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Int. J.

Production Economics 85 (2003) 155–170

Flexibility in logistic systems—modeling and


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.

Keywords: Flexibility; Logistics; Performance measures; Design of experiments

1. Introduction flexibility in distribution and marketing channels


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

material handling, flexible transporting Thus, flexibility allows decision-makers to alter


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.

¼ s21 =s20 ; s1 > s0 ;


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

4.2.2. Investigated flexibility type


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

Starting conditions of a replacement cycle X


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

where For u ¼ 1 we obtain


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

We may now consider a general model (N end þ pfð1  a2ÞN


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

Factor name Description (type) Measure Low value High value

A: flex Trans-routing flexibility u—number of linkages per 0 (rigid) 3 (maxflex)


(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

Analysis of Variance for dependf


--------------------------------------------------------------------------------
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 = 99.9864 percent


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

Fig. 4. The analysis of variance.

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

Normal Probability Plot for dependf


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.

(factor A) is more effective for higher demand Design of experiments is a multi-purpose


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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