Supply Chain Performance Sustainability Through Resilience Function
Supply Chain Performance Sustainability Through Resilience Function
Supply Chain Performance Sustainability Through Resilience Function
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Liberatina C Santillo
University of Naples Federico II
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Teresa Murino
Elpidio Romano
Liberatina C. Santillo
ABSTRACT
Today’s business world faces challenges and pressures on an unprecedented scale. Many of these obsta-
cles have the potential to severely affect the continuity of a manufacturing enterprise, in particular,
through disruption to the wider supply chain. Indeed, it can be argued that supply chain risk is currently
greater now than ever before. Resilience is one of the ways to combat disruptions in the supply chain. In
this paper the behavior of a Supply chain is studied using a SD model built with Powersim. The paper
describes the process of building the model and utilizes the model to demonstrate the massive improve-
ment that resilience can bring in a manufacturing enterprise. The critical issues and strength points in a
supply chain are analyzed, in particular, trying to improve their resilience, a feature that has gained even
more importance in recent years.
1 INTRODUCTION
The catastrophic events of recent years such as the Twin Towers terrorist attack of September 11, the
SARS epidemic, Hurricane Katrina and the Middle East wars have shown how the global business is vul-
nerable to unexpected and catastrophic events and have changed the concept of preparedness for disasters.
Unfortunately, there is no way to avoid these risks, it is however noted that some organizations overcome
these contingencies better than others. These organizations share a critical feature: resilience. As material
science resilience represents the ability of a material to reacquire its original shape after a deformation, in
the business sector resilience refers to the ability of a company to resist a seriously damaging event.
The ability of an organization to return to work after a catastrophic event depends more on the
decisions taken before the event than those taken during or after. In this work the concept of resilience
will be addressed at a global level since the whole supply chain is affected by such events and can derive
benefit from the application of the principles presented. This work first describes supply chain risk
management with a focus on models and methods used. It analyzes the causes of vulnerability of a
company, focusing on the difference between risk analysis and vulnerability analysis and finding
solutions to reducing these risks.
The following section is an overview of the concept of resilience with reference to relevant literature.
In particular, the sensitive areas of intervention and approaches to build a resilient supply chain according
to the opinions of leading experts in the field are studied. The following sections describe the model,
implemented using the System Dynamics approach (Sterman 2000), and the parameters of the achieved
efficiency. The simulations results are then used to provide a resilience function with the help of a design
of experiments (DOE), and finally, the definition of a general resilience supply chain function is
presented.
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potential or real damage with respect to the product demand, and the information and the money flow
between the company and the market.
The supply risk is the equivalent of the previous one, with the difference that it refers to the potential
or real perturbation of the product/information/money flow upstream coming from the company.
There are two common measures of risk: the likelihood of the occurrence of an (undesirable) event,
and the negative implications of the event. Some (undesirable) events associated with supply, process,
and demand risks include: increase in supply cost, decrease in supply capability, discrepancy between
forecast and actual demand, etc. There are two types of strategies for reducing supply chain risks. The
first type is intended to reduce the likelihood of the occurrence of certain undesirable events, while the
second type is designed to reduce the negative implications of these events.
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perturbation or absorb a catastrophic failure and persist.” Strong means that it is able to resist to an
unexpected event and to come back in the same steady situation. Resilient means, on the other hand, able
to come back in a new (often "inferior") steady situation with respect to that subsisting before the event.
The scheme in Figure 2 represents the reaction of an enterprise to a catastrophic event proposed by
Sheffi (2005b). The destructive event is preceded by a "warning time" in which the company can (in some
cases) predict what is going to happen and act to reduce the consequence. If it is not possible to avoid the
disruption on time, it will manifest itself in all its strength after a small interval of time due to a “delayed
impact”. At this point the company must prepare to recover itself. Resumption materializes gradually after
a “recovery time,” and brings the company to a performance level that is often lower than the one before
the impact.
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The traditional definitions of business safety and continuity are only a small part of the real resilience. In
particular the companies can develop the resilience mainly in three ways: increasing the redundancy,
building the flexibility and changing the company culture. The first has a limited utility; the other two on
the other hand are essential.
4 THE MODEL
A supply chain model has been developed using the commercial SD software “Powersim” (Briano et al.
2010b). The model starts from an exogenous input that simulates customer demand through a graph func-
tion. A demand profile has been set up, see Figure 3; these could be historical data from previous periods.
These data have been used to forecast future customers’ orders through the auxiliary “Demand planning”
that take advantage of the “forecast” function that returns forecasted value of input at a time into the fu-
ture. The difference between Demand planning and delayed sales forms a Gap whose average computed
by the auxiliary variable “Forecasting error average” will be added to Demand planning to form the “Fu-
ture forecasting.”
widgets/da
8
6
Orders
We just calculated the difference between what we expected from the market and what the market is
asking; this difference along the time horizon is added to our forecast and will be very useful to fill the
raw material warehouse with an appropriate level of stock.
The “Desired warehouse” auxiliary has then been built adding a constant representative of the “Safety
stock” to Future forecasting auxiliary. Desired warehouse represents the raw materials level of stock that
should satisfy market demand. If the level of raw materials in their warehouse (just named Raw materials)
is lower than the desired warehouse, then raw materials start flowing from suppliers, otherwise the flow
will be stopped until the level of stock is above the desired level.
As soon as the finished product stock level is equal to zero, the first production flow starts followed
by the second with a small delay given in input. Those flows stop when finished product warehouse level
exceeds the desired WIP level. Figure 4 shows daily orders not fulfilled, fulfilled backlogs, backlogs and
cost, revenues and profit trends.
In this paper the supply chain model behavior is analyzed with simulation. The aim of this analysis is
to note the change in the profit varying the parameters number of suppliers, amount of stock in the
warehouse, variation due to disruptions, or unexpected demand peaks. The parameters mentioned are
considered the most important in order to increase the resilience of the supply chain. In order to analyze
how performance of a supply chain changes due to a disruption of suppliers, different supply chain
characterized by 3, 2 and 1 suppliers have been analyzed.
After a disruption, a channel will be cut and the behavior of the whole system will be analyzed. The
second scenario provides the reaction of the system to an unexpected peak of demand in three different
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situations characterized by a high, medium and null level of stock in the warehouse. The first scenario
concerns a situation in which three different suppliers share an equal supply rate. After a disruption, the
supply chain loses a supplier resulting in the behavior shown in Figure 5.
50
40
30
Finished product (wdg)
Production flow 2 (wdg/da)
20 Production flow 1 (wdg/da)
10
0
1st qt 2nd qt 3rd qt 4th qt
Non-commercial use only!
40
30
10
0
1st qt 2nd qt 3rd qt 4th qt
Non-commercial use only!
Total costs
Total revenues
Total profits
The following is a Supply Chain model with two independent suppliers sharing at equal rate of
supplying. After an unexpected event the supply chain loses a supplier resulting in the performances
shown in Figure 6. Last scenario, shown in figure 7, the most catastrophic, is the loss of the only supplier.
Tables in figures 5, 6, and 7 show that profits slowly go down from first scenario to second because
the supply chain appears to be resilient. The situation changes drastically in the last scenario where profits
collapse due to cost increase especially due to shortage penalties. Increasing resilience in a Supply chain
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allows facing an unexpected demand variation. Next, we analyze the supply chain reaction to a demand
peak (see figure 8) in different scenarios characterized by different levels of stocks.
Time (day/mounth/year) 1/1/11 1/4/11 1/7/11 1/10/11 1/1/12
Total profits 0.00 1,219.50 2,556.12 3,696.63 4,704.07
Total revenues 0.00 2,102.02 5,934.23 8,598.33 10,326.36
Total costs 0.00 882.52 2,828.11 4,901.75 5,622.29
Total costs
Total revenues
Total profits
Total costs
Total revenues
Total profits
10
Orders
0
1st qt 2nd qt 3rd qt 4th qt
Non-commercial use only!
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In figure 9 these results are shown. This first scenario is characterized by 20 wdg (widget) in raw
materials and WIP warehouses and 40 wdg in finished products warehouse. Last scenario doesn’t include
stocks, see figure 10.
Time (day/mounth/year) 1/1/11 1/4/11 1/7/11 1/10/11 1/1/12
Total profits 0.00 ‐ 317.19 484.06 1,500.68 2,321.56
Total revenues 0.00 1,784.23 4,676.54 7,931.46 9,610.12
Total costs 0.00 2,101.42 4,192.49 6,430.78 7,288.56
Total costs
Total revenues
Total profits
Total costs
Total revenues
Total profits
Unlike the previous case where the situation seemed to get better with increasing number of suppliers,
here the better situation is the intermediate one. Better coverage from unexpected demand fluctuations
given by a high stock level results in higher costs especially in the inventory rate.
5 PERFORMANCE ANALYSIS
The aim of this section is to study the responses of the model analyzed in previous paragraphs in order to
determine which one is the knob that we have to move to adjust the resilience of the supply chain. A resil-
ience function is also developed as a result of the analysis performed with a design of experiments (DOE).
The perturbation in the system balance is an unexpected demand variation from the one previously fore-
casted: the demand under observation is shown in Figure 11.
To determine the variables that most affect the variation of resilience in the supply chain, the response
of the system has been analyzed under particular operation conditions. Factors under considerations are:
Stock level
Number of suppliers
Production times (speed)
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Table 1 shows the benchmarks used to exemplify normal situations, low and high performances.
The results obtained at low and high performance level varying one parameter at a time are shown in
the Table 2 (the output is the enterprise profit measured in Euros):
The interactions between model variables have been analyzed, evaluating systems response through
simulations with all the possible combinations of high and low performance levels (see table 3). Data
obtained from the simulation have then been used, with the help of a DOE (design of experiments), to
evaluate interactions in model variables and their importance in order to vary supply chain resilience.
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Figure 12 shows the level of correlation between model variables. As we can note, only C variable
(speed), has a strong effect on the output result. To a lesser extent, B variable (number of suppliers) and
B-C interaction represent important variables of the model. Variables with low interaction effects include
the variable A (stock level) and the combined variation of A-C. Figure 13 presents the interaction plots.
Factor Name
A Stock Level
B no. of Suppliers
C Speed
Stock Level
No. of
Suppliers
Speed
Figure 13: Individual value (left) and interaction value (right) plots
From the left plot in figure 13, it is can be seen that the output is almost the same with varying stock
levels, confirming what we noted in the previous charts that the stock level variable is almost irrelevant.
For a high stock level (left cluster), from a low to a high number of suppliers, we can note that the speed
variable affects less; in both clusters, the first rectangle is bigger than the right one, giving a graphic
evidence of what we just said. For a low stock level (right cluster), the behavior is substantially similar
with the difference that, with a low number of suppliers, varying speed, the output variation is less than
the previous case while the output variation is higher than the previous case with an high number of
suppliers. The two-way interactions between system variables are shown in the right plot in Figure 13. As
highlighted with marked circles, the most important output variations are obtained varying speed and
number of suppliers. In the first case, varying speed, the output substantially changes with the two levels
of number of suppliers and, in the second case, varying number of suppliers, the output changes with the
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two levels of speed. The two levels of number of suppliers and speed are almost unaffected with varying
levels of stock.
The result of this work is the building of a Resilience function. Per the analysis of the results of the
design of experiments, only the numbers of suppliers, the speed, and their interaction strongly affect
resilience variation.
Resilience function can be defined as:
Where X1 variable represent speed, X2 the number of suppliers and X3 the level of stock. In this
function only two variables and their interaction play an important role. The Stock level variable and its
interaction with others variables is irrelevant in resilience variation. In resilience function, then, β3 X3, β23
X2 X3 and β13 X1 X3 terms can be considered negligible. It is also important to note how varying these two
variables include different costs and behavior. Increasing or decreasing the number of suppliers depends
only on supply agreements previously taken and in some situation, cutting a supply channel can be more
expensive. In order to increase speed in the supply chain there is at least the need of reengineering the
systems. This variable is really important to improve resilience but at a high costs of reengineering so it
has to be decided whether to face this expense and be more secure in case of possible future disruptions or
to spend less threatening to not overcome a future possible unexpected event.
6 CONCLUSIONS
In this work a methodological procedure to determine the set of decision variables that affect the resili-
ence of the supply chain was presented. The aim is to demonstrate how to build a decision support tool
that can quickly and with reasonable reliability produce effective results regarding the adaptability of the
SC to sudden and unexpected internal and external disturbances through these methodological steps:
identifying the problem
logical links and functional definition
process flow representation
definition of the mathematical model
model simulation
decision variables determination by DOE
a resilience analytical form design
This tool could be used both in planning and operation stages. In planning stage it can identify the
extent of variation of the predominant variables that affect the resilience of the SC in order to ensure the
stabilization of the same in case of disturbances. During operation, it can be used to promptly identify
variables such as acting, producing, effective results for the SC on the occurrence of environmental and/or
internal disruption.
The most important future development of this work is the calibration of function parameters using
the model with real benchmarks. The model can be also upgraded and adapted to various supply chain
with different sets of elements. It can be used to plan maintenance or to analyze system response to
unexpected failures or strikes.
REFERENCES
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Christopher, M. 1992. Logistics and Supply Chain Management. London: Pitman Publishing.
Briano, E., C. Caballini, P. Giribone, and R. Revetria. 2010a. “Objectives and perspectives for improving
resiliency in Supply Chains.” WSEAS TRANSACTIONS on SYSTEMS 9(2):136-145.
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Briano, E., C. Caballini, P. Giribone, and R. Revetria. 2010b. “Resiliency and Vulnerability in Short Life
Cycle Products’ Supply Chains: a System Dynamics Model.” WSEAS TRANSACTIONS on SYSTEMS
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Sheffi, Y. 2005a. “Building a Resilient Supply Chain.” Harvard Business Review Supply Chain Strategy
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Sheffi, Y. 2005b. The Resilient Enterprise - Overcoming Vulnerability for Competitive Advantage. Bos-
ton, MA: MIT Press.
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McGrawHill.
Tang, C. S. 2006. “Perspectives in Supply Chain Risk Management.” International Journal of Production
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AUTHOR BIOGRAPHIES
TERESA MURINO graduated in Mechanical Engineering, and is an assistant professor in the ING-IND
17, Industrial Plant System disciplinary group, in the Faculty of Engineering at University of Naples
“Federico II.” She teaches Manufacturing System Management, Goods and Services Production System,
and Industrial Logistics at Engineering Faculty. She is also Professor at “Consorzio Nettuno”. She is also
a peer-reviewer for Elsevier Editorials, and other ISI indexed journals. Her research activities are mainly
concerned about the following topics: Simulation modeling, Maintenance strategies, Supply Chain Man-
agement models, Quick Response Manufacturing, Sustainable production processes, Location-Routing
and vehicle routing Problem, and Lean approach implementations. Her email address is [email protected].
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