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Measuring Supply Chain
Flexibility
Benita M. Beamon
Industrial Engineering
University of Washington
Box 352650
Seattle, WA 98195-2650
Telephone: (206) 543-2308
Fax: (206) 685-3072
E-mail: [email protected]
Web: http://faculty.washington.edu/benita
ABSTRACT
Supply chain (SC) flexibility is a critical issue in supply chain systems research that has
been rarely addressed in the literature. Flexibility, which is a measure of potential, is an
important characteristic of a high-performance supply chain. This paper discusses the
importance and role of flexibility in SC performance evaluation, describes the major
types of SC flexibilities, and provides new and existing measures that can be used to
describe SC flexibility.
Proceedings of the Eleventh Annual Conference of the Production and Operations
Management Society, POM-2000, April 1-4,2000, San Antonio, TX.
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INTRODUCTION
Traditional supply chain performance measurement systems typically include supply chain
resource measures (such as inventory or distribution costs) and output measures (such as the
number of items produced, number of on-time deliveries, or fill rate) (Beamon, 1999). Based on
these measures, it may be determined to what extent a supply chain is currently utilizing
resources efficiently and is currently producing the desired output. However, supply chains
operate in an uncertain environment due to numerous factors, such as: demand fluctuations,
equipment breakdowns, delivery delays, and production yield fluctuations. Flexibility is the key
to enabling supply chains to continue to operate efficiently and effectively in the face of
uncertainty. Slack (1991) identifies the following three types of system flexibilities:
 Volume: the ability to change the output level of products produced.
 Delivery: the ability to change planned delivery dates.
 Mix: the ability to change the variety of products produced.
AN ECHELON PERSPECTIVE OF FLEXIBILITY
Consider a traditional, four-stage supply chain, consisting of supply, manufacturing, distribution,
and retail. In this system, each stage places different priorities on different types of flexibility.
The question that arises is, what perspective does each echelon have on flexibility, and how does
this perspective affect overall supply chain system flexibility measurement?
First, consider flexibility from the perspective of the final customer. Does the retailer have
enough products available for purchase (volume flexibility)? If products are not currently
available, how long will the customer have to wait (in terms of rain checks/backorders) (delivery
flexibility)? What different products are available (mix flexibility)? The retailers’ inventory
levels and lead times directly affect the flexibility observed by the customer.
A retailer may be able to buffer against demand variability in various ways, such as: holding
more inventory (Volume Flexibility) or postponing product differentiation to the retailer (Mix
Flexibility). However, the flexibilities of the retailer echelon are directly related to the flexibility
of the distribution echelon. That is, the volume, delivery, and mix flexibility at the retailer
echelon depend on the flexibilities of the distribution echelon, achieved through inventory
management, lead time, delivery methods, and sourcing options.
The distribution echelon may also be able to increase flexibility by holding more inventory
(Volume Flexibility), but again, this flexibility is directly related to the manufacturer’s
flexibility. The manufacturing echelon has numerous options for increasing its flexibility, such
as: cross-training (workforce agility), production/equipment scheduling, inventories (supplies,
WIP, and finished goods (FG)), etc. However, manufacturing flexibility is related to supplier
flexibility. These echelon flexibility relationships are illustrated in Figure 1.
Moreover, there are many factors that influence volume, delivery, and mix flexibility in the
supply chain. So, it may be beneficial to introduce an easily-quantifiable, inclusive measure of
flexibility that would simultaneously enhance volume, delivery, and mix flexibilities. Such a
measure will be referred to as sourcing flexibility.
Proceedings of the Eleventh Annual Conference of the Production and Operations Management Society, POM2000, April 1-4,2000, San Antonio, TX.
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Suppliers
Distribution
Centers
Manufacturers
Volume Flex
Volume Flex
Delivery Flex
Mix Flex
Retailers
Customer
Volume Flex
Volume Flex
Delivery Flex
Delivery Flex
Delivery Flex
Mix Flex
Mix Flex
Mix Flex
Supplier Invent ory
Mfg FGs Inventory
DC Inventory
Retailer Invent ory
Lead T ime
Lead T ime
Lead T ime
Lead T ime
Delivery Met hods
Delivery Met hods
Delivery Met hods
Sourcing Opt ions
Sourcing Opt ions
Sourcing Opt ions
P roduct ion Capacity
Workforce Agility
Figure 1: Supply Chain Flexibilities
SOURCING FLEXIBILITY (F)
Sourcing flexibility, F, describes how many sources (facilities) can provide the various SKUs
throughout the supply chain. This definition is loosely based on the definition of manufacturing
process flexibility developed by Jordan and Graves (1995). Formally, if the supply pattern for
SKU i is constructed in such a way that the nodes represent facilities and the arcs represent
supply of that SKU between facilities, then if
Si  k , k  1  # arcs connecting echelons k and k  1 in the network for SKU i,
then the sourcing flexibility, F, may be defined as:
F  S bk , k  1g I
G
J
1
F  G
J
N
G
J
k  Mb
k  1g
G
J
H M bg
K
K 1
i
N
i 1
k 1
K 1
(1)
k 1
bg
b g
where M k and M k  1 represent the number of total facilities in echelon k and k + 1,
respectively, and there are N total SKUs in the system. Higher values of F represent greater
sourcing flexibility ( F 0,1 ).
Example: Consider the following two-echelon, single-product (i.e., one SKU) supply chains,
with differing supply patterns. These chains are pictured in Figures 2 and 3.
Proceedings of the Eleventh Annual Conference of the Production and Operations Management Society, POM2000, April 1-4,2000, San Antonio, TX.
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Figure 2. SC 1
Figure 3. SC 2
The sourcing flexibility of SC 1 (pictured in Figure 2) is calculated from equation (1) as:
F  S bk , k  1g I
JJ S b1,2g  6  1 ,
1 G
F  G
1 G
2
3 2
JJ M b1g M bg
M bg
k  Mb
k  1g
G

H
K
K 1
i
1
i 1
k 1
1
K 1
(2)
k 1
which is the maximum possible sourcing flexibility. By contrast, the sourcing flexibility of SC 2
(pictured in Figure 3) is:
F  S bk , k  1g I
J
Sb
1,2g
1 G
4
2
F  G


 .
J
1 G
Mb
1g
 M bg
2
3 2 3
J
M bg
k  Mb
k  1g
G
J

H
K
K 1
i
1
i 1
k 1
1
K 1
(3)
k 1
The importance of sourcing flexibility is that it simultaneously describes the flexibility with
which the various facilities within the SC may obtain needed materials, intermediate products, or
final products from multiple upstream sources. High sourcing flexibility performance enhances
smooth production and response time flexibility by enabling facilities to continue to produce and
deliver materials and/or products in cases of upstream capacity constraints and/or delays.
CONCLUDING REMARKS
Flexibility enhances a supply chain’s ability to be effective and efficient in the face of
uncertainty. Each echelon within the supply chain has a different perspective on volume, mix,
and delivery flexibility, and also has numerous options for achieving these flexibilities. An
inclusive and easily-quantifiable measure of flexibility is sourcing flexibility, which
simultaneously enhances volume, mix, and delivery flexibility, and describes the flexibility with
which the various facilities within the chain may obtain upstream materials and/or products.
REFERENCES
Beamon, Benita M. (1999). “Measuring Supply Chain Performance”, International Journal of
Operations and Production Management, Vol. 19, No. 3, pp. 275-292.
Jordan, William C. and Stephen C. Graves (1995). “Principles on the Benefits of Manufacturing
Process Flexibility”, Management Science, Vol. 41, No. 4, pp. 577-594.
Slack, N. (1991). The Manufacturing Advantage, Mercury Books, London.
Proceedings of the Eleventh Annual Conference of the Production and Operations Management Society, POM2000, April 1-4,2000, San Antonio, TX.