Improving Performance in Food Supply Chains by Reducing Uncertainty

Daniel Dumke — Mon, 12 Sep 2011 15:51:00 +0000

Today’s article is from the late 90s, but sets a great example for research methodology in supply chain risk management. But don’t worry, I will focus on the results, since they’re very interesting as well. The objective of today’s article (Supply Chain Management in Food Chains: Improving Performance by Reducing Uncertainty) is to show strategies (here called principles) to reduce uncertainty, and at the same time show the beneficial effects of reduced uncertainty.

Methods

Three methods were deployed to ensure the validity of the results. Based on a case study (1) of a chilled salads supply chain sources of uncertainty were generated and improvement principles designed. The analysis of the case study’s processes was also used to feed into a simulation model (2) of the supply chain, which was validated using (another) pilot study (3).
The approach is shown in figure 1 and is meant to ensure that the results presented below are worth reading.

Figure 1: Research Approach (van der Vorst et al., 1998)

Results case studies

The sources of uncertainty, which were uncovered during the process analysis in the first case study, can be found in figure 2.

Figure 2: Sources of Uncertainty and Improvement Strategies (click to enlarge; van der Vorst et al., 1998)

For the pilot study not all of the above mentioned improvement principles have been employed. The authors evaluated the following strategies (figure 3).

Figure 3: Improvement Strategies used at the Pilot Case Study (click to enlarge; van der Vorst et al., 1998)

By implementing them a very drastic decrease in inventory levels could be achieved (examples see figure 4). Overall results can be found in figure 5.

Figure 4: Inventory Level at the Distribution Center before and after implementing the Improvement Strategies (van der Vorst et al., 1998)

Figure 5: Results of the Pilot Study (click to enlarge; van der Vorst et al., 1998)

Results simulation

The results of the pilot study were then compared to the simulation model. Overall there seems to be a good fit between the model and the real data (figure 6).

Figure 6: Validation of the Simulation Model by comparing with Real World Data (click to enlarge; van der Vorst et al., 1998)

Further results were generated using the simulation model:

For fast moving goods optimization could be achieved by increasing the delivery frequency both to the retailer and to the DC by a certain amount. Even though the picking cost rose, inventory levels could be decreased significantly.
Implementation of a computer aided ordering system lead to an improvement of supply chain performance between 10 and 20%.

Conclusion

For the authors the simulation model is a logical extension of the prior case studies. Using it makes it possible also to test alternatives which in reality might be too expensive or even impossible to test.
Another key lesson: Reduction of uncertainties again is a major driver of supply chain performance and therefore should not be neglected.

Rate This:

Tags:

case study

design

food

risk

Simulation

strategy

framework

Identifying Sources of Uncertainty

Daniel Dumke — Thu, 29 Apr 2010 04:17:00 +0000

A very interesting part of Supply Chain Risk Management deals with the impact of uncertainty on the supply chain design process. Van der Vorst and Beulens (2002) address this topic, and focus on the redesign of supply chains.

They claim that sources of uncertainty can be a key driver for chain redesign and after analyzing the literature and own research (case study) they present a tool for supply chain redesign where the sources of uncertainty support the selection of the relevant strategy.

Uncertainty

Some say, that the major problem in managing supply chains is the underlying uncertainty.

Therefore supply chain uncertainty, according to Van der Vorst and Beulens (2002) is defined as:

Supply chain uncertainty refers to decision making situations in the supply chain in which the decision maker does not know definitely what to decide as he is indistinct about the objectives; lacks information about (or understanding of) the supply chain or its environment; lacks information processing capacities; is unable to accurately predict the impact of possible control actions on supply chain behavior; or, lacks effective control actions (non- controllability).

Requirements

The management of the uncertainties therefore has a huge priority to achieve an effective overall management. The requirements are:

The managing system should have an objective and corresponding performance indicators to manage the supply chain in the right direction.
To estimate future system states one has to have information on the environment and current supply chain state.
There should be enough information processing capacities to process information on the environment and supply chain state.
In order to direct the managed system in the right direction one should be able to estimate the impact of alternative actions. This requires a model of the system, presenting the relationships between available redesign variables and performance indicators.
There should be enough potential control actions. Each environment- supply chain state combination requires one or more different control actions to manage the system in the direction of the objectives.

Supply Chain Redesign

Which elements of a supply chain can be included in a redesign strategy?

Van der Vorst and Beulens focus especially on the process related aspects. They name: chain configuration, chain control structure, chain information systems, chain organization and governance structure.

They propose two phases for the redesign; the first step should be to redesign for optimal performance, keeping in mind to reduce the potential for randomness in a second step the system should be protected against random and exogenous events.

Conclusion

Beside the excellent explanation of the methodology used for conducting case studies (based on Yin (1994)), the article is very straightforward and interesting to read.

For the supply chain professional it can be used as a glossary for selecting the right redesign strategy under given circumstances.

The major finding of the article from their case studies is, that

uncertainties in supply chain decision-making situations results in the establishment of several non-value- adding activities that reduce profitability.

Reference:

Vorst, J., & Beulens, A. (2002). Identifying sources of uncertainty to generate supply chain redesign strategies International Journal of Physical Distribution & Logistics Management, 32 (6), 409-430 DOI: 10.1108/09600030210437951

Rate This: