Quality and financial implications of just -in -time logistics in supply chain management.

Abstract

Traditional logistics modeling focuses mainly on the tradeoff between transportation and inventory holding costs. This results in logistical policies with large delivery batch sizes and full truckloads of a single product type versus small batches of mixed products delivered just-in-time as practiced in the Toyota Production System. Our work attempts to address this discrepancy between traditional and just-in-time policies by adding the consideration of product quality. We created a new metaphor of disease propagation in a food chain to provide insight into the propagation of defective products along a supply chain. As such, the production environment is full of opportunities for generating different defects. Given the possibility of imperfect inspection processes, logistics becomes a carrier pool and a point of transmission for quality problems from a supplier to its buyer. The core of this dissertation is a mathematical model that quantifies the propagating effect of product quality problems along a supply chain, and highlights the role of logistical policy in reducing or increasing this effect. Our model links production with logistics, so that production factors, such as non-conforming probability, scrapping probability, and delivery intervals affect the product quality in the subsequent links along a supply chain. We demonstrate that the relationship between product quality and logistical policy contributes to a defect bullwhip effect in a supply chain. This is true even when the downstream demand is constant. Increasing delivery interval reduces a supply chain's end-product quality and production yield. Furthermore, increasing the delivery interval increases (decreases) this defect bullwhip effect when the delivery interval is smaller (larger) than a particular multiple of the mean time to failure in production. When the financial implication of the defect bullwhip effect is considered, we demonstrate that a longer delivery interval aggravates the financial impacts due to product quality problems. This results in reduced profit and the uncertainty of profit. Increasing the delivery interval reduces the long-run average unit profit and increasing the delivery interval increases (decreases) the variance of profit when the delivery interval is smaller (larger) than a particular multiple of the mean time to failure in production.