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Borders, Variability and International Supply Chains

Borders, Variability and International Supply Chains. Arnold Maltz, Ph. D. W. P. Carey School of Business Arizona State University. Topics. Why borders matter The analytical issues The empirical questions Organization of the research Progress to date. THE IMPORT PROCESS. Rail Inland.

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Borders, Variability and International Supply Chains

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  1. Borders, Variability and International Supply Chains Arnold Maltz, Ph. D. W. P. Carey School of Business Arizona State University

  2. Topics • Why borders matter • The analytical issues • The empirical questions • Organization of the research • Progress to date Wilfrid Laurier

  3. THE IMPORT PROCESS Rail Inland Forwarder/Broker Customs Officials Port Operator Longshoremen Warehouse/ Transload Drayage to warehouse Shipping Line Truck Inland The Import Process – Physical Flow Wilfrid Laurier

  4. Wilfrid Laurier

  5. Why International Borders Matter • Border crossings (sea or land) introduce uncertainty/variability into the supply chain • Geographic features • Political involvement • Cultural concerns • The concrete result is lead time variability which is on top of demand variability • The managerial responses might be: • Accumulate additional inventory • Adjust promised delivery dates to customers • Change sources/customers Wilfrid Laurier

  6. Analytical approaches inventory Wilfrid Laurier

  7. Stochastic Lead Time Inventory Models • Long history • Kaplan (1970), Nahmias (1979), Ehrhardt (1984) • Song and Zipkin (1993, 1996) • Rarely applied to borders • Lewis et al. (2005) • Muharremoglu and Yang (2010) Wilfrid Laurier

  8. Control Theory – A Second Approach • Based on Simon (1952), Forrester (1958), but considerably elaborated (Sterman (1989), Towill (1982), and others). • Critical concerns are: • Variance amplification (Bullwhip)- Dejonckheere et al. (2003) • Stability – Warburton et al. (2004), Disney and Towill (2005) Wilfrid Laurier

  9. Research Questions • Much of the U. S. literature is focused on “disruptions.” When does a delay become a disruption, and is that relevant for individual importers? Moreover, how important is the likelihood of delay vs. the length of delay? • How to relax unrealistic assumptions? • Orders cannot cross (see M & Y) • Continuous review vs. periodic review • “Linear” order costs • Can the strategic network planning models incorporate stochastic inventory results? Wilfrid Laurier

  10. Analytical approaches Lead time quoting/adjustment Wilfrid Laurier

  11. Lead Time Quoting Models • Typically based on manufacturing process • Yano, 1987 • Duenyas and Hopp, 1995 • Spearman and Zhang, 1999 • Direct consideration of transportation variability rarely seen in literature, although safety lead time is commonly considered • Beamon, 1999 • Lee and Billington, 1992 Wilfrid Laurier

  12. Incorporating Variability Initial model Where a = quoted lead time p(a) = probability order will be placed given quoted lead time R = net revenue from order c = penalty cost of late order y = actual lead time, which is stochastic Wilfrid Laurier

  13. Research Questions • Suppose we can approximate f(y), the distribution of actual lead times. Can we then look at the effect of mitigating the uncertainty and how it will improve on-time performance? • Prior research has shown that customers value reliability as much as speed. Thus, can we get a better look at p=probability of order placement if we consider p(a, s(a))? Wilfrid Laurier

  14. Empirical challenges Wilfrid Laurier

  15. Issues • How do you define “delay”? • Total lead time vs. promise? • Some deviation(s) from mean? • When do you start and stop the time? • Where do you get the data? • CBP both uncooperative and possibly not reliable • Shippers and receivers may not measure • Intermediaries most likely, e.g. World Bank • Current government programs and projects • Other influences Wilfrid Laurier

  16. Research organization Wilfrid Laurier

  17. Multiple Contacts • Analytical-primarily secondary research, with some advancement later. • Empirical • Contacts with major transport companies • Contacts with sophisticated shippers • Contacts with intermediaries • Web scraping? • FOIA for Customs? Wilfrid Laurier

  18. Extensions of Previous Work • Culture and low cost country evaluation (Maltz et al., 2011) • Analyze World Bank data on delays, etc., by country • Cost of delays (Hummels) Wilfrid Laurier

  19. Previous work on culture and procurement Wilfrid Laurier

  20. Wilfrid Laurier

  21. Reliability is Important Cost Reliability Wilfrid Laurier

  22. Summary • Lead time variability is likely magnified in international supply chains • Both analytical and measurement issues remain, as international increases in importance • BORDERS WILL ALWAYS BE WITH US Wilfrid Laurier

  23. Questions? Comments? Wilfrid Laurier

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