A new approach to achieving sharp and timely deliveries in supply chain networks

In this paper, we come up with an innovative approach through which variability reduction and synchronization can be realized in supply chains. The approach developed is founded on a connection between mechanical design tolerancing and supply chain lead time compression. We use two metrics for delivery performance, delivery sharpness and delivery probability, which measure the accuracy as well as the precision with which products are delivered to the customers. Then we solve the following specific problem: given the delivery sharpness and delivery probability to be achieved, how can variability be allocated across individual stages of the supply chain in a cost-effective way. We call this the variance pool allocation (VPA) problem and we suggest a systematic approach for solving the VPA problem. We show that a variety of important supply chain design problems, such as supply chain partner selection, can be posed as instances of the VPA problem. We formulate and solve the VPA problem for a plastics industry supply chain and demonstrate how the solution can be used to choose the best mix of supply chain partners.