African Journal of Business Management Vol.5 (11), pp. 4263-4271, 4 June, 2011 Available online at http://www.academicjournals.

org/AJBM ISSN 1993-8233 2011 Academic Journals

Full Length Research Paper

A model to evaluate supply chain performance and flexibility

Uur Ba* and Turan Erman Erkan
Department of Industrial Engineering, Atlm University, Ankara, Turkey.
Accepted 27 January, 2011

In present days global competitive environment, enterprises have to focus on their supply chain performance to have a competitive advantage. Improving the effectiveness of the system is the only way to do so and, for this purpose, ongoing supply chain activities have to be inspected in pursuant of some performance measurements and metrics to cover the concept. There is a lack of effective mathematical models in the literature which enclose flexibility and its parameters in order to measure the performance of a supply chain by considering all of its vital elements. In this paper, a mathematical model is proposed to evaluate supply chain performance using some key performance indicators. This model can be used to evaluate the flexibility characteristics of logistic, market, supplier, machine, labor, information system, and routing of the supply chain. Key words: Supply chain management, logistics, linear programming. INTRODUCTION With the globalization of markets and operations, enterprises are faced with a more competitive environment, and they realize working independently is no longer an option for them to survive. The supply chain is arranged in tiers that represent production stages, which are organized so that the outputs from one tier are the inputs to the next (Meixell and Gargeya, 2005). As a result, competitiveness requires the consideration of all channels in the supply chain (Gong, 2008). In todays business world, managers are developing new perspectives regarding various managerial functions that include marketing, design, engineering, production, finance, accounting and human resources (Gunasekaran and Kobu, 2007). Also, new supply chain management concepts are helping managers to successfully run their firms in the new environment which is necessary to effectively respond to supplier and customer requirements and to achieve a better organizational performance. Therefore, implementing quick-response strategy is vital as modeled throughout the 1990s as stated by Hammond (1990) and Lowson et al. (1999) to improve competitiveness. The benefits of supply chain management include cost savings through reductions in inventory and costs of transaction across the supply chain, faster response to changes in the market demands, lower product development, and increased competitiveness and profitability (Langfield-Smith and Smith, 2005). In order to achieve these benefits, one should consider the performance of supply chain along with all its channels. For this purpose, it would be enough to use some performance measures to efficiently manage an effective supply chain. These measures have an important role since they affect strategic, tactical, and operational planning and control. Performance measurement and metrics are essential in setting objectives, evaluating performance, and determining future courses of actions (Gunasekaran et al., 2004). The need for flexibility in the supply chain has been emphasized by Cohen and Lee (1988) and Cohen et al. (1988); it is one of the strategic parts of the enterprises in order to increase the system performance. With the increase in competitiveness to satisfy the customer demand with less cost and in shorter time, it is not surprising that supply chain managers are beginning to recognize the importance of flexibility. Despite its importance, there is a lack of rigorous analytical models

*Corresponding author. E-mail: ubac@atilim.edu.tr.Tel: +90 312 586 87 59.Fax: +90 312 586 80 91.

4264

Afr. J. Bus. Manage.

elucidating the relationships between the degree of flexibility in a system and the level of system performance (Mohamed et al., 2001). Meixell and Gargeye (2005) have listed some researches in the literature, which includes mathematical models developed for the purpose of performance measurement and for the evaluation of supply chains. However, the performance of the entire supply chain can improve if it is constructed with flexible components. In this paper, a mathematical model has been developed for the flexibility of operational activities of the supply chain. There is no commonly-accepted definition of flexibility, with the existing definitions covering only limited aspects (Beach et al., 2000), (McCarthy and Liu, 1993). For example, Nagarur (1992) defines flexibility at the internal production level as the ability of the manufacturing system to cope with changes such as product, process, load, and machine breakdown. Gong (2008), summarizes current definitions of flexibility in the literature were as follows: 1. The ability of a manufacturing system to cope with environmental variations; 2. The ability of the enterprise to respond with agility to variations in market conditions; and 3. The ability of the enterprise to respond to variations more quickly with lower costs and less negative effects on system effectiveness. In this paper, flexibility is considered as the ability of the whole supply chain system - including suppliers, production facilities and markets - to cope with internal and external variations with high competitive competency and high economic profitability. Research objectives In todays competitive global market, supply chain management issues and performance improvement opportunities have become a focus of attention. Most of the studies regarding cost reduction tend to ignore other performance measures, such as reliability, responsiveness, flexibility, cost, and assets defined in Supply Chain Operations Reference (SCOR) model (Supply-Chain Council, 2003). Building a flexible supply chain has both advantages and gains for the system from numerous aspects of performance measures. However, the availability of the literature addressing supply chain flexibility has been limited to date (Pujawan, 2004). Also, finding an analytical model to measure such performance and flexibility is not easy. As suggested by Gunasekaran and Kobu (Gunasekaran and Kobu, 2007), it is necessary to develop a suitable mathematical model to measure the performance of supply chain systems. According to Cohen and Lee (1989) manufacturing is the key component of a firms competitive strategy, and success in the market is closely linked with the operational performance of the firm. Huchzermeier and

Cohen (1996) developed a stochastic dynamic programming model to investigate the value of operational flexibility where currency exchange rates are uncertain and switching costs are incurred. The purpose of this study is to build a mathematical model to measure operational flexibility of supply chain system and, by doing so, conclude some remarks and suggestions to improve the systems performance by means of some economic indexes to ensure a competitive advantage. For this purpose, the clarification of methods to be used to classify flexibility has to be done first. Many classifications of flexibility can be found in the literature. In 1980s, there was an extensive research on how to measure manufacturing flexibility which also underlies the flexibility of the operational activities at supply chains. According to Duclos et al. (2003), flexibility can be expressed by defining six main elements: production system, market, logistics, supply, organizational and information systems. The logistics of the supply chain has been characterized as the movement of goods from the point of origin to the point of consumption as defined by Vitasek (2003). Since production process and operation flexibility depend on machine and routing flexibility, respectively, and since we tend to improve operational flexibility these parameters are also important for our model. Therefore, in the development of a model for supply chain system flexibility, the study considers logistics, markets, suppliers, machine, labor, routing, and information systems flexibility.
METHODOLOGY The model for supply chain system In general, the structure for supply chain systems includes different suppliers, manufacturers and markets as shown in Figure 1. A supply chain design problem comprises the decisions regarding the amount of capacity at each facility, the assignment of each market region to one or more locations, and supplier selection for sub-assemblies, components and materials (Chopra and Meindl, 2004). The decision variables in our model have been defined considering the above mentioned criteria. A broadened definition for supply chain performance - as mission, strategy and objectives can, therefore, vary considerably. Many firms that had viewed their sourcing problems myopically as an enterprise-level concern now strive to integrate decision processes across tiers in the supply chain (Keeney, 1994). Outsourcing and supplier selection are important factors in todays supply chains. Suppliers are typically selected based on the buyers perception of the suppliers ability to meet quality, quantity, delivery, price, and service needs of their firm (Leenders et al., 2002). The study considers the other firms in the environment as outsourcing suppliers and competitive manufacturer firms according to the real-world environment. As a result, the model developed in this study takes into account the problem of selecting the supplier. The flexibility model developed in this study explicitly considers the network that connects the suppliers of raw materials, the plants that manufacture both intermediate and finished products, the distribution channels, competitors, and different markets. The model is based on a manufacturing enterprise (ABC Company) that has production at both the manufacturing level and the supplier level.

Ba and Erkan

4265

Suppliers
S1

Manufacturers
M1

Markets
C1
M1

Manufacturers
M2 M3

Suppliers
S1

Markets
C1

S2

M2

C2

. . .
Ss

. . .
Mm

. . .
Cc

S2

C2

S3

C3

S4

C4

Figure 1. Supply chain structure.

S5 C5

According to McGrath and Bequillards study (1989), ABC is a home-country manufacturing company which concentrates on its expertise in manufacturing. At the supplier level, this firm produces intermediate products necessary for the production of the spare parts and finished product at the manufacturing facilities. This company has three supplier and two manufacturing facilities. There are also two additional suppliers and one manufacturing facility as a competitor in the environment. In this study, the selection of suppliers is based on the total cost criteria though, sometimes, purchasing managers consider an even broader set of criteria - as defined by the total cost of ownership - to include the cost of carrying inventory, repair, training, disposal, minimum order quantities, etc. (Pan, 1989; Ellram, 1995; Degraeve and Roodhooft, 1999; Burt et al., 2003). The facilities at the supplier level are primarily responsible for producing necessary parts for the manufacturers; but they can also sell some intermediate parts directly to proper market(s). The manufacturing facilities of ABC Company can buy parts from both its own supplier facilities and others in the chain. In this study, the flexibility model has been built considering the supply chain of this manufacturing firm. The network of the related flow of the parts at the supplier level has been demonstrated in Figure 2. In Figure 2, S1, S2, S3, M1 and M2 are the main facilities of the ABC Company. S4 and S5 are the competitor supplier firms, and M3 is the competitor manufacturer firm. Dashed arrows are showing the flow of the outsourced intermediate parts to the ABC Companys main facilities which are considered in the model as the only cost parameter. There is a flow of intermediate parts from S4 and S5 to the market, but since they do not have any effect in the flexibility model developed for ABC Company; they have not been shown in Figure 2. The manufacturing facilities in the system purchase intermediate parts from the suppliers and, after some production phases; they sell the finished products in different markets. The manufacturing firms can sell some spare parts and intermediate parts to the market along with their finished products. The flows between the manufacturing facilities and markets are the same as shown in Figure 1. Due to the same reasons mentioned before, since M3 is a competitor manufacturing firm, the flows from this facility to the markets have not been considered in the flexibility model. This firm is only a source of profit for the suppliers of ABC Company because of their sales of intermediate parts to ABC. In short, our model considers the network in the supply chain system shown in Figure 3. Lastly, there are three different types of products sent to the markets from the manufacturing facilities, namely: intermediate parts, spare parts, and finished products. These three different

Figure 2. Flow of the intermediate parts at supplier level.

flows have been shown as a single flow in Figure 3. In the supply chain systems, the overall flexibility is highly dependent on that of all entities in the supply chain and their interrelations (Gong, 2008). To integrate the flexibility elements, a product-mix flexibility model has been developed including the suppliers and the logistics.

The integrated flexibility model of supply chain The mathematical flexibility model for supply chain systems mentioned in the previous part has been built for a specific period of time. All the parameters used in the model belong to this current planning horizon. All actual demands of different products in the system also have to be satisfied in this current period. Taking time into consideration in the model is a distinguishing characteristic of Arntzen (1995) during his time. Similarly, we have also considered time in the model as a flexibility parameter. In this literature, most of the mathematical models consider production and shipment quantities in the definition of decision variables. Examples of these models can be found in the following references: Hodder and Dincer (1986), Cohen and Lee (1989), Cohen et al. (1989), Arntzen et al. (1995), Canel and Khumawala (1996), Rosenfield (1996), Huchzermeier and Cohen (1996), Dasu and de la Torre (1997), Munson and Rosenblatt (1997), Vidal and Goetschalckx (2001), Lowe et al. (2002) and Nagurney et al. (2003). Models of Cohen and Lee (1989), Cohen et al. (1989) and Munson and Rosenblatt (1997) also include supplier selection criteria in the definition of their decision variables. Breitman and Lucas (1987) and Gutierrez and Kouvelis (1995) developed models which consider supplier selection but not production/shipment quantities. As diversity, the model proposed by Cohen and Lee (1989) includes interplant transshipment, and those by Haug (1992), Kogut and Kulatilaka (1994), and Dasu and de la Torre (1997) include production shifting in the definition of their decision variables. Cohens model (Cohen et al., 1989) has decision variables defined as supplier choice, production quantity at each plant, and the amount of product supplied to each market. The decision variables that the study has used have similarities with the ones in these models. They include production/shipment quantities, supplier selection, interplant transshipment, and production shifting.

4266

Afr. J. Bus. Manage.

Manufacturers
M1 M2 M3

Suppliers
S1

Markets
C1

S2

C2

S3

C3

S4

C4

S5

C5

Figure 3. Modeled Supply Chain System.

Also, our model considers finished products and intermediate parts together with raw materials at supplier level production. Supply chains typically consist of both internal and external facilities and this reality needs to be taken into account in global supply chain design models (Pan, 1989; Munson and Rosenblatt, 1997). Merely addressing the first tier of manufacturing means that, neglecting the performance implications of the suppliers of goods and services (Lee, 2000; Rohde, 2000; Krajewski and Wei, 2001). Similar with Kouvelis and Gutierrez (1997), the decision variables in the model indicate the production quantities of goods at the related tiers. In addition, the model has been designed as a network equilibrium model consisting of manufacturer, supplier, and market tiers which was previously used by Nagurey (2003). The bill of material (BOM) constraints is used in the model to allow for complex product structures over multiple tiers that explicitly link the quantity relationships between the facilities in the supply chain (Breitman and Lucas, 1987; Vidal and Goetschalckx, 2001). Taking the bill of material into account is important for the coordination of supplier-based decisions. This fact has been emphasized by Breitman and Lucas (1987), Cohen and Lee (1989), Cohen et al. (1989), Arntzen et al. (1995), Munson and Rosenblatt (1997) and Vidal and Goetschalckx (2001). From the aspect of supply chain coordination decisions, our model includes multiple supplier and production sites for multiple markets. This structure is similar to the model by Munson and Rosenblatt (1997) which includes more complicated coordination constraints than a single production site for a single market situation. Lastly, the study objective is to maximize profit and, therefore, maximize the supply chain flexibility considering the production and purchasing costs. Profit has been defined as performance measurement in the works of the following authors: Hodder and

Dincer (1986), Cohen and Lee (1989), Cohen et al. (1989), Canel and Khumawala (1996), Huchzermeier and Cohen (1996), Dasu and de la Torre (1997), Vidal and Goetschalckx (2001), Hadjinicola and Kumar (2002) and Nagurney et al. (2003). Also, a number of articles by Kogut and Kulatilaka (1994), Huchzermeier and Cohen (1996), and Gong (2008) have considered flexibility in their models. Decision variables, indices and parameters used at the model have been described below: Indexes and parameters

a : The supplier facilities of the ABC Company, a = {1, 2,3} ; All suppliers existing in the system, b: b = {1, 2,3, 4, 5} or b = a {4,5} ;

b* : The competitive b* = {4,5} ;

suppliers

existing

in

the

system,

h : All manufacturing facilities existing in the system,

h = {1, 2,3} or h = i {3} ;

h* : The competition manufacturer in the system, h* = {3} ;

i : The manufacturing facilities of the ABC Company, i = {1, 2} ; j : The markets available in the system, j = {1, 2,3, 4,5} ; k : The
finished product type,

k = {1, 2,..., K } ;

Ba and Erkan

4267

l : The intermediate part type, l = {1, 2,..., L} ;

'' im :

The time quota of spare part type

processed in the

m : The spare part type, m = {1, 2,..., M } ;

Rijk : R
' ijl

production line of manufacturing facility

i;
run

The unit revenue of one unit product

k,

produced at

ri : The probability that machines in the manufacturing facility i

normally in the current study period;

manufacturing facility

i , and sold in market j ; l , processed

processed at

ra* : The probability that machines in the supplier a

the current study period;

run normally in

: The unit revenue of one unit intermediate part

at manufacturing facility
'' Rijm :

i , and sold in market j ;

The unit revenue of one unit spare part

m,
l,

manufacturing facility

i , and sold in market j ;

purchased from

Cbil :

The unit cost of one intermediate part

supplier

by the manufacturing facility

i;

Pahl : The unit profit of one unit intermediate part l , produced at supplier a , and sold to the manufacturing facility h ; ' Pajl : The unit profit of one unit intermediate part l , produced supplier a, and sold in market j ; T jk : The demand of market j for the finished product k ;
' T jl : The demand of market j '' T jm : The demand of market j

at

Sik : The setup time of machines with the probability distribution for the production of finished product k at the manufacturing facility i ; ' Sil : The setup time of machines with the probability distribution for the process of intermediate part l at the manufacturing facility i ; * S al : The setup time of machines with the probability distribution for the production of intermediate part l in supplier a ; '' Sim : The setup time of machines with the probability distribution for the production of spare part type m at the manufacturing facility i ; : The total working time of facilities of ABC Company to satisfy
all demands in current planning horizon;

Ii :
I
* a:

The probability-distributed time representing the effect of

for the intermediate part for the spare part type

l;

information technology in the manufacturing facility

i;

m; h
*

The probability-distributed time representing the effect of

information technology in supplier for the

a;
i ; and

* h*l

: The demand of competitive manufacturers

Li :
L
* a:

The probability-distributed time representing the effect of

intermediate part

where

h* = h i or h* = 3 ;

logistic strategies adopted by the manufacturing facility

ekl : The numeric relation between intermediate part l and finished product k in the bill of material; f ml : The numeric relation between intermediate part l and spare part m in the bill of material; K b*l : The maximum supply limit of outsourced intermediate part l
from supplier

The probability-distributed time representing the effect of

logistic strategies adopted by supplier Decision variables

a.

X ijk :

The

number

of

finished

product

k,

produced

at

b*

where

b* = b a or b* = {4,5} ;
to finish one unit of finished product

ik :

' il

The time with a probability distribution needed by the work

force of manufacturer

i i

k; l;

i , and sold in market j ; Yijl : The number of intermediate part l , processed at manufacturing facility i , and sold in market j ;
manufacturing facility
' Yijm :

: The time with a probability distribution needed by the work to finish one unit of intermediate part

The number of spare part

m,

processed at manufacturing

force of manufacturer
* al

facility

i , and sold in market j ;

: The time with a probability distribution needed by the work

force of supplier
'' im :

to finish one unit of intermediate part

l;

The time with a probability distribution needed by the work

force of manufacturer

to finish one unit of spare part type

m;

ik :

' il

The time quota of finished product

k l l

processed in the

production line of manufacturer

i;
processed in the

Z bil : The number of intermediate part l , produced at supplier b , and sold to the manufacturing facility i ; Z ahl : The number of intermediate part l , produced at supplier a , and sold to the manufacturing facility h ; and ' Z ajl : The number of intermediate part l , produced at supplier a , and sold in market j .
Total system flexibility has been measured by the profit index which is described by the probability average of total profit for given parameters TF = E (Profit) . The proposed integrated flexibility model of supply chain system to measure flexibility is as follows:

: The time quota of intermediate part

production line of manufacturer

* al :

i;
processed in the

The time quota of intermediate part

production line of supplier

a;

4268

Afr. J. Bus. Manage.

TF = E (Profit)
' ' '' Profit = max X ijk Rijk + Yijl Rijl + Yijm Rijm Z bil Cbil (1) i j k l ' m ' b i l

several flexibility parameters. 8. Equation (9) limits the production time of the suppliers needed to satisfy markets demands while considering several flexibility (1) parameters.

+ Z ahl Pahl + Z ajl Pajl

a h l a j l

s.t.
ijl

X
i

RESULTS
ijk

T jk

k and j ,

(2)

Y + Z
i a

' ajl

Tjl'

l and j ,
(3)

Y
i

' ijm

'' T jm

m and j ,
(4)

Z
b

bil

' = ekl X ijk + f ml Yijm + Yijl k

l and i ,

(5)

Z
a

ah*l

= Th*l
*

l , h* and h* = h i,
(6)

Z
i

b il

Kb l
*

l , b* and b* = b a,
(7)

' ' '' ik + Yijl il + Yijm im k j l j m j ' ' + X ijk ik / ri + Sik + Yijl il / ri + Sil k j l j
ijk

+ Yijm im / ri + Sim I i Li
' '' '' m

i,
(8)

Z
l

ahl

' * ' * * * + Z ajl al + Z ahl + Z ajl al / ra* + Sal I a L*a j

a,

(9)

In the objective function part of Equation (1) within the model, all kinds of products have been summed up with those profits from the sales of intermediate parts sold by the supplier facilities. Also, the purchase costs of intermediate products by the manufacturing facilities have been subtracted. The constraints of the model can be summarized as follows: 1. Equation (2) satisfies the total demand of the markets for finished products. 2. Equation (3) satisfies the total demand of the markets for intermediate parts. 3. Equation (4) satisfies the total demand of the markets for spare parts. 4. Equation (5) ensures that the intermediate parts needed by the manufacturers have been produced completely at the supplier level. 5. Equation (6) satisfies the demand of the competitor manufacturing firm. 6. Equation (7) represents the capacities of the supplier firms which do not belong to ABC Company. 7. Equation (8) limits the production time of the manufacturing facilities needed to satisfy markets demands while considering

The proposed integrated flexibility model described in the previous section has been tested for ABC Company for three different finished products consisting of two spare parts and five intermediate parts. The models time horizon is such that the decisions and associated costs occur in a single, yet sufficient time period to reflect both the decisions and their consequences on the system. The production period has been taken as five working days. There are eight hours in each day and all values about times have been taken in seconds. As a result, the study period is 144,000 seconds in total. The ABC Company is supposed to satisfy all demands of the markets for all kinds of goods at this studied shift. In order to see the effect of flexibility parameters on the total profit as well as the total system flexibility, an initial condition of parameters have been defined from the data collected. The integrated flexibility model of the supply chain system has been coded in CPLEX 9.0 using the OPL Studio 3.7. After setting the initial condition of the flexibility parameters, there are one-by-one changes applied to each of these parameters to see their effects on the system flexibility caused as a result of the changes in profit. After that, sensitivity analysis is made for the related groups of flexibility parameters instead of each parameter under a certain group. In this way, it is easier to see the general effects of labor, machine, routing, supplier, information technologies, and logistics flexibilities over the supply chain system as a whole. A sensitivity analysis has been done for different sets of data collected from the company. These data have been categorized according to variations of probability distributions of parameters. There were some noticed effects resulting from variations of different parameters in this analysis. Since the data set is limited, no experimental design has been conducted in this step. At the initial state; total system flexibility has been measured. Then, the model is run for each different scenario and, as a result of these test runs, sensitivity analysis of some selected parameters, their comparison, and their effect on total flexibility is measured and given in Table 1 in percent of changes. The results of Table 1 shows that changes in the flexibility factors related with the manufacturing level of the supply chain has no effect on the total flexibility of the system. This is because of the production rate of the manufacturing level. The study period of five days to satisfy all the market demands is quite sufficient for the manufacturing departments. As such, the manufacturing level is not affected by the 5% and 10% changes in the flexibility parameters. However, greater changes in

Ba and Erkan

4269

Table 1. Variation of system flexibility caused by given flexibility factor.

Variation of flexibility factors

Percentage of system flexibility (%) -10 -5 5 10 0 -5.75 0 0.045 0 0.10 0 0 0 5.94 5.75 0.016 1.05 -0.076 0.14 -0.022 12.69 0 -2.80 0 0.022 0 0.05 0 0 0 2.89 2.80 0.008 0.53 -0.038 0.072 -0.011 6.35 -5.73 -2.81 0 2.66 0 -0.022 0 -0.05 0 0 0 -2.75 -2.66 -0.008 -0.53 0.038 -0.072 0.011 -3.57 5.77 5.59 0 5.20 0 -0.045 0 -0.10 0 0 0 -5.36 -5.20 -0.016 -1.05 0.076 0.14 0.022 -7.15 11.55 11.19

ri
ra* Ii
* Ia

Li L* a
' '' ik , il , im '' ik , il' , im ' '' S ik , S il , S im * al * al

* al

T jk

Tjl'
'' Tjm

Th*l
*

Cbil Rijk , Rijl , Rijm

' Pajl , Pahl ' ''

-11.45 -5.62

percentages of the parameters do obviously affect the manufacturing level, and so the total flexibility of the system. This is a result that can be anticipated in the system because the production quantity of suppliers is greater than the manufacturers. Operational flexibility is positively correlated with the reliability of the machines. An increase in reliability has positive relation with the ratio of efficient working time of the machines, and there will be fewer problems during the production. The time needed by the work force and the machines are, however, negatively correlated with the operational flexibility. An increase in the production time certainly affects the operational flexibility negatively and, as a result of this, it will also indirectly affect the total system flexibility. The logistic operations and information handling times

are negatively correlated with the system flexibility. A reduction in these parameters results in a gain of time for production operations. Also, logistics have a relatively larger effect on total system flexibility when compared with the information technology. The reason for this is that, logistic operations take longer than response time for information in the system. The flexibility outputs of the model related with the changes in the demand have been found to be as expected. There are three types of demands for different products. As for the demand for finished products and spare parts, the manufacturing facilities can fulfill them. To complete the production of these goods, however, there is a larger demand for intermediate parts related with the BOM structure. Also, supplier facilities have

4270

Afr. J. Bus. Manage.

fewer buffers within the operating times to satisfy extra demand. In the current system, a certain number of parts are provided by outside suppliers who have higher prices. An increase in goods results in a need for more parts, and this means greater costs for the ABC Company. This means that, flexibility has been affected negatively as a result of an increase in the demand for spare parts and finished products. The flexibility of demand to be satisfied by the suppliers ( Th*l ) is to some extent positively correlated with that for the intermediate parts ( T jl ). Sensitivity analyses have been done for the flexibilities ' '' in cost ( Cbil ), revenue ( Rijk , Rijl , Rijm ), and profit ( Pajl , Pahl ). As expected, cost is negatively correlated with the system flexibility in contradiction to revenues and profits. A decrease in costs increases both the profit and the flexibility indicator greater than the case when there is a decrease in flexibility due to an increase in the costs, which is because of the alternative suppliers. When there is an increase in costs, manufacturing facilities have different supplier options to balance their cost to some extent. The main flexibility parameters for the given study period are related with the supplier level. Also, flexibilities in cost ( Cbil ), revenue ( Rijk , Rijl , Rijm ), and profit ( Pajl , Pahl ) are the main factors that affect the total system flexibility. The reliability of machines ( ra ), the time required by the work force at the suppliers in order to produce the intermediate parts ( al ), and the time required by the machines at the suppliers to produce intermediate parts ( al ) are the main factors affecting the operational flexibility. Conclusion In this study, a model has been developed for an integrated supply chain flexibility system. This model captures all the vital elements of the supply chain as well as the decisions that have to be made by the managers. It assists the supply chain managers to both make the critical decisions related with the main operations, and to evaluate the effect of flexibilities in logistics, markets, suppliers, machine, labor, routing, and information systems within their operational flexibility. By this means, this model assists the managers in clearly recognizing the effects of both inbound and outbound changes on their companies. In this way, the evaluation of performance can be conducted more easily. Also, being able to see the degree of effect of each flexibility component on the system helps the managers, plan more
* * * ' ' '' ' ' *

efficiently and decide on preventive investments to maintain their competitive advantage in the global market. The outputs of this study indicate that the total system flexibility is mostly affected by the reliability of machines at the suppliers ( ra ), the time needed by the work force at the suppliers to produce intermediate parts ( al ), the time needed by the machines at the suppliers to produce the intermediate parts ( al ), together with the flexibilities in cost ( Cbil ), revenue ( Rijk , Rijl , Rijm ), and profit ( Pajl , Pahl ). If there is a planned investment, then this should be done within these areas so as to increase the operational flexibility and, thereby, the profits of the company. As a result, a detailed modeling of supply chains including all levels together with the competitor suppliers and manufacturers has been done in this study. The developed model is useful for the evaluation of performance of the existing supply chains from the aspect of operational flexibility. Also, improvements in the existing system can be made using implications of the outputs. A global supply chain can be modeled in the future researches in accordance with international configuretions and constraints with properly-defined decision variables. Finally, flexibility needs of an international company may be compared with those of a domestic company which have products in the same sector.
REFERENCES Arntzen BC, Brown GG, Harrison TP, Trafton LL (1995). Global supply chain management at digital equipment corporation. Interfaces. 25: 69-93. Beach R, Muhlemann AP, Price DHR, Paterson A, Sharp JA (2000). A review of manufacturing flexibility. Eur. J. Oper. Res., 122: 41-57. Breitman RL, Lucas JM (1987). PLANETS: A modeling system for business planning. Interfaces. 17: 94-106. Burt DN, Dobler DW, Starling SL (2003). World Class Supply Management: The Key to Supply Chain Management. McGraw-Hill, Irwin, Boston, MA. Canel C, Khumawala BM (1996). A mixed-integer programming approach for the international facilities location problem. Int. J. Oper. Prod. Manage., 16: 49-68. Chopra S, Meindl P (2004). Supply chain management: strategy, planning and operations. Prentice Hall, Upper Saddle River, NJ. Cohen MA, Lee HL (1988). Strategic analysis of integrated productiondistribution systems: models and methods. Oper. Res., 36: 216-228. Cohen MA, Lee HL, Moon S (1988). An integrated model for manufacturing and distribution systems design. Working Paper, Institution or organization, Place of Organization. Cohen MA, Fisher ML, Jaikumar R (1989). International manufacturing and distribution networks: a normative model framework. Managing International Manufacturing. Elsevier Science Publishers, Amsterdam. Cohen MA, Lee HL (1989). Resource deployment analysis of global manufacturing and distribution networks. J. Manuf. Oper. Manage., 2: 81-104. Dasu S, de la Torre J (1997). Optimizing an international network of
' ' '' * * *

Ba and Erkan

4271

partially owned plants under conditions of trade liberalization. Manage. Sci., 43: 313-333. Degraeve Z, Roodhooft F (1999). Effectively selecting suppliers using total cost of ownership. J. Supply Chain Manage., 35: 5-10. Duclos LK, Vokurka RJ, Lummus RR (2003). A conceptual model of supply chain flexibility. Ind. Manage. Data Syst. 103(6): 446-456. Ellram LM (1995). Total cost of ownership: an analysis approach for purchasing. Int. J. Physical Distrib. and Logistics Manage.,. 25: 4-23. Gong Z (2008). An economic evaluation model of supply chain flexibility. Eur. J. Oper. Res., 184: 745-758. Gunasekaran A, Kobu B (2007). Performance measures and metrics in logistics and supply chain management: a review of recent literature (1995-2004) for research and applications. Int. J. Prod. Res., 45(12): 2819-2840. Gunasekaran A, Patel C, McGaughey RE (2004). A framework for supply chain performance measurement. Int. J. Prod. Econ., 87: 333347. Gutierrez GJ, Kouvelis P (1995). A robustness approach to international sourcing. Ann. Oper. Res., 59: 165-193. Hammond JH (1990). Quick response in the apparel industry. Working paper [N9-690-038], Harvard University, Cambridge, MA. Report No. N9-690-038. Hadjinicola GC, Kumar KR (2002). Modeling manufacturing and marketing options in international operations. Int. J. Prod. Econ., 75: 287-304. Haug P (1992). An international location and production transfer model for high technology multinational enterprises. Int. J. Prod. Res., 30: 559-572. Hodder JE, Dincer MC (1986). A multifactor model for international plant location and financing under uncertainty. Comput. Oper. Res., 13: 601-609. Huchzermeier A, Cohen MA (1996). Valuing operational flexibility under exchange rate risk. Oper. Res., 44: 100-113. Keeney RL (1994). Creativity in decision making with value-focused thinking. Sloan Manage. Rev., Summer: 33-41. Kogut B, Kulatilaka N (1994). Operating flexibility, global manufacturing, and the option value of a multinational network. Manage. Sci., 40: 123-139. Kouvelis P, Gutierrez GJ (1997). The newsvendor problem in a global market: optimal centralized and decentralized control policies for a two-market stochastic inventory system. Manage. Sci., 43: 571-585. Krajewski L, Wei JC (2001). The value of production schedule integration in supply chains. Decis. Sci. 32: 601-634. Langfield-Smith K, Smith D (2005). Performance measures in supply chains. Austr. Account. Rev., 15(1): 39-51. Lee HL (2000). Creating value through supply chain integration. Supply Chain Management Review. 4: 30-36.

Leenders MR, Fearon HE, Flynn AE, Johnson PF (2002). Purchasing and supply management. McGraw-Hill, Irwin, Boston, MA. Lowe TJ, Wendell RE, Hu G (2002). Screening location strategies to reduce exchange rate risk. Eur. J. Operational Res., 136: 573-590. Lowson B, King R, Hunter A (1999). Quick response managing the supply chain to meet consumer demand. Wiley, Chichester, West Sussex, England. MacCarthy BL, Liu J (1993). A new classification scheme for flexible manufacturing systems. Int. J. Prod. Res., 31(2): 299-309. McGrath ME, Bequillard RB (1989). International manufacturing strategies and infrastructural considerations in the electronics industry. In Ferdows K (ed), Managing International Manufacturing. North Holland, New York, NY. Meixell MJ, Gargeya VB (2005). Global supply chain design: A literature review and critique. Transp. Res. Part E, 41: 531-550. Mohamed ZM, Youssef MA, Huq F (2001). The impact of machine flexibility on the performance of flexible manufacturing systems. Int. J. Oper. Prod. Manage., 21(5/6): 707-727. Munson CL, Rosenblatt MJ (1997). The impact of local content rules on global sourcing decisions. Prod. and Oper. Manage.,. 6: 277-289. Nagarur N (1992). Some performance measures of flexible manufacturing systems. Int. J. Prod. Res., 30(4): 799-809. Nagurney A, Cruz J, Matsypura D (2003). Dynamics of global supply chain supernetworks. Math. Comput. Model., 37: 963-983. Pan AC (1989). Allocation of order quantities among suppliers. J. Pur. Mater. Manage., 25: 36-39. Pujawan N (2004). Assessing supply chain flexibility: A conceptual framework and case study. Int. J. Integr. Supply Manage., 1(1): 7997. Rohde J (2000). Coordination and Integration. In: Stadtler H, Kilger C (ed), Supply Chain Management and Advanced Planning: Concepts, Models, Software and Case Studies. Springer-Verlag, Berlin. Rosenfield DB (1996). Global and variable cost manufacturing systems. Eur. J. Oper. Res., 95: 325-343. Supply-Chain Council (2008). Supply-Chain Operations Reference Model, version 9.0. Available at: http://www.supply-chain.org (accessed 19 January 2009). Vidal CJ, Goetschalckx M (2001). A global supply chain model with transfer pricing and transportation cost allocation. Eur. J. Oper. Res., 129: 134-158. Vitasek K (2003). Supply chain visions logistics terms glossary. Available at: http://cscmp.org/resources/ terms.asp (accessed 19 January 2009).