160 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

thus we may denote it ﬂexibility of require- 3.2. System flexibility types in logistic systems

ments.

Trans-routing flexibility is deﬁned here as a

* Transshipment and postponement may be

logistic system ﬂexibility which combines princi-

interpreted as applied flexibility in logistic

ples of transshipment, routing ﬂexibility and

systems. Transshipment can be considered an

decision-making ﬂexibility. From a decision-

application of routing ﬂexibility, a manufactur-

making perspective, trans-routing ﬂexibility allows

ing system ﬂexibility type. Postponement keeps

decision-makers to alter their position upon

products in their generic form, so as to enable

receipt of new information thus meeting the

usage of further information regarding demand

conditions of ﬂexible decision-making. Instead of

of speciﬁc products. As such, postponement

increasing the service level at the beginning

may be considered an application of ﬂexibility

of a cycle—a planning-based or rigid decision

in sequential decision-making.

regarding inventory level—trans-routing allows

increasing the service level in a ﬂexible manner,

Applying the rational of this summary, we may i.e. on-line when a shortage occurs, by overcoming

now suggest ﬂexibility types in logistic systems it through stock transfer from a nearby location at

based on the following principles. the same echelon provided information on stock

levels is shared among locations. The new infor-

* Bottom-up classification of ﬂexibility as in

mation concerns the shortage occurrence as well as

manufacturing systems: basic, system and ag-

the capability of the nearby location to provide the

gregate ﬂexibility types.

required supply.

* Measurement of ﬂexibility based on range and

We suggest measuring trans-routing ﬂexibility

response dimensions.

on a response dimension as the time/cost needed to

* Justification of ﬂexibility as in multi-stage

transfer stock from one location to another at the

decision-making; when future information is

same echelon. The number of transshipment links

expected, a degree of future decision-making

(per location) at the echelon level may measure it

freedom is justiﬁed.

on a range dimension.

3.1. Basic flexibility types in logistic systems * Product-postponement flexibility is another sys-

tem ﬂexibility suggested here. It combines

Contrary to basic ﬂexibility types in manufac- features of product ﬂexibility with postpone-

turing, which concern mainly the physical re- ment. This ﬂexibility type will support decisions

sources, basic ﬂexibility in logistics (as grasped by at the tactical level for responding quickly to

researchers in this ﬁeld) appear in the context of changes in demand requirements. On a response

supply/demand relations. Hence we suggest here: dimension it is measured as the time/cost to

transform a product from its generic form into

* product ﬂexibility, a demanded speciﬁc product. On a range

* requirements’ ﬂexibility. dimension it is measured by the variety of

generic products and speciﬁc products per

These two basic ﬂexibility types are associated generic type.

with supply/demand relations and can be mea-

sured on a range dimension. We may add:

3.3. Aggregate flexibility types in logistic systems

* ﬂexibility of a transportation tool,

* ﬂexibility of a transportation network. Aggregate ﬂexibility types consider long-term

decisions in logistic systems such as the design of

The latter two basic ﬂexibility types are asso- the distribution system. Typically, a ﬂexible design

ciated with physical resources, thus resembling may concern the possibility to easily change the

their parallels in manufacture. number of logistic storage areas and their location

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 161

and/or the type and capacity of the transportation (d) The cycle time T is ﬁxed and consists of L

tools and transportation networks. equal time periods.

(e) {X1 ; X2 ; y; XN } are stochastic variables de-

scribing the demand per period at end user i;

4. Modeling the beneﬁts of trans-routing ﬂexibility i ¼ 1; 2; y; N: We assume that these variables

are independent and identically distributed

The model presented in this paper stems from a with expected value m and variance s2 :

military logistics scenario. The problem focuses on Accordingly, Si ¼ S for i ¼ 1; 2; y; N:

the logistic performance of combat units (end (f) X ðkÞ is a stochastic variable representing the

users) including movement of stock among them cumulative demand over k time periods, k ¼

(end users at the same echelon level) and the 1; 2; y; L; at any end user i; i ¼ 1; 2; y; N;

logistic relations with their common supply loca- with distribution function fk ðxÞ:

tion. This scenario can be used in any inventory (g) The inventory level Sa ðLÞ at the beginning

situation where there is a common distribution of a cycle (at any end user) is determined

center and several closely located similar base by considering a given desired service level

demands with trans-routing capabilities and 1 a; i.e.,

shared on-line information on their inventory

status. For example in repairable inventory P½X ðLÞ pSa ðLÞ ¼ 1 a: ð1Þ

systems spare parts can be trans-routed among

similar repair shops to improve system response

Accordingly, fL ðSa ðLÞÞ ¼ 1 a that may also

when out of stock; blood supply can be improved

be expressed as Sa ðLÞ ¼ f1 L ð1 aÞ; where

by having such trans-routing capabilities among

f1

L ð Þ; is the inverse function of fL ðxÞ:

hospitals in the same region.

(h) The lead time, i.e. the time between the

placement and receipt of an order from the

Objective: Measures of effectiveness of logistic

higher supply level, is deterministic and

models have traditionally been objective functions

consists of t time periods, toL: When a

of average cost per unit time. The problem of

replenishment order is placed, the demand

shortage has been treated through constraints

during the lead time is known.

regarding the probability of a shortage during a

cycle or through shortage costs. Here the logistic

A single-item model is considered.

performance is not related to cost modeling but is

expressed by the dependability of a logistic system

(at an echelon level) to provide protection against 4.2. System specific variables

shortages during a replenishment cycle.

4.2.1. Changes

As by its deﬁnition ﬂexibility is a counter

4.1. Inventory policy and notation

measure to changes, we model here two types of

(a) The inventory control policy here observes the change that may occur during a cycle (see also

inventory level at discrete points spaced T Barad, 1998). These are (1) changes in demand

time units apart, representing the cycle length. stemming from different activities performed

(b) There are N end users (combat units) at an by a combat unit during a cycle and (2) changes

echelon level located at close proximity one to related to a disruption during the replenishment

another. They receive supply from the same process.

higher logistic level. (1) To measure the magnitude of a change in

(c) The inventory policy for each end user i; i ¼ demand we use the coefﬁcient of variance (CV).

1; 2; y; N; is {Si ; T}. Every T time units, there Without loss of generality we assume that the

is a renewal of stock that restores the change does not affect the expected demand, but

inventory level to Si ; as planned. only the variance. Hence, the CV ratio expressing

162 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

the change actually represents the variance ratio. information on their inventory levels, further

ðCVÞ1 =ðCVÞ0 ¼ ðs21 =m2 Þ=ðs20 =m2 Þ decisions can be made.

4.2.3. Operational assumptions

where s20 ands21 are the respective variances of the

demand per period before and after the change. As

(i) The transfer of stock is carried out only when

detailed below, this change can be measured in

an end unit has enough extra inventory as

terms of the service level that due to the increase in

necessary to satisfy its own demand and that

variance diminishes from 1 a to 1 a1:

of the out of stock unit throughout a lead

Let X1ðkÞ be a stochastic variable representing the

time period or until the cycle ends, whichever

cumulative demand over k time periods, k ¼

occurs ﬁrst.

1; 2; y; L; after the change occurred, with dis-

(ii) An end user with such extra inventory can

tribution function fk1 ðxÞ: Following the increase

transfer stock to no more than one out of

in the variance of the demand per period, s21 > s20 ;

stock location.

the variance of the cumulative demand per k

(iii) In case of shortage, a single additional

periods, V ðX1ðkÞ Þ; k ¼ 1; 2; y; L; also increases,

replenishment per cycle can be obtained from

V ðX1ðkÞ Þ > V ðX ðkÞ Þ: Accordingly, Sa ðLÞ; calculated

the higher level supplier to satisfy the demand

to ensure a service level 1 a for a demand

of the out of stock end user and the one that

probability distribution fL ðxÞ with variance

carried out the transfer.

V ðX ðkÞ Þ; will ensure a lower service level, 1 a1;

or equivalently a higher risk for fL1 ðxÞ whose

variance is higher. This higher risk probability, a1;

can be speciﬁcally calculated for a given distribu- 4.2.4. Flexibility measures

tion: Trans-routing ﬂexibility can be measured on

each of the two dimensions: response and range.

a ¼ 1 fL ðSa ðLÞÞo1 fL1 ðSa ðLÞÞ ¼ a1: ð2Þ On a response dimension it is measured as the

(2) A disruption in the replenishment process transfer time between two locations at the same

delays the arrival of stock renewal by Dt time echelon level. Here we assume that the transfer

periods thus extending the cycle duration from L time between two locations at the same echelon

to L þ Dt: We may eventually assume that such an level is negligible, i.e. that there is maximum

event occurs with probability p; 0opo1: ﬂexibility on the response dimension. We measure

Again, we can measure the change in terms of an trans-routing ﬂexibility on a range dimension

increase in the risk level, or equivalently in terms through u; the number of transshipment links per

of the service level that, due to the extension of end user at the echelon level, u ¼ 0; 1; y; N 1: In

the replenishment cycle, is reduced from 1 a to a rigid system u ¼ 0: In a ﬂexible system with N

1 a2: This situation is described by the following end users at the same echelon level, maximal trans-

expression: routing ﬂexibility is obtained for u ¼ N 1;

implying that all end users at the same echelon

a ¼ 1 fL ðSa ðLÞÞo1 fLþDt ðSa ðLÞÞ ¼ a2: ð3Þ

In the model here a ﬂexible logistic system

possesses trans-routing ﬂexibility. Users at the

same echelon level are inter-linked to enable short-

term supply when out of stock. In contrast to a

rigid system where no further decisions can be u=1 u=2 u=N-1

made during a replenishment cycle, in a ﬂexible Fig. 1. A logistic system with varying levels of trans-routing

system with inter-linked end users and available ﬂexibility.

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 163

level are inter-linked. Fig. 1 depicts such a logistic Potential changes during a replacement cycle

system, with N ¼ 5 end users and varying levels of

trans-routing ﬂexibility. 1. Increased demand variability per period

[ðCVÞ1 > ðCVÞ0 ].

4.3. System performance measure: 2. Interruption of the replenishment activity there-

Logistics dependability by increasing the lead time by Dt and implicitly

the cycle time.

To measure the capability of a logistic system

to provide protection against shortage during a To enable a comparison basis, both change

replenishment cycle, we introduce a variable that types can be measured in terms of decreased

we denote logistics dependability. In a reliability service level or increased risk, Da (see expressions

context, dependability is a measure of the item (2) and (3)).

operating conditions at one or more points during

the mission, given the item conditions at the start 4.4. Calculating logistics dependability

of the mission. In the literature it has been deﬁned

as the probability that an equipment mission will The inventory level S at the beginning of a cycle

be successfully completed within the mission time is calculated for a given service level 1 a and

(see e.g. Blanchard, 1974). cycle length L; using Eq. (1).

D ¼ R þ ð1 RÞM0 ; In a rigid system the conﬁdence level 1 a

where R is the system reliability for a given mission completely determines the system dependability.

time (representing the safety index), M0 the In a ﬂexible system shortage can be overcome

operational maintainability is the probability that through stock transfer at the echelon level. The

when a failure occurs it will be repaired in time not probability of stock shortage and the probability

exceeding the allowable downtime. of successful trans-routing are calculated for

Logistics dependability of a system is deﬁned as each period k within a replenishment cycle L; k ¼

the probability that there is no supply shortage 1; 2; y; L

until the end of a replacement cycle, for given Let Gk be the probability of no stock shortage at

starting (and changing) conditions. The following a given location until period k; ak the probability

equation is a conceptual (simpliﬁed) equation that the ﬁrst shortage at an end user occurs in

intended to match the deﬁnition of dependability period k:

in the reliability literature (see Section 4.4 for Gk ¼ P½X ðkÞ pS for k ¼ 0; 1; 2; y; L;

speciﬁc calculations): G0 ¼ 1 and by its definition GL ¼ 1 a: ð4Þ

DL ¼ Pr þ ð1 PrÞ PsðuÞ;

Hence,

where DL is the logistics dependability, Pr the

probability that the demand does not exceed the ak ¼ P½X ðkÞ > S P½X ðk1Þ > S:

inventory on hand during a cycle at all echelon Substituting we obtain

end users, PsðuÞ the probability of overcoming the

shortage for a given trans-routing ﬂexibility u; ak ¼ Gk1 Gk ; k ¼ 1; 2; y; L: ð5Þ

u ¼ 0; 1; 2y; N 1: By its deﬁnition

L

ak ¼ a; ð6Þ

1. 1 a (service level), k¼1

2. cycle time (L0 ), Hk is the probability of a successful stock transfer

3. lead time (t0 ), at the end of period k; it is deﬁned as

4. demand variability ðCV Þ0 ;

5. trans-routing ﬂexibility ðuÞ: Hk ¼ PfX ðkÞ pS 2 Y ðkÞg; ð7Þ

164 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

Y ðkÞ ¼ /1

minðt;LkÞ ð1 aÞ: DL ¼ ð1 aÞN

Eq. (7) conforms to position (f), Section 4.1, and X

L

operational assumptions (i)–(iii). A successful stock þN ak ½ðGk ÞN1 ðGk Hk ÞN1 : ð10Þ

transfer as deﬁned here implies that with prob- k¼1

ability 1 a the current stock of the end user acting The expression in the square brackets represents

as a supplier will cover its own requirements as well the probability that at least one among the other

as those of the user in need until a replenishment N 1 end users can perform a successful trans-

arrives or the cycle ends, whichever occurs ﬁrst. We routing. ðGk Hk ÞN1 is the probability that

assume that a stock shortage will not occur again though they are not out of stock, none of the

during the same cycle at the same location that was N 1 users have enough stock left for a successful

out of stock and received additional supply. stock transfer.

To introduce our concept we shall start with a (b) Changes (of two types)

simple model. Type 1: Increased demand variability. This

change implies an increase in the variance of

Model 1: N ¼ 2 (no changes) variable X ; the demand per period, and conse-

During a replenishment cycle there are three quently that of variable X ðkÞ ; the demand per k

possible events: periods, causing the service level 1 a to decrease

(see expression 2). The same will happen to the

(1) No stock shortage; probability ð1 aÞ2 : probability of other events, such as Gk and Hk ;

(2) Shortage at one end user; probability 2að1 aÞ: that are related to the demand not exceeding a

(3) Shortage at both end users; probability a2 : certain value. The structure of Eq. (10) will not

change but the calculated dependability for the

For u ¼ 0 same starting conditions will be lower.

DL ¼ ð1 aÞ2 : ð8Þ Type 2: Interruption of the replenishment activity.

As mentioned above, such an interruption in-

For u ¼ 1 a successful trans-routing is carried out creases the lead time by Dt and accordingly the

when a shortage occurs at any of the two end users cycle time as well as the risk, which raises from a to

while the other has enough stock to act as a a2: Assuming this event occurs with probability p;

temporary supplier. This event may occur in any Eq. (10) changes as follows:

of the L cycle periods. The probability that it

occurs in period k is 2ak Hk : Accordingly, DL ¼ ð1 pÞfð1 aÞN

XL

X

L

DL ¼ ð1 aÞ2 þ 2 ak H k : ð9Þ þN ak ½ðGk ÞN1 ðGk Hk ÞN1 g

k¼1 k¼1

users including changes). X

Lþt

þN ak ½ðGk ÞN1 ðGk Hk ÞN1 g: ð11Þ

Model 2: NX2 k¼1

(a) No changes

As in model 1, the logistic dependability is

4.5. Simple numerical examples

calculated as a sum of two probabilities:

(1) the probability that no shortage occurs at any Let us ﬁrst explore the performance of trans-

end user, routing ﬂexibility levels for various system sizes N

(2) the probability of one shortage at any of the (N ¼ 3; 4, 5, 6) when changes are not in effect and

N locations in any of the L cycle periods then when a type 1 change occurs. We assume that

coupled with a successful trans-routing. the demand per period (hour) at each end user is

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 165

Dependability Improvement the larger systems even through one linkage per

(No changes) end user.

80.00%

60.00%

40.00% 5. A multi-factor experiment

20.00%

0.00% 5.1. The design and its rationale

1 2 3 4

u=1 u=N-1 To get a better understanding of the logistic

decision problems and their eventual solutions we

Fig. 2. Dependability improvement for systems of varying size shall methodically examine the effects of several

(no changes).

factors on the dependability of a logistic system of

given size N: As the complexity of Eqs. (10) and

Dependability Improvement (11) do not permit an analytical approach, we shall

(changes) use the statistical experimental design technique.

120.00%

We distinguish several factor types that may affect

100.00%

dependability: design factors that the decision-

80.00%

maker can manipulate in order to increase the

60.00%

system dependability, environmental factors that

40.00%

represent different normal operating conditions

20.00%

and, change factors that, as revealed by the

0.00%

numerical example, are particularly relevant for

1 2 3 4

emphasizing the value of ﬂexibility.

u=1 u=N-1 The effects of ﬁve factors are investigated:

Fig. 3. Dependability improvement for systems of varying size Two design factors: trans-routing ﬂexibility

(changes). that supports decision-making in real time and

service level that supports static planning-based

normal with expected value m ¼ 100; s0 ¼ 0:25m;

decisions.

the service level is 1 a0 ¼ 0:90; the cycle length is

Two environmental factors: demand variability

L ¼ 24 hours and the lead time is t ¼ 3 hours.

and lead time.

Fig. 2 presents the dependability improvement

One change factor representing increase in the

over a rigid system for one linkage per end user

demand variability during the cycle.

and for maximal linkages (N 1) per end user

when no changes occur. The investigated system performance is the

Fig. 3 shows the same four systems when a type system logistic dependability, that in terms of

1 change is in effect. This causes an increase in s; DOE is denoted the dependent variable or the

s1 ¼ 0:30m; and accordingly an increase in the risk response.

per user, a; from 0.10 to 0.143. The logistic dependability of a rigid system of

The main conclusions from Figs. 2 and 3 are: given size N; operating under given environmental

conditions, is solely affected by the service level.

1. Trans-routing ﬂexibility improves dependability This static, planning-based decision determines the

even when changes are not in effect; the inventory level at the beginning of a replenishment

percentage improvement increases with the cycle for any given values of the lead time or of the

system size. demand variance. Thus, in a rigid system planning

2. When changes are in effect, the value of neutralizes the effect of these environmental

ﬂexibility, measured as percentage improvement factors on the system dependability. By contrast,

of the logistic dependability is higher. Substan- as seen in the numerical example, the depend-

tial improvement (up to 20%) is obtained for ability of a system possessing trans-routing

166 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

ﬂexibility, was affected by the environmental for varying values of the parameters as prescribed

factors even when changes during the cycle are by Table 1. The role of experimental design here is

not considered. The following questions are to discriminate in a methodical way between the

investigated here: important factor effects and the negligible ones. As

the analysis results are not used to estimate

* How effective is trans-routing ﬂexibility, as

variances, or to build conﬁdence intervals, we

compared to an increased service level, for

deem it is legitimate to use this technique.

coping with changes that occur during a

The data analysis here combines analysis of

replenishment cycle?

variance (ANOVA) with a graphical procedure

* Is trans-routing equally effective for any de-

relying on a Normal Probability plot. The

mand variability?

procedure is described in the experimental design

* Does lead time affect the beneﬁts of trans-

literature (see e.g. Montgomery, 1997). According

routing?

to this procedure standardized effects are calcu-

These questions will be answered through an lated for each factor and each interaction. The

analysis of the interaction effects between the Normal Probability Plot is used to graphically

investigated factors. estimate the important effects. The effects that are

The experiment is designed as a full two level negligible are normally distributed with mean zero

factorial experimental design in ﬁve factors, 25. and white noise variance and will tend to fall along

The system we investigate consists of 4 end users, a straight line, whereas signiﬁcant effects will have

N ¼ 4: non-zero means and will not lie along the straight

Table 1 presents the numerical values of the line. The white noise variance needed for the

ﬁve independent factors in the designed experi- ANOVA is estimated by pooling the variances of

ment. The other numerical input values are as in the negligible effects that lie along the straight line.

Section 4.4. Here the white noise variance stands for the

negligible factor effects and no further usage will

5.2. Analysis and results be made of its numerical value. Fig. 4 describes the

results in terms of ANOVA.

Typically, in a statistical experimental design the The zero p-values in ANOVA disclose the

response is a stochastic variable. Eventually, the important factor effects. These are: the two design

statistical analysis of the experimental results is factors, namely A—trans-routing ﬂexibility and

used to estimate variances and to build conﬁdence B—service level, as well as E—the change in the

intervals for some unknown parameters. In our demand variability. Several interaction effects,

experiment, the response (dependability) is not a namely AD, AE and BE, are also important.

stochastic variable, but is calculated using Eq. (10) Among the factors exhibiting a zero p-value we

Table 1

Investigated factors and their numerical levels

(design) end user

B: conﬁd Service level (design) 1 a—probability 0.80 0.90

(Da ¼ 0:10)

C: lead time Lead time (environment) Fraction of cycle time L L=8 L=4

D: CV Demand variability coefﬁcient s2 =m2 0.0625 0.090

(environment)

E: change Increased demand variability Da—increased risk No change Da ¼ 0 Change Da ¼ 0:043

(type 1 change) following change

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 167

--------------------------------------------------------------------------------

Source Sum of Squares Df Mean Square F-Ratio P-Value

--------------------------------------------------------------------------------

A:flex .366347 1 .366347 50500.09 . 0

B:confid .415849 1 .415849 57323.92 . 0

C:leadtime .00000101531 1 .00000101531 .14 .7132

D:CV .00848579 1 .00848579 1169.75 . 0

E:Change .0468869 1 .0468869 6463.25 . 0

AB 4.27813E-7 1 4.27813E-7 . 6 .8112

AC .00000101531 1 .00000101531 .14 .7132

AD .00855105 1 .00855105 1178.74 . 0

AE .0035343 1 .0035343 487.20 . 0

BC 3.00313E-7 1 3.00313E-7 . 4 .8413

BD .0000543403 1 .0000543403 7.49 . 146

BE .0019987 1 .0019987 275.52 . 0

CD 5.25312E-7 1 5.25312E-7 . 7 .7913

CE 6.32812E-7 1 6.32812E-7 . 9 .7715

DE .00000185281 1 .00000185281 .26 .6202

Total error .00011607 16 .00000725438

--------------------------------------------------------------------------------

Total (corr.) .851829 31

R-squared (adjusted for d.f.) = 99.9736 percent

deliberately ignore the effect of factor D—demand that the effect of factor A represented the increase

variability. In this particular case the mean effect in dependability obtained for a system with highest

of factor D, which proved to be ‘‘signiﬁcant’’, is range ﬂexibility u; u ¼ N 1 ¼ 3; as compared to

actually the effect of factor D for a ﬂexible system. a rigid system, u ¼ 0: The effect of factor B

In other words, the effect of factor D is only represented the increase in dependability following

present when factor A is at a high level and thus in a decrease in risk, from 0.2 to 0.1 (an increase in

our analysis we only consider the effect of the service level 1 a from 0.8 to 0.9). As judged

interaction AD. When there is no ﬂexibility, i.e. by their magnitude these two effects were equiva-

factor A is at a low level, the service level lent. The two other positive effects are the two

neutralizes the effect of any increase in the demand interactions, AD and AE. The most negative

variability. (See Appendix A for further explana- factor effect is the effect of factor E, the change

tions and calculations.) in the demand variability that increased the risk

The zero p-values in Fig. 4 do not show the level by 0.043. The next negative effect is the

effect direction, i.e. whether it has a positive effect, interaction BE. The lead time did not affect the

i.e. it increases dependability or it has a negative logistic dependability.

effect on dependability. The Normal Probability Let us now interpret the interaction results. The

Plot in Fig. 5 supplies this information. It is seen negative interaction between the change factor E

that six factor effects do not fall along the straight and the design factor B, means that under

line (again the effect of factor D is not considered). changing conditions increasing the service level is

These are compatible with the zero p-values in not an effective procedure. By contrast, trans-

Fig. 4. routing ﬂexibility is more effective under changing

Four factor effects are positively placed with conditions. This is illustrated by the positive effect

respect to the line and two are negatively placed. of interaction AE.

The two most signiﬁcant positive effects are the Also, as shown by the positive signiﬁcant

effects of A and B, the design factors. Let us recall effect of interaction AD, trans-routing ﬂexibility

168 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

99.9

99

95

percentage

80

50

20

5

1

.1

-90 10 110 210 310

Standardized effects

Fig. 5. Normal probability plot of the results.

variability than it is for lower demand variability technique that can be applied to physical as well

(see also Appendix A). This result can be explained as to simulated experiments. Here it was applied to

by the fact that a higher demand variability investigate calculated results of complex analytical

necessitates a higher stock level. This stock is not expressions whose parameters were methodically

well utilized in a rigid system. By contrast, a varied. Its great advantage is a methodical

ﬂexible system utilizes this higher stock in a examination of the factor effects and especially

dynamic way during a replenishment cycle thus of their interactions that may shed light on more

improving the system dependability. complex aspects of a decision problem.

The main contributions of this paper are:

* Illustrating the importance of ﬂexibility in

6. Concluding remarks

logistic systems.

* Blending manufacture oriented and decision-

Two objectives were outlined in the introduction

making ﬂexibility with ‘ﬂexibility-like’ approaches

and both were met throughout the paper. The ﬁrst

in supply chains to suggest a framework for

objective was to utilize the rich manufacture

ﬂexibility types in logistic systems.

oriented literature and decision-making ﬂexibility * Introducing logistics dependability as a service-

literature for building ﬂexibility types pertinent as

oriented performance measure of a logistic

design factors in a logistic system. This was carried

system.

out in Section 3, where speciﬁc ﬂexibility types and * Providing a methodology for quantitatively

measures were suggested.

exploring causal relations between the amount

The second objective was to quantitatively

of the logistic flexibility in a given system and

analyze the effect of such a factor, namely trans-

its performance under varying operating and

routing ﬂexibility, on logistics dependability, a

design conditions.

new performance measure of a logistic system, as

suggested in this paper. This was achieved in This paper did not consider any economic

Sections 4 and 5. In Section 4 a model, with aspects of the problem. However, the approach

measures for all the variables involved in the can be easily extended to take into account

experimental design in Section 5, was developed. inventory costs on one hand and the necessary

Additional, more speciﬁc objectives were deﬁned investments for providing given levels of trans-

in Section 5.1. These were realized through the routing ﬂexibility to systems of given sizes on the

experimental design in analysis as detailed in other hand. The expected level of measurable

Section 5.2. The results contribute to a better changes and operating conditions coupled with the

understanding of the logistic decision problems necessary costs will then dictate the optimal

and their eventual solutions. amount of ﬂexibility.

M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 169

Appendix A. Estimating main factor effects and Thus, in this case there is no point in considering

interactions in a multi-factor two level experiment the average main effect of D since, as seen above it

cannot be separated from interaction AD

Assume only factors A and D are considered

2. Interaction AD is positive, ðad dÞ > ða ð1ÞÞ

Notation (definition II). This means that the effect of A at

Factor levels at which experiments are carried out D2 is higher that the effect of A at D1

A1, A2—respective low, high levels of factor A

D1, D2—respective low, high levels of factor D

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