borders, variability and international supply chains arnold maltz, ph. d. w. p. carey school of...
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Borders, Variability and International Supply Chains
Arnold Maltz, Ph. D.W. P. Carey School of Business
Arizona State University
Wilfrid Laurier 2
Topics
• Why borders matter• The analytical issues• The empirical questions• Organization of the research• Progress to date
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Wilfrid Laurier 3
The Import Process – Physical Flow
THE IMPORT PROCESS
ShippingLine
Port OperatorLongshoremen
Forwarder/BrokerCustoms Officials
Drayage towarehouse
Warehouse/Transload
Truck Inland
Rail Inland
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Why International Borders Matter
• Border crossings (sea or land) introduce uncertainty/variability into the supply chain– Geographic features– Political involvement– Cultural concerns
• The concrete result is lead time variability which is on top of demand variability
• The managerial responses might be:– Accumulate additional inventory – Adjust promised delivery dates to customers– Change sources/customers
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Wilfrid Laurier 9
Stochastic Lead Time Inventory Models
• Long history – Kaplan (1970), Nahmias (1979), Ehrhardt (1984)– Song and Zipkin (1993, 1996)
• Rarely applied to borders– Lewis et al. (2005)– Muharremoglu and Yang (2010)
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Control Theory – A Second Approach
• Based on Simon (1952), Forrester (1958), but considerably elaborated (Sterman (1989), Towill (1982), and others).
• Critical concerns are:– Variance amplification (Bullwhip)- Dejonckheere
et al. (2003)– Stability – Warburton et al. (2004), Disney and
Towill (2005)
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Research Questions
• Much of the U. S. literature is focused on “disruptions.” When does a delay become a disruption, and is that relevant for individual importers? Moreover, how important is the likelihood of delay vs. the length of delay?
• How to relax unrealistic assumptions?– Orders cannot cross (see M & Y)– Continuous review vs. periodic review– “Linear” order costs
• Can the strategic network planning models incorporate stochastic inventory results?
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Lead Time Quoting Models
• Typically based on manufacturing process– Yano, 1987– Duenyas and Hopp, 1995– Spearman and Zhang, 1999
• Direct consideration of transportation variability rarely seen in literature, although safety lead time is commonly considered– Beamon, 1999– Lee and Billington, 1992
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Incorporating Variability
Initial model
Where a = quoted lead time p(a) = probability order will be placed given quoted lead time R = net revenue from order c = penalty cost of late order y = actual lead time, which is stochastic
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Research Questions
• Suppose we can approximate f(y), the distribution of actual lead times. Can we then look at the effect of mitigating the uncertainty and how it will improve on-time performance?
• Prior research has shown that customers value reliability as much as speed. Thus, can we get a better look at p=probability of order placement if we consider p(a, s(a))?
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Issues
• How do you define “delay”?– Total lead time vs. promise?– Some deviation(s) from mean?– When do you start and stop the time?
• Where do you get the data?– CBP both uncooperative and possibly not reliable– Shippers and receivers may not measure– Intermediaries most likely, e.g. World Bank– Current government programs and projects
• Other influences4/29/11
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Multiple Contacts
• Analytical-primarily secondary research, with some advancement later.
• Empirical– Contacts with major transport companies– Contacts with sophisticated shippers– Contacts with intermediaries– Web scraping?
• FOIA for Customs?
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Extensions of Previous Work
• Culture and low cost country evaluation (Maltz et al., 2011)
• Analyze World Bank data on delays, etc., by country
• Cost of delays (Hummels)
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Summary
• Lead time variability is likely magnified in international supply chains
• Both analytical and measurement issues remain, as international increases in importance
• BORDERS WILL ALWAYS BE WITH US
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