Process Flexibility: A Distribution-Free Approach to Long Chain Resilience

38 Pages Posted: 9 Aug 2023

See all articles by Li Chen

Li Chen

University of Sydney Business School

Mabel C. Chou

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN)

Qinghe Sun

National University of Singapore (NUS) - Institute of Operations Research and Analytics

Date Written: August 7, 2023

Abstract

Process flexibility has been a well-established supply chain strategy in both theory and practice that enhances responsiveness to demand uncertainty. In this study, we extend the scope of this strategy to supply disruption mitigation by analyzing a long chain system. Specifically, we investigate the effectiveness of long chains in the face of random supply disruption under ambiguous demand. Our study derives a closed-form, tight bound on the ratio of expected sales under supply disruption for the long chain relative to that of a fully flexible system. Our analysis provides a concrete analytical result demonstrating that the fraction of benefits a long chain can achieve relative to full flexibility increases in the disruption probability when supply designed capacity equals expected demand. Also, long chain demonstrates superior resilience by withstanding a non-negligible fraction of the supply disruption due to its relative sparse structure compared to a fully flexible system.

To comprehensively handle supply disruption and demand ambiguity, we introduce a moment decomposition approach that easily adapts to general piecewise polynomial performance metrics, such as the type-I service level, which is a novel contribution in the existing literature. Our approach can also incorporate higher-moment information (such as skewness and kurtosis) on the random demand while maintaining tractability through a semidefinite program (SDP). To further demonstrate the strength of this approach, we apply it to study the capacity configuration problem. Our study reveals that, in the absence of supply disruption, attaining a specific service level requires a capacity level close to that of a fully flexible system, even when the demand distribution is only partially characterized. In contrast, a notable increase in capacity is required under supply disruption. Yet, long chain outperforms dedicated system significantly in capacity requirement. Our findings underscore the remarkable resilience demonstrated by long chains and the importance of adapting capacity configuration decisions to supply disruption.

Keywords: process flexibility, worst-case bound, supply disruption, capacity configuration

JEL Classification: C61, M11

Suggested Citation

Chen, Li and Chou, Mabel C. and Sun, Qinghe, Process Flexibility: A Distribution-Free Approach to Long Chain Resilience (August 7, 2023). Available at SSRN: https://ssrn.com/abstract=4533519 or http://dx.doi.org/10.2139/ssrn.4533519

Li Chen (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Mabel C. Chou

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN) ( email )

Singapore

Qinghe Sun

National University of Singapore (NUS) - Institute of Operations Research and Analytics ( email )

Innovation 4.0, #04-01, 3 Research Link
117602
Singapore

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