Supply Chain Management

BUSINESS ECONOMICS IN A RAPIDLY-CHANGING WORLD
SUPPLY CHAIN MANAGEMENT

PRACTICES, APPLICATIONS
AND CHALLENGES
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BUSINESS ECONOMICS
IN A RAPIDLY-CHANGING WORLD
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BUSINESS ECONOMICS IN A RAPIDLY-CHANGING WORLD
SUPPLY CHAIN MANAGEMENT

PRACTICES, APPLICATIONS
AND CHALLENGES
MD. MAMUN HABIB

EDITOR
New York
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Library of Congress Cataloging-in-Publication Data
Names: Habib, Mamun, editor.

Title: Supply chain management : practices, applications and challenges /
editor, Mamun Habib.
Other titles: Supply chain management (Nova Science Publishers)
Description: Hauppauge, New York : Nova Science Publishers, Inc., [2015] |
Series: Business economics in a rapidly-changing world | Includes index.
Identifiers: LCCN 2015041021 | ISBN: (eBook)
Subjects: LCSH: Business logistics. | Materials management.
Classification: LCC HD38.5 .S896077 2015 | DDC 658.7--dc23 LC record available at
http://lccn.loc.gov/2015041021
Published by Nova Science Publishers, Inc. † New York

To my beloved father who lies at Jannatul Baqi,
Late Alhaj Md. Habibur Rahman,
for his enormous inspiration to achieve excellence.
CONTENTS
Preface ix
Acknowledgments xi
Chapter 1 Exploring Strategic Partnering in Supply Chain Management:
Case Study of Successful Practices 1
Alan D. Smith
Chapter 2 Quality Sacrificed: A Look at Quality Issues Experienced
in Global Outsourcing 21
MD Sarder
Chapter 3 A Cost Optimization Model for Intra-Shipment in a Supply Chain 41
Henry Lau
Chapter 4 Location Strategies and Considerations in Supply Chain
and Operations Management 59
Terry Damron, Amye Melton and Alan D. Smith
Chapter 5 Balanced Resilience: A Practical Framework for Managing
Supply Chain Performance 73
Michael Reiss
Chapter 6 Virtual Optimization of a Wireless, Solar PV/Wind Hybrid
System Controller for Street-Lighting Applications,
Based on Environmental Conditions 93
S. E. Sadique
Chapter 7 Exploring Traditional and Structural Approaches
to Outsourcing Functions 127
Alan D. Smith and Steven R. Clinton
Chapter 8 Role of Green Supply Chain Management in Cement
Manufacturing Process: An Overview on Indian Industries 141
P. Muralidhar and V. Srihari
Chapter 9 Multi-Conflict Management in Supply Networks 149
Michael Reiss
viii Contents
Chapter 10 Supply Chain Management Used in Industrial Sales

and Best Business Practices 173
Terry Damron, Amye Melton and Alan D. Smith
Chapter 11 Development of Spreadsheet-Based Simulation Package
for Supply Chain Inventory Policy Analysis 187
Joby George and V. Madhusudanan Pillai
Index 209
PREFACE
Supply Chain Management (SCM) has been widely researched in numerous application
domains during the last few decades. Despite the popularity of SCM research and
applications, there is remains considerable confusion as to the clarity of its meaning. There
are several attempts made by researchers and practitioners to appropriately define SCM and
its challenges. This book entitled Supply Chain Management: Practices, Applications and
Challenges is comprised of eleven chapters.
Chapter One entails strategic supply chain partnerships which can have dramatic effects
on a firm‘s financial success. Certainly, the production level can help to shorten the supply
chain and lower costs on the entire production process of a company. However, at the sales
level, such partnering can help a company to shorten their supply chain and further reduce
costs for a company as well as enhance the corporate reputation of its products and services
bundles.
Chapter Two highlights global outsourcing—also known as off-shoring—and explains
the issues of off-shoring. The chapter represents global outsourcing, past and present trends,
and lessons learned from the US perspective. It also describes various outsourcing issues
faced by US companies including reduced control, logistics complexities, quality issues, etc.
In chapter Three, a decision model is developed aiming to optimize the costs related to
the shipment of goods from one or more suppliers to the wholesaler. That model is able to
provide expert advice to support the decision to be made by the wholesaler, taking into
consideration all the expected costs and achieve the minimization of total logistics costs.
Whether in formation, functioning, or growing, companies must focus on location
strategy if they want to achieve optimal success. Through the evaluation of location strategies
for a global steel production company and a Pittsburgh-based restaurant chain, Chapter Four
allows readers to explore the ways location strategy can contribute to success or struggles.
In Chapter Five, the balanced resilience framework for the management of supply chain
performance is introduced based on an outline and an evaluation of the prevalent focused
frameworks (e.g., agile, resilient, and lean SCM) as well as blended frameworks (i.e., leagile,
anti-fragile, and sustainable SCM).
An increasing pressure to invest in renewable energy sources is getting high priority due
to alarming global warming, pollution and skyrocketing prices of the conventional energy
sources. In Chapter Six, HOMER software, an implementation of renewable energy sources,
has been used to perform simulations of hybrid systems for street-lighting applications.
x Md. Mamun Habib
Chapter Seven depicts some of the more common approaches to strategic competitive
advantage via the successful tools associated with outsourcing. Continued outsourcing
activities will better their business strategy, even with increasing pressure from both the
government and unions as difficult decisions and possible job shifts lie ahead in a world of
increasing income disparity.
Chapter Eight describes the different stages of the cement manufacturing process in
India. The strategies of Green Supply Chain Management are defined clearly for evaluating
cement industrial process analysis. The approaches of and considerations for GSCM
applications in India are revealed for better understanding.
An overview of typical multi-conflict constellations reveals that managing conflicts in
supply networks is not a matter of resolving separate conflicts, but of handling several
interconnected conflicts simultaneously. Tools and processes of intelligence clarify the
interconnectedness of conflicts. In Chapter Nine, three frameworks—particularly the ranking,
the portfolio, and the nexus framework—are outlined for the effective and efficient handling
of interconnected conflicts.
Chapter Ten illustrates how an organization has grown at unprecedented rate for the last
few decades by utilizing the best practices in supply chain management. Embracing global
measures, green supply chain management, purchasing management for the company and
customers, and the use of information technology contributed to the success of a company,
making them a global competitor.
Finally, Chapter Eleven demonstrates the development of a spreadsheet-based simulation
package, which supports the analysis of inventory policies in a four-stage serial supply chain.
An experimental study shows that the proposed package is a user-friendly tool for simulating
inventory distribution problems in a four-stage serial supply chain.
I am honored to be editing such a valuable book, which contains contributions of a
selected group of researchers presenting the best of their works. I would like to thank all the
authors for their valuable contributions in various aspects of supply chain management. The
editor truly hopes that this book would be fruitful for researchers, scientists, students,
academicians and practitioners that are involved in the area of supply chain management.
I would like to convey the heartiest thanks to my family members, especially my beloved
parents, wife and two kids for their excellent cooperation. Finally, I express my gratitude to
the Almighty Allah for the successful completion of this book in the scheduled time.
Dr. Md. Mamun Habib

Universiti Utara Malaysia (UUM), Malaysia
mamunhabib@gmail.com, md.mamun@uum.edu.my
ACKNOWLEDGMENTS
The editorial book entitled “Supply Chain Management: Practices, Applications and
Challenges” encompasses eleven chapters. From that point of view, the concept of the
editorial book solely depends on the contributors of the book chapters. Therefore, special
thanks and gratitude must go to the book chapters‘ authors. However, review process is also
very lengthy but significant in order to ensure uniqueness of the book chapters. The jobs of
reviewers are highly appreciable. In addition, the Editor acknowledges a great debt to NOVA
Publishers for publishing this book on time.
On the eve of this publication, the Editor wishes to acknowledge and thank his beloved
mother, Alhaja Shirin Habib, his spouse, Dr. Farzana Afzal, his two kids, Rafiul Habib and
Farzeen Habib, and other family members for their tireless inspiration to complete this book.
Last but not least, I express gratitude to the Almighty for spiritual inspiration and
guidance in the completion of this publication.
Dr. Md. Mamun Habib

The Editor
Universiti Utara Malaysia (UUM), Malaysia
mamunhabib@gmail.com, md.mamun@uum.edu.my
In: Supply Chain Management ISBN: 978-1-63484-096-5
Editor: Md. Mamun Habib © 2016 Nova Science Publishers, Inc.
Chapter 1
EXPLORING STRATEGIC PARTNERING

IN SUPPLY CHAIN MANAGEMENT:
CASE STUDY OF SUCCESSFUL PRACTICES
Alan D. Smith*
Robert Morris University, Moon, Pennsylvania, US
ABSTRACT
Supplier selection and partnering are important decisions faced by operations
management, as Supply Chain Management (SCM), Supply Chain Collaboration (SCC),
Supplier Relations Management (SRM), and inventory management are essential for
efficient operations in a global environment.
The positive outcomes of collaborative activity that could not have been achieved by
any firm acting independently of its industrial partners, which is ultimately how supply
chain collaboration provides advantages to all companies involved in the agreement.
Through collaboration firms can work as if they are part of a single enterprise, accessing
and leveraging each other‘s resources and enjoying their associated benefits, ultimately
increasing collaborative advantage and firm performance.
It was found that through collaborative relationships between the two Pittsburgh-
based firms, they were able to share risks, access complementary resources, reduce
transaction costs, and enhance productivity.
Keywords: bullwhip effect, case study, operations strategy, supply chain management,
supplier collaboration, supplier relationship management
*
Corresponding Author address: Email: smitha@rmu.edu.
2 Alan D. Smith
INTRODUCTION
Supply Chain Management as an Essential Discipline
Supply chain management (SCM) may be perceived as part of a strategic approach taken
for planning, implementing, and controlling the stream of materials, services, and information
throughout the manufacturing process as raw materials are developed into a finished product
and eventually delivered to the end user (Basu and Nair 2012; Brito and Botter 2012; Bulcsu
2011; More and Babu 2012). This practice plays an integral part in ensuring operational
efficiency within an organization. SCM looks to limit inefficiencies and miscommunications
both within, and outside, the organization. This includes all interaction with outsourcing
resources, vendors, separate departments and office locations, and the customer (Bhat 2008;
Baxter and Hirschhauser 2004; Biswas and Sarker 2008; Hu Wang, Fetch and Bidanda 2008;
Jain, Benyoucef, and Deshmukh 2008). Providing these components with an understanding
for what they can expect from you, but more importantly, what is expected of them, is vital in
terms of the quality and efficiency with which the products are delivered (Carvalho, Cruz-
Machado and Tavares 2012; Hamidi, Farahmand, Sajjadi and Nygard 2012; Kumar, Shankar
and Yadav 2011; Mathirajan, Manoj and Ramachandran 2011). Cutting the unnecessary
operations that occur throughout these relationships will directly reduce cost, save time, and
limit the need for certain resources, allowing an organization to focus their efforts toward
honing other aspects of the business (Pettersson and Segerstedt 2011; Pradhananga, Hanaoka
and Sattayaprasert 2011). So why is the management of these processes so important? The
constant regulation of supply chain operations within an organization has the ability to
maximize customer value and sustain a competitive advantage over those who supply similar
goods and services (Brun and Zorzini 2009; Buckley and Ghauri 2004; Camuffo and
Grandinetti 2011). In optimizing their approach to supply chain, an organization can create a
domino effect that not only limits any wasteful expenses, but also increases the quality seen
by their customer and, in turn, heightening the value that their customers can enjoy when
purchasing their product. Coordinating the organizational operations into a systematic
approach in order to create value and profit is the ultimate goal. The systematic integration
and monitoring of organizational processes such as planning, product demand, procedure
design, quality control, logistics, customer responsiveness, and others, have a huge impact on
the final product delivered and the way in which it is presented to the customer (Browning
and Heath 2009; Cavaleri 2008; Grewal 2008. Hence, SCM takes on the task of harmonizing
all of these processes as well as limiting the risks involved. In all supply chain decisions,
there are risks, and mitigating those risks can go a long way in maximizing the organization‘s
success. For example, trust is key to an effective and efficient supply chain operation and any
organization that allows other to participate in its chain must understand that they will be
sharing valued information (Chan and Kumar 2009; Drejer and Riis 2000).
Purpose of Present Chapter
In this chapter, a discussion of supply chain techniques and strategies, especially the need
to collaborate and integrate used by one of the local leaders within the dairy industry, namely
Exploring Strategic Partnering in Supply Chain Management 3
Turner Dairy Farms, will be followed by additional procedures to implement in order to

increase SCM success. Certain relevant aspects of the company‘s supply chain will be briefly
reviewed along with the associated procedures. Furthermore, their collaborative relationships
with other local businesses will be addressed, showing the distinct advantages that these
partnerships provide for the company and the members of its supply chain.
These financial and nonfinancial or logistical/operational connections that are made
between Turner Dairy and their partners are very important in allowing each party to focus on
what they do best in terms of supply chain procedures.
It is hoped that by providing a foundation of SCM from the literature in terms of
partnering, management or relationships, and collaboration, it will become apparent why the
supply chain is so important to Turner Dairy, a small to medium-sized enterprise (SME). As
the exact ownership and responsibility may change in each of Turner Dairy‘s supply chains,
how management establishes such relationships and how it deals conceptually with variance
inherent in essential all supply chains will be included in the discussion. The emphasis of this
chapter will be on the basic principles and concepts of SCM. Lastly, conclusions will include
a brief review of the process strategies within the Turner Dairy Farms supply chain and a
brief statement on its effectiveness.
DYNAMICS OF SUPPLY CHAIN PARTNERING

Supplier Selection
Supplier selection and ultimate partnering are important decisions faced by management,
as SCM and inventory management are both integral to efficient operations and the ability to
compete in the global marketplace. The nature of supplier selection forces managers to
choose between conflicting criteria, such as quality and cost, in order to evaluate the decision.
As such, this problem can become increasingly complex as multiple criteria and multiple
suppliers become involved (Golmohammadi and Mellat-Parast 2012). The following sections
explore some of these complex relationships.
Importance of Networking
Successful SCM implies successful practices in dealing with the many nonfinancial and
financial effects of supplier relationship management (SRM) on SCM performance. In simple
terms, SRM is the connection between the firm‘s supply organization and the external
supplier network (Mann, Kumar, Kumar and Mann 2010; Smith 2014; Smith and Synowka
2014). Financial measures are more closely related to measures of effectiveness and typically
include, target costs of material, the quality of materials, and delivery and inventory goals.
Nonfinancial measures are more closely related to efficiency measures and cannot be as
easily measured monetarily, they include internal customer satisfaction, retention, and
positive word-of-mouth or reputation (Kennedy and Widener 2008; Scherrer-Rathje, Boyle
and Deflorin (2009). If management is successful, if must be able to optimize an
4 Alan D. Smith
organization‘s capacity and ability to manage its suppliers and conduct its internal tasks and
responsibilities related to supplier relations in order to achieve the desired results.
This successful SRM management raises several concerns with measuring supply
performance management. As suggested by Kahkonen and Lintukangas (2010), if may be that
the actual development of an appropriate measure seems to be the most difficult task in SRM
management. The typical problem revolves around the relationship between short-term price
winnings and long-term reliable supplier relationships. In general, financial performance
indicators have been the focus, which means managers will sacrifice the long-term
relationships in the interest of short-term gains. Kahkonen and Lintukangas explained the
relationship between SRM capability and financial and nonfinancial measurements is
examined in the four hypotheses. These hypotheses included SRM capability has a positive
relationship with nonfinancial performance measures of supply management; SRM capability
has a positive relationship with financial performance measures of supply management; the
firm‘s age and size do not influence non-financial performance measurement of supply
management; and the firm‘s age and size do not influence financial performance
measurement of supply management. The last two hypotheses were included in the study
because it is possible that older and larger firms may have more standardized procedures
which may have impact on the performance monitoring.
Based on surveys completed by general executives and directors in purchasing and
supply management, Kahkonen and Lintukangas (2010) tested four hypotheses that measured
perceptions of SRM capability (e.g., joint investments, supplier development, joint problem
solving, creating a new supply chain, supply market research). Nonfinancial performance of
supply management included the topics of service level purchasing, cost effectiveness of
purchasing, and quality; while financial performance of supply management question focused
on inventory levels, tied-up capital, and capital turnover rate. The results illustrated that the
power of SRM capability was stronger when related to nonfinancial as opposed to financial
measures and that other factors may be involved as well in monitoring financial performance
(e.g., accounting and legislation). Hence, the stronger power of SRM with nonfinancial
indicators should increase management‘s ability to develop diversified performance measures
in order to better clarify the role of supply management in a firm‘s strategic focus.
SCM Collaboration
The demand for firms to respond quickly to dynamic market needs in recent years has led
many firms to collaborate with other companies in order to ensure efficient and responsive
supply chains. The concept of supply chain collaboration (SCC) is important in any business,
big or small, as management needs to understand how beneficial collaboration can be for each
participant involved. In general, number of research efforts have illustrated that both customer
and supplier firms seek collaborative relationships with each other as a way of improving
performance (Vinodh, Sundararaj, Devadasan and Maharaja 2008; Wan and Chen 2008). Not
only should SCC provide firms with cost savings and protect them from risks involved in
certain investments, collaboration allows companies to obtain supplies and resources that may
never be available to them while working on their own (Karlsson 2003; Smith and Offodile
2007; Summers and Scherpereel 2008; Vinodh, Sundararaj, Devadasan and Maharaja 2008;
Wan and Chen 2008). By working together organizations better themselves and the
companies around them, making it seem unrealistic that any firm can survive in the current
market without multiple collaborations between suppliers and buyers.
Although collaborative relationships between firms can help share risks, access
complementary resources, reduce transaction costs, and enhance productivity, many firms
have yet to truly capitalize on the potential of SCC (Tari and Sabater 2004; Tiwari, Turner
and Sackett 2007). Optimizing or finding the best fit for a firm‘s supply chain should have a
positive impact on a firm‘s performance and overall cost structure. Supply chains can be
optimized in variety of different ways depending on the business model, business strategy,
and respective product or product lines within an organization. Moreover, it will depend on
the firm‘s priorities. For example, does the firm compete on price, quality, delivery or
innovation? Depending on the strategic priority of the firm, optimizing ones supply chain will
be different.
As suggested by Cao and Zheng (2011), in the absence of significant empirical work on
the impact of SCC on collaborative advantage and firm performance, companies have little
tested foundation proving how beneficial supply chain collaboration can be to their
organizations.
Cao and Zheng wanted to provide theoretical insights and empirical findings regarding
such SCC and collaborative advantage, and the resulting effects on firm performance when
collaboration takes place.
They also tested the effect of firm size on the relationships among SCC collaborative
advantage, and firm performance. SCC aspects that are typically measured include degree of
information sharing, goal congruence, decision synchronization, incentive alignment,
resources sharing, collaborative communication, and joint knowledge creation. In terms of
collaborative advantage, typical metrics inspected include process efficiency, offering
flexibility, business synergy, quality, and innovation. Effectiveness of SCC on firm
performance was measured in the study through sales growth, profit margin on sales, return
on investment (ROI), and growth in return on investment.
Cao and Zheng (2011) found collaborative advantage has a significant positive effect on
firm performance as SCC can be beneficial to all partners, especially in reducing risks and
costs, and SCO has a significant positive effect on firm performance. However, it was not
clear whether these hypotheses will hold true across small, medium, and large firms. It was
found that large firms are more effective in jointly creating value with their partners than
small and medium firms, and smaller firms get more abnormal results from alliances than
larger firms.
Wagner, Grosse-Ruyken, and Erhun (2012), in a related study, completed an empirical
analysis to analyze a potential linkage between supply chain fit and the financial performance
of a firm.
Supply chain fit (i.e., strategic consistency between product/service‘s supply and demand
and supply chain design characteristics) deals with supply and demand uncertainty and supply
chain responsiveness, and competitive intensity. The authors studied variety of industries
throughout the U.S. and Western Europe. The results indicated that firms with negative
misfits or misalignments (i.e., 180 out of the 259 firms) had an average ROA of 5.80%. Firms
with positive misfits (i.e., 70 out of 259 firms) had an average ROA of 7.73%. Lastly, firms
with zero misfits showed the strongest financial performance with an average ROA of
10.57%. Hence, the occurrence of supply chain misfits reduces the financial performance of a
firm.
6 Alan D. Smith
CASE STUDY IN SCM PARTNERING

Turner Dairy Farms
Operational Aspects
In the following section, the supply chain strategy of a local dairy farm, Turner Dairy
Farms, will be reviewed and conceptually analyzed for its efficiency. Turner Dairy Farms is a
family-owned company local to the Pittsburgh, PA area that was founded in 1930 by Charles
G. Turner. The company specializes in the production, processing, and distribution of
products within the dairy industry, with its focus weighing heavily on the production and
processing of milk. Not only does Turner Dairy Farms pride itself on its dairy products, but it
has also expanded into markets involving iced teas, fruit drinks, juices, and eggs. Since being
established, Turner Dairy Farms has expanded from a single farm producing its own milk
with a limited number of cows, to an award-winning company involved in 50 exclusive
partnerships with local farms across Western Pennsylvania. On a national scale, according to
some, they produce some of the best tasting milk available (―A trip to turner dairy and lone
oak farms,‖ 2012). The partnerships that they have formed are pivotal in the success of
Turner Dairy Farms and this will be discussed further in the coming pages. At present, these
50 local farms are responsible for providing Turner Dairy Farms with the raw milk necessary
to make the massive amounts of end product demanded by consumers. Turner Dairy Farms
processes and distributes roughly 35,000 gallons of milk each and every day, serving
customer in a 25-county area of Western Pennsylvania, Eastern Ohio, and West Virginia.
They hold a respectable amount of the local market share.
Management at Turner Dairy Farms tries to be very selective when it comes to the dairy
farms that they will accept raw product from. With the goal being to produce some of the
highest quality milk in the country, the partnerships that they have formed have involved a
vast amount of correspondence and an understanding on the part of the supplier for what is
expected. Without their suppliers making a huge commitment to keeping the cows clean,
healthy, well fed, and even keeping the equipment extremely clean to protect the animals
from any sort of contaminants, Turner Dairy Farms would not be able to produce the higher
quality milk that they currently are known to make. SCM, SCC, and SRM techniques are vital
for the smooth operation and the proficient communication that must occur between these
parties in order for these standards to be upheld.
Traditionally, management takes pride in their ability to support local agriculture, as they
are able to ensure future business for dairy farmers across Western Pennsylvania through the
use of their exclusive contracts. Supporting local agriculture has additional advantages as
well: distance and local management of quality controls. Each of these partnerships is with a
farm within a 70-mile radius of the Turner processing facility. This gives the company the
comfort of knowing that their raw product is of the utmost freshness when it arrives for the
beginning stage of processing, one that starts on the same day of these arrivals. This,
accompanied by the high grade, sophisticated, equipment that Turner has in their processing
facility, ensures that they cannot possibly make milk any better than it is when it leaves their
plant. Again, SCM, SRM, and SCC all play a significant role in the effective correspondence
between Turner Dairy Farms and its suppliers as they set such high expectations for their
finished products. The company places a large emphasis on the quality of their product and
incorporates supply chain procedures that assist in making sure their quality is nationally
competitive.
From the beginning in the creating of the firm, Charles G. Turner, the current owner,
believed in supplying higher levels of products and service, all while upholding his belief in
treating people right. Over the years, he has developed very meaningful relationships with his
customers and employees, which enhances a program of keeping everyone involved in the
supply chain focused on the end goal. His passion for his product and customers could be
seen on a daily basis and the following equation is one that deserves much credit when
measuring the success of Turner Dairy farmers (i.e., quantity products + great value = return
customers). SCM strategies have the potential to assist Turner Dairy Farms in continuing to
strive for such goals. This can be done by optimizing their planning, limiting any
wastefulness, and understanding the product demand, thus allowing them to produce very
high quality products, provide their vendors and suppliers with the resources they need to best
support Turner Dairy Farms, and deliver the product economically. It is evident that the
company‘s reliance on the efficient acceptance, processing, and delivery of their goods, how
dependent management is on the successful operation of their supply chain practices.
Supply Chain Management as a Source of Operating Efficiency

Proper supply chains alignments are very important aspects of any successful business
and can often be a downfall for a company that does not take the time to consider how to
successfully management them. They can be even more impactful with companies that are
involved in more than one aspect of goods or services, such as Turner Dairy. Turner Dairy
does not just produce dairy products; they also make other types of non-diary drinks as well,
like teas and fruit juices. Since the company is involved with products/services other than
dairy, they must be very careful and manage their supply chain very well in order to maintain
the highest efficiency possible. Even if they did not sell the other types of products they
would still have to make sure that their supply chain for their dairy products is incredibly
efficient because of the time constraints that exist for dairy products. Dairy companies in
particular have to be very careful and plan their supply chain as efficiently as possible to
make sure that their products do not go bad before they can even get to the shelves for sale.
With the simple added pressure of time before expiration for dairy companies, they must be
much more precise when it comes to planning an efficient supply chain.
Dairy companies have to keep special watch and control for standards and need to make
ensure that their products meet the U.S. Food and Drug Administration (FFA) specifications,
which can add more costs and time to the overall production of food products (―Chapter 5 the
dairy supply chain,‖ 1987). Dairy producers need to make sure that their products are
produced to meet the standards and that they are delivered within the specifications, otherwise
they could spoil and would not be eligible for sale and provide a loss for the company. The
added pressure places by the FDA has to be included into consideration of the supply chain,
so that means it is a very important aspect of the supply chain and it can have a very large
impact on how things are done at a company. Even relatively small changes in quality and
other related industrial standards, which every company has to abide by, can be impactful at
the company-level and must be taken into consideration when it comes to how a company
considers planning its supply chain and partnering relationships.
Another aspect of the supply chain that dairy companies must face is how to deliver
perishable products in a timely, cost-efficient manner, so that they are received by the sellers
8 Alan D. Smith
and ready to be put on the shelves in a profitable manner. The delivery process for smaller
dairy companies like Turner has to be managed very carefully; otherwise it can become very
costly for them to deliver their products in a timely and efficient manner while maintaining
their profit margins on a commodity. One method is to deliver their products in a timely
fashion, even factoring delivery distances and quality of transportation infrastructures that
have the potential to seriously impact the planning activities with their supply chain partners.
Type of delivery methods is a factor that must be considered and can be even more impactful
on smaller companies, as they do not have the large volume as other companies may have and
they must be very careful when it comes to the selection of delivery methods. Smaller
companies like Turner need to pay special attention to delivery method and need to consider
if a capital investment in trucks or another delivery method is worth it or not, and how much
money they can save on their supply chain if taken.
Distance is a very key factor in making a supply chain schedule. SMEs like Turner can
elect to make partnerships with local farms so they can reduce the distance needed to travel to
get the product from beginning to seller. When Turner does this they consider that a
partnership with a local farm will help them in that they do not have to worry about raw
materials as much and can thus focus more on the bottling and production of the final goods,
and thus they are able to cut costs and save money on their supply chain. By making these
partnerships, smaller companies make agreements to make the supply chain more efficient
and, thus, they are simply working together to find the most efficient way to get something
done. Partnerships help smaller companies more because they feel that they are much more
helpful for the smaller volumes, but can offer a way to increase volume and thus they are
much more helpful to companies that do not have the ability themselves to fully satisfy
demand.
Turner chooses to not import or export anything outside of the U.S., thus they are
ensuring that instabilities associated with the global marketplace have relatively predictable
influences their operational costs. Unfortunately, instabilities in global marketplaces do have
ripple effects that are felt by domestic only manufacturers. The local dairy market typically
ties to deliver fresh products at a short distances, instabilities can still be encountered. For
example, there may be an instability in fuel costs in other markets around the globe, and that
would still affect Turner. If a SME chose to go international, even to neighboring Canada or
Mexico, management would have to make many changes to their supply chain and so the
choice to stay domestic and local helps them to greatly keep costs manageable within their
perishable supply chain. This type of decision has a great impact on how a company forms its
supply chain and runs its day-to-day operations. If a company were to decide to import or
export its products then it will have to consider the cost implications of it just as much as they
would have to include the benefits.
Generally speaking, management at SME need to take into account how they will fit into
their own supply chain and if they will need to make any special decisions when it comes to
how they do business. At Turner, for example, does not sell their products directly to the
consumers, but are deeply involved in the daily management of the supply chain and
understanding the marketing aspects of their final customers. As the initial aspects of this case
study suggested, there is a need coordinate activities to focus on the end user. Traditional
marketing activities involve the four Ps of product, price, place, and promotion. Turner Dairy
is clearly involved heavily in marketing to final consumers. A visit to their website confirms
this. They promote their products and are involved in marketing them to consumers. Although
they choose to find retailers for their products and they sell the products to them who then sell
the products to the final consumers, management must cater to the end users of their products
will not sell. By doing this they shorten their supply chain and, thus, reduce the costs needed
to sell their products. They create agreements with the retailers to sell their products and thus
create guaranteed future business, thus not having to worry about how much they will sell or
need to sell to a retailer. These types of partnerships are greatly helpful in maintaining the
stability of a supply chain and providing guidance as to how a company needs to adapt for
their customer, even if it is not the end consumer.
Partnerships cannot only play a significant role in a company‘s supply chain, but how a
company does business in general. A partnership on the production level can help to shorten
the supply chain and lower costs on the entire production process of a company. And
partnerships on the sales level can help a company to shorten their supply chain and further
reduce costs a company will have to deal with when it comes to selling their products. Turner
Dairy utilizes both forms of partnerships and thus they maximize the benefits from each
without hurting their competive situation within the industry. Management is trying to make
the best of their situation, being a relatively small company, yet offering financial
opportunities to its various suppliers. Although these partnerships can create complex
situations between the parties involved, the matter of ownership will not need to be worried
about because they are more so on the side of business and not on the side of buying and
selling a company. These partnerships will generally help much more than they will hurt as
long as both parties involved know what they are getting into and do not expect much more
than they should really receive because of the partnership between them.
Even though Turner Dairy is a relative small company, they still do business with local
businesses that are much, much larger than they are, like Giant Eagle, for example, a very
large grocery chain headquartered in Pittsburgh, PA. Turner has a partnership with Giant
Eagle to sell their products in stores that are in similar areas to which Turner operates and,
hence, they are willing to work with companies as that have a philosophy of green
manufacturing and sustainability that may be found in many SME‘s. Even though the two
companies work together and are a part of each other‘s supply chains, they are not wholly
dependent on each other, yet still have significant interactions. Turner employs direct store
delivery for dairy products, although they could ship to Giant Eagle's warehouse, then the
product would be shipped from there to stores. In either situation, since dairy products are a
major category for supermarkets, Turner will have frequent interactions with Giant at the
store or warehouse levels. If their products are promoted in-store, they will have regular
interactions with Giant‘s headquarters. Turner is responsible for sending the product to Giant
Eagle and Giant Eagle is responsible for selling the products in their stores, and so they both
want high-quality products to sell to their customers without having to go too far beyond the
local region. With the growing trend of supporting local businesses instead of dependent on
global outsource, both companies can gain significant boosts in their reputation as a supporter
of the local economy and obtain fresher, high quality food with more control over its
suppliers.
Since Turner‘s supply chain is more involved in the front end of the supply chain, while
Giant Eagle‘s is much more back-end, management of both companies see little problems in
the relatively seamless strategic fit in terms of SCM. Some companies with more complex
interdependencies may not readily see the apparent benefits and may not appreciate the
strategic fit such collaboration may bring to the various participating companies. Management
10 Alan D. Smith
at Giant Eagle has to ensure that they have the ability to accept the products from Turners and
that they have the ability to sell them as part of their local initiative to contribute to the
community and reduce dependency on heavy fossil-fuel users from outside the Pittsburgh
area, otherwise both will end up on the negative side of the agreement. Giant Eagle must
ensure that they have a dependable place in their supply chain for Turner Dairy products;
otherwise there will be long-term complications in the relationship. Turner has an equally
good relationship with Eat‘n Park, a large chain restaurant in the Pittsburgh area, and they
have other types of businesses that they supply and they have other places to sell their
products, which just goes to show that they have good versatility within their business models
(‖A trip to turner dairy and lone oak farms,‖ 2012).
Giant Eagle, on-the-other-hand, has a completely different type of supply chain that is
more so focused on the handling and storing of products before they go out on the shelves
ready for the customers to buy. They have recently gone through an overhaul of their supply
chain and changed how they use warehouse management so that they are much better at
managing their supply chain and have become much more efficient (―Giant eagle reduces
costs …‖ 2014). This recent overhaul shows that there is almost always something that can
either be changed or adapted so that the process becomes much more efficient. Giant Eagle
used an outside source to do this, which may only be reasonable for a company of their size,
but even a smaller company can look at how the process changed and adapt their current
supply chain to try and increase their productivity. For a company like Turner this may not be
reasonable, but they can still look at their supply chain and decide on at a minimum of a
yearly basis if everything is being done as efficiently as possible.
Manifestation of a Typical Dairy Supply Chain

The dairy supply chain is one that is unique to other supply chain from others within the
perishable food industry. This is due to the fact that within the many steps of the supply chain
there are additional measures of quality taken to ensure that the product remains sanitary
along the path of the chain. These measures begin with the first step in the chain, which is the
farmer (―Our farms,‖ 2014).
Most farmers that produce milk, especially in the case for Turner Dairy, are under
contract to produce a certain amount of milk over an agreed period of time. The process for
the farmer begins with the obvious livelihood of a dairy farmer, the cow. Local farmers have
a constant concern that the entire herd is safely housed and fed adequately to ensure the well-
being of the animal. Cows that remain in a comfortable environment not only lead to
nutritious and safe dairy products, but in many instances allow the farmer to run a more
profitable business. In the case of Turner Dairy, the milk from the farmer enters into a
sanitation system directly from the cow, and then travels through sanitized hoses and pipes
into holding tanks. Following this transfer from the cow into the holding tank the FDA
monitors and tests the milk as it travels from the cow to the holding tank. Different sanitation
tests are performed among the various stations of transport to ensure the highest quality
throughout the process. Along with monitoring the milk process, the FDA requires that the
entire farm facility be checked by a state inspection agency at least two times per year to
assure that the entire facility are up to date with all dairy safety regulations
("The dairy supply …," 1999).
The next step in the supply chain is the process of transferring the dairy products from the
farm to the processing facility. In the case of Turner Dairy, this process is kept within the
company as they have agreements with local farmers to have the farmers transport their milk
to the Turner production facility. Each specific hauler, in congruence with the FDA, checks
the temperature of the milk, physically inspects the milk, and takes a random sample of the
entire quantity that is to be shipped before it is loaded into a stainless steel insulated truck for
transport. Although there are technologies to keep milk from spoiling in shipment for up to 14
days, local SMEs promote freshness by utilizing frequent deliveries.
The next important step in the dairy supply chain is that of the processor. This is the step
that the management at Turner Dairy is most significantly involved in. This is one of the most
rigorous steps in regards to FDA regulations. This is due to the fact that there are three
separate areas of testing for this step. Those areas would be testing, inspection, and sanitation
and packaging. During this portion of the examination random samples of milk are taken
from the entire quantity and are tested for bacteria that could be potentially harmful to the
consumer. If any signs of infectious bacteria are noticed then the milk is immediately
discarded.
Processing facilities that produce dairy products undergo multiple inspections throughout
the production, packaging, and distribution process to ensure that all dairy products are safe to
consume. Many dairy processing plants have recently adopted the Hazard Analysis and
Critical Control Point System (HACCP-ISO-2009). Under this system the dairy facility
chooses to monitor their systems, along with their equipment on a voluntary basis. This
voluntary basis is in place along with the government oversight that is already in place.
Companies that produce milk and package it in bottles or convert it to cheese or other
dairy products must adhere to extensive safety standards. To create products to the high
standards that consumers generally desire, processers needs to follow multiple and complex
procedures. These procedures encompass the areas of milk hauling, equipment sanitation,
pasteurization, labeling, and dairy packaging. With the aid of these processes, specifically in
the pasteurization department, harmful bacteria are immediately killed upon the entrance into
the process. This process has contributed to the statistic that less than 1.5% of annual food
borne illness outbreaks can be linked to the dairy supply chain in the U.S. (―The dairy supply
…‖ 1999).
The retailing of its products and services, or course, is the final step in the supply chain
for dairy products. The main objective for the retailer is that they want to make sure that
everything they receive from the processor is as fresh as possible. In order to do this step
well, the retailer constantly monitors the cooling systems in the dairy case in the store. They
need to monitor the expiration date of the products, and then remove the products that have
reached their ―sell by‖ date.
TYPES OF SUPPLY CHAIN MANAGEMENT

SCM Models
There are multiple types of SCM models that exist among both manufacturing and
processing industries. However, for the sake of this case study, the CPFR Model of supply
chain management is the most pertinent to the dairy industry.
12 Alan D. Smith
Collaborative Planning, Forecasting and Replenishment (CPFR) Model
The Collaborative Planning, Forecasting and Replenishment (CPFR) model is a concept

with the idea of enhancing supply chain integration through the support of joint practices
(Berry 2012). The essential elements of successful CPFR rely heavily on the cooperative
management of inventory throughout all areas of the supply chain. In this particular case, it
would stretch from the suppliers of the dairy products, to Turner Dairy, the processor, and
finally to Giant Eagle, the retailer. This particular business model attempts to combine the
intelligence of multiple trading partners in planning and fulfilling consumer demand. In order
to combine these forms of intelligence one must follow the four phases in the CPFR cycle.
These phases (Berry 2012) are as follows: Strategy and Planning stage, which the supply
chain will establish regulations for the relationship. These regulations consist of business
goals, assignment of roles, and checkpoint procedures among other regulations. Supply and
Demand Management, which is specifically for the task of forecasting. Both sales and order
forecasting are performed during this phase in order to make the supply chain run as
efficiently as possible. The Execution stage consists of taking the forecasts that were
completed in the previous stage and implementing them to fulfill orders in the supply chain.
The Analysis Stage is one that consists of monitoring of the system as a whole. During this
process management is constantly monitoring the planning and operations, along with
evaluating the progress of the supply chain to the goals that were set in the strategy and
planning phase.
Another set of standards that must be followed when using the CPFR method is the 9-
step approach that was developed by the Voluntary Inter-industry Commerce Standards
(VICS) (Berry 2012). These guidelines were established to assist in the development of
agreements between the various businesses involved in the supply chain. The steps are listed
as develop the front end agreement, create the joint business plan, create the sales forecast,
identify exceptions for sales forecast, resolve/collaborate on exception items, create order
forecast, identify exceptions for order forecast, resolve/collaborate on exception items, and
order generation. A few of the benefits of CPFR are Improved customer service trough better
forecasting techniques, Lower Inventories for higher profits, and operational cost reduction
by decreasing set-up times, effort duplication and variations.
Contextual Implications of Forecasting on Supply Chain Management
Supply Chain Partners and Forecasting

SCM is an integral operations management technique that utilizes a diverse arsenal of
tools to ensure continued functional relationships between members; the behavior of a single
chain entity maintains the potential to enact significant consequences on both preceding and
succeeding members. One of the major methods of managing integrated supply chain
function includes the selection of demand forecasting models based on the minimization of
total model variance criteria. The selection of applicable forecasting models minimizing total
demand volatility is industry specific, as inherent variance in forecasting models can be
further exacerbated in implemented circumstances. Particular constraints, including presence
of trend, limit the pertinent models available to supply chain members, further complicating
the model selection process.
In the current literature, there is no consensus as to the model proposed to simultaneously
mitigate demand variance and optimize forecast validity (Ali and Boylan 2011; Alizadeh
2012; Ma and Ma 2013). While both quantitative, model selection criteria and qualitative,
CPFR-based strategies have been studied as potential opportunities to employ downstream
demand inference techniques, ultimately there is no method of completely accounting for the
bullwhip effect (Ali and Boylan 2011).
Popularized as the demand amplification effect, whiplash effect, and Forrester effect, the
bullwhip effect was first defined as an amplification of the order variance moving up the
supply chain, from customer to manufacturer (Alizadeh 2012). While each unique supply
chain may be exposed to the bullwhip effect to a varying degree, demand signal processing,
nonzero-lead time, order batching, supply shortages, and price fluctuations constituted five
environmental supply chain markers denoting the presence of the bullwhip effect.
Practical Application: Turner Dairy Supply Chain

Consider the simplified supply chain containing with Turner Dairy, as a mid-stream
supply chain member, must mitigate demand variance contributed by downstream, retail
partners before generating a demand forecast to share with the upstream, independent dairy
farms. As a distributor of dairy products, Turner Dairy is highly susceptible to inventory
escalation due to the relatively short shelf life and viable consumption period. Unlike a
manufacturing firm that may be able to stockpile, general raw material components to be later
incorporated into work-in-process and finished goods, Turner Dairy‘s raw material,
unpasteurized, whole milk must be quickly converted into its consumption-ready form.
Turner Dairy determines the optimal allocation of resources based on the demand
forecasts generated by downstream, retail partners. Based on the retail forecasts impacting
order demand, Turner Dairy must then decide how best to distribute incoming deliveries of
raw milk amongst the distinct product lines through industrial processing. While the incoming
raw, whole milk can be separated into cream and skim categories, the retail forecasts will
determine which product lines receive percentage of total yields. For example, cultured dairy
products with longer shelf lives than uncultured milks and creams may sustain different
demand patterns and therefore different forecasting techniques. If Turner Dairy and retail
partners, such as Giant Eagle, are not cognizant of the implications of amplification of
demand volatility, supply chain functionality can grind to a halt negatively influencing
performance of all supply chain members.
As a member of the terminal downstream, retail component of the same supply chain
containing Turner Dairy, Giant Eagle may not directly feel the impact of downstream demand
inference-related consequences. However, management still must deal with secondary and
tertiary repercussions of highly volatile demand forecasts. Outside of merely maintaining an
orderly supply chain, Giant Eagle relies on consistent shopping experiences and availability
of preferred brands to develop customer loyalty. High variance from actual demand
associated with forecasting may leave Giant Eagle susceptible to shortages and stock-outs,
thereby passing the risk onto consumers. As a staple food item, milk is one of the compulsory
offerings required by consumers and a negative experience with Giant Eagle may
connotatively harm the organization‘s image.
14 Alan D. Smith
Difficulties of Quantifying Total Supply Chain Variance

Perhaps, the main impediment to truly quantifying the bullwhip effect and its associated
magnitudes originating from the basic variance principle in relation to multiple random
variables is volatility in individual demand forecasts. Conceptually speaking, the demand
from individual retailers with enough geographic separation could be considered as having a
negligible covariance, thereby simplifying the calculations. Unfortunately, for supply chains
maintaining competing retailers within close geographic proximity, the calculation of
covariance between retailers is necessary to quantifying total variance. In addition, if scalar
coefficients are included to place additional emphasis on particular supply chain members,
there is a proportional relationship between individual variance and the newly transformed
scalar coefficient (Ma and Ma 2013).
For an organization, such as Turner Dairy, with multiple retail outlets, it may become
increasingly difficult to quantify total demand variance. If one considers each retail demand
forecast as independent yields a basic approximation; however, then this approximation will
greatly under represent total demand variance, as it does not include covariance behavior
between retailers. Ultimately, the decision to approximate demand variance by independent or
dependent random variables is determined by the supply chain member. Dairy demand is
relatively constant over the year with slight seasonal spikes for holiday and other demand
variances, thereby further impacting the calculations.
Alternative Effects Impacting Supply Chain

Besides the amplification of the bullwhip effect, supply chains can be impacted by related
phenomena, such as the oscillation effect and the phase lag effect). The oscillation effect
influences business cycles for all the chain‘s echelons that tend to be leveled in final periods
(Alizadeh 2012). Phase lag effects are essentially significant increases in size transfers to the
next member of the chain, with the phase lag equal to the lead time of ordering. Both the
oscillation effect and the phase lag effect amplify any variance implied by the bullwhip effect
and act as supplementary sources of volatility in demand forecasting.
For the oscillation effect, as the business cycle of the retailer serves as an approximation
for the distributor and suppliers any variances engendered by retail components are magnified
through the supply chain. In practicality, for Turner Dairy, although dairy consumption is
rather consistent over the year, short period spikes, such as ice-cream before a summer
holiday or milk before a severe winter storm, may be felt throughout the supply chain, if only
temporarily.
While these seasonal effects may not have significant long-term side effects, if
continuous oscillation occurs between seasons demand variance could be even more volatile.
The phase-lag effect, unlike the bullwhip effect or oscillation effect, is easier to quantify
and a basic application.
To mitigate the effects, the organization must change the basic principles by which the
supply chain is managed; this includes such behaviors as altering supply chain member
interactions to reduce lead-time.
In an integrated supply chain, supplier relations are essential to the sustained functioning
of the system. To ensure continued dedication and congenial supplier relationships, periodic
reviews of governing policies can address any serious issues presented amongst the suppliers,
such as extended lead-time.
Opportunities Elicited from Mitigation of Demand Variances

For organizations, such as Turner Dairy, there are many opportunities to refine and
improve supply chain management processes to conclusively improve relations with other
supply chain members; the easiest of these opportunities is the integration of transparency
into the supply chain.
By creating a transparent, continuous flow of information between supply chain
members, Turner Dairy can more adequately meet the needs of retailers, such as Giant Eagle,
as well as strengthen relationships with suppliers. Upstream supply chain members benefit
from access to downstream member demand and forecasting procedures, while downstream
members benefit from a continually functioning supply chain.
Instead of relying solely on downstream demand inference, upstream supply chain
members can use supplementary information gained from downstream sources to better refine
forecasting methods, minimizing overall total process variance. While information shared is
limited to pertinent statistics regarding demand, upstream suppliers can potentially identify
downstream inefficiencies that, when remedied, improve the overall flow of goods throughout
the supply chain.
A more efficient supply chain with autonomous members, better replicates the ideal
supply chains presented in the conceptual literature.
GENERAL CONCLUSION AND MANAGERIAL IMPLICATIONS

Managers are increasingly trying to externalize SCM by including quality tool metrics in
order to explain why many supply chain managers tend to emphasize quality values more
than traditional management. Partnering and collaboration, along with supplier integration
techniques are allowing firms to select appropriate metrics that provide useful information.
One of the major concerns is with the manager‘s ability to identify the benefits and possible
organizational changes that need/could occur in order to adopt a sustainable supply chain.
Business strategy implementation must now encompass not only where our supplies and
products come from, but how they are made and where do they end up? Ignorance of any
categories of financial and nonfinancial drivers can have a negative effect on customer
satisfaction, social standing, profits and costs for the firm.
Fundamentally, there is no best method for addressing inherent supply chain demand
variance whether from a quantitative model selection viewpoint or a qualitative managerial
perspective. Until such a method is developed for quantifying and mitigating overall demand
variance that maintains a lower statistical barrier to entry than its predecessors, the optimal
solution remains to combine both quantitative and qualitative measures to accurately predict
demand variances.
ACKNOWLEDGMENTS
The author wishes to thank the valuable contributions by the reviewers for their input into
the final chapter. Peer reviewing and editing are commonly tedious and thankless tasks.
16 Alan D. Smith
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Chapter 2
QUALITY SACRIFICED:
A LOOK AT QUALITY ISSUES EXPERIENCED
IN GLOBAL OUTSOURCING
MD Sarder, PhD*
Industrial Engineering and Technology,
University of Southern Mississippi, Long Beach, Mississippi, US
ABSTRACT
Outsourcing is commonly used by companies to reduce schedule risks, minimize
manufacturing or operation costs, or to produce goods or services that are outside the
capabilities of the company. Ultimately the end goal of outsourcing is to provide a
service or product that increases the company‘s profits. But does the practice of
outsourcing come at a cost to the business or consumer? And do the benefits outweigh
the costs? Companies often obtain these services or the labor for manufacturing the
products at a reduced cost and very often the quality is not satisfactory. In this paper we
will look at some of the services and products that are being outsourced by American
companies and the quality issues that the companies and their customers are
experiencing. In particular we will look at call centers located outside U.S., the quality
issues associated with them, and the affect they have on the company‘s customers and
bottom line. We will also look at products that are being manufactured overseas, and their
associated issues, the steps that companies are taking to overcome the quality setbacks
and if these steps are improving the end product and their customer satisfaction.
Keywords: global outsourcing, quality enablers, electronic quality management, customer

satisfaction
*
Corresponding Author address: Email: md.sarder@usm.edu.
22 MD Sarder
1. INTRODUCTION
Sometime a company must re-evaluate its supply chain process and determine if they will
manufacture a good or provide a service through their own facility. This determination is
usually dependent on the company‘s capabilities or the cost of providing the goods or service
in-house as opposed to outside of the company. Many companies, including U.S. based
companies, have found that it is more economical to have some of their services and products
produced and provided by sources outside of the company, particularly overseas. This is
mostly due to the cheaper labor and material that can be found overseas. Therefore, the
companies have adopted outsourcing as part of their supply chain. According to market
researcher Datamonitor, the outsourcing market is projected to be worth $24 billion by the
end of 2008 (Ren, Zhou 2006.). The most common types of service or products that are
globally outsourced are programming, call centers, and manufactured goods such as toys,
electronics parts, and some foods. When a company chooses an outsourcing company, it
provides specifications and requirements to that company on how the product should be
manufactured or how the service should be provided. Product and service quality are very
important requirements that should be met by the outsourced companies. The quality of the
product and service is determined by how well the product and service specifications are met
and how the end customers respond to the end product and service. And the final quality
measurement is determined by the parent company‘s revenues that are produced from the end
product and service. Of course the end customer determines the revenues received by the
parent company. If the customers are not satisfied with the services or goods they receive,
they will eventually find an alternative source for their need. And eventually, the company‘s
revenues will suffer and a decision or plan will have to be made to counteract the effects of a
bad decision. The effect is reversed for a satisfied customer. But what happens when the
parent company is a major supplier of a good or service and it is more difficult for customers
to obtain that good or service from another supplier? Sometimes there are enough customers
that continue using that supplier regardless of numerous quality issues that arise due to the
use of the outsourced companies. So then the economic return by using the outsourced
company is a greater impact for the parent company than the setbacks of poor quality. So then
what drives the company to make a change in its manufacturing process or service
provisions? Over the next few sections this paper will review issues associated with call
centers, the setbacks that occurred, and if any steps were taken by the parent companies to
resolve the issues, including the effectiveness of the steps. We will also look at goods that
were manufactured or produced overseas, their defects and the associated safety issues, and if
the necessary steps were taken to resolve the safety hazards.
2. OUTSOURCING
Definition
―Outsourcing‖ refers to the transfer of non-core operations from internal employees to an

external organization and ―offshore outsourcing‖ refers to the external work that is being
performed in another country (Green 2007). The most common locations of offshoring are
Quality Sacrificed 23
located in India, China, the Philippines, Eastern Europe and South America (Green 2007).
There are many benefits to outsourcing which may drive a company to choose it as part of its
supply chain. Outsourcing provides a company with a greater access pool to talent which it
may not be able to find in the U.S. Certain products produced by the company demand
specialized skills that are not readily available in the U.S. in large numbers. And due to the
amount of employees available for outsourcing, companies can fill open positions much
quicker. The labor costs are also incentives to the companies that engage in outsourcing. The
same work can be performed overseas as opposed to the U.S. at a 30-50% savings to the
company (Green 2007). Many companies can avoid recruiting issues such as recruiting costs,
and the time it takes to find and recruit each employee. The responsibility of managing the
employees in the outsourced company are also removed from the parent company and taken
care of by the outsourced management. Outsourcing also helps companies achieve an end
product or service by providing an input that is outside the company‘s present capabilities and
they help the company meet a schedule constraint if manufacturing the good is outside the
schedule plan. There are also challenges and shortfalls with outsourcing. First there are
always the cultural differences when outsourcing the work to overseas companies. This
includes communication issues that stem from differences in language and just simply the
processes for accomplishing the same task. Job loss in the U.S. is another side effect to
outsourcing. Some experts argue that outsourcing takes up the lower-level jobs and that
allows Americans to perform the higher value jobs (Green 2007). But what that argument
does not address is the impact it has on the Americans that lose the lower-level jobs or the
rising unemployment rate in the U.S. Many workers that are laid off do not immediately find
new employment and if they are unemployed for a lengthy time, they may lose their homes
and other property they once owned. This can, of course, affect the American economy in a
negative way. So while the economy may be stimulated by the received company revenues,
the economy may also take a hit in unemployment and foreclosed homes. Quality, which is
the topic of this paper‘s discussion, can also be compromised by using outsourced labor. If a
company does not thoroughly research an outsourced vendor‘s capabilities, they run the risk
of receiving goods or services that are not to the specifications of the company or the
customer. These quality issues end up offsetting the cost benefits that should have been
realized by the company. Quality issues may be associated with a particular vendor and not
the entire area or region where that vendor is located. For example Dell made the decision to
close an Indian call center over the continuous amount of customer complaints received
concerning the quality of service. Not only does Dell continue to use call center in India, it
has plans to expand the outsourced business in India (Kaka 2006). Dell believes that many of
the Indian call centers it uses provide excellent customer service.
2.1. Integrating Outsourcing into the Supply Chain
While there are definite benefits to outsourcing, a company may not realize them unless
the outsourced function is properly incorporated into the company‘s supply chain. A company
must properly choose a vendor that is appropriate for the product or service that needs to be
provided. A vendor should have the capabilities to perform to the requirements given by the
company and within the necessary timeline. A timeline must be provided to the vendor by the
company in order to meet the overall schedule of the final product. The product or service
24 MD Sarder
requirements should be developed as part of the company‘s supply chain plan. The main
company will have to accurately determine the economics of outsourcing the work and those
economics should be specific to the vendor. This is because the economic factors are variable
depending on the quality and type of work the vendor provides and at what cost. Developers
of the supply chain plan will have to determine what revenue return, if any, will occur as a
result of outsourcing work. A revenue return will be dependant on the type of work that is
outsourced. How the vendor‘s performance and operation metrics are managed is another
consideration as part of the supply chain. The vendor‘s performance and operating metrics
should be reported to the main company to roll up into the overall metrics and to determine if
the vendor is operating at a satisfactory rate and quality. This gives the company visibility of
how the vendor is operating, how it impacts the overall schedule and product, and it allows
the company to take mitigating steps to alleviate any risks that may arise. Companies must
also plan how the vendor‘s activities will interact with other function within the supply chain.
This includes material needed for the product, equipment to provide a service, and the
transportation that may be needed to deliver the product back to the main company or desired
facility. For example, a shipbuilder may outsource a section of a ship out to another facility.
The shipbuilder will have to decide who will order the material, where will it be shipped, and
once the section is completed, where will the final ship be assembled, and how the sections
get transported to one location for final assembly. Successful integration of outsourcing into
the supply chain is the beginning of quality being implemented by the vendor.
2.2. Potential Quality Risks to Outsourcing
Outsourcing seems be losing luster in the US as the majority (around 70%) of industry
seems to have had a negative experience with outsourcing, according to a survey of 25 large
organizations, with a combined $50 billion in outsourcing contracts (Verma 2005). One in
four companies has brought outsourced functions back in-house and nearly half have failed to
see the cost savings they anticipated from outsourcing, according to a study by Deloitte
Consulting. Instead of simplifying operations, many companies have found that outsourcing
activities can cause problems relating to product quality, added costs and friction into the
value chain, and requires more senior management attention and deeper management skills
than anticipated, according to the study (Howells, Jeremy 1999). Due to this negative
experience, many US companies are taking a cautious approach now. The following sections
discuss some sources of quality risks from outsourcing.
2.2.1. Reduced Control over Processes

Transferring activities outside the company by outsourcing also transfers the control and
accountability of daily activities. This increases the risk that substandard work performed at
an early stage of production has to be reworked at a later stage. The further along in the
production process a particular task is performed, the higher the cost of that activity. A task
that requires one hour to complete at the lowest unit of production may take as much as ten
hours to complete (Kaka 2006). This requires a substantial quality inspection effort
throughout the production of the outsourced product.
Material shortages and interruptions, labor disputes, and production engineering issues
can all contribute to slippage of schedules that affects the final delivery of the outsourced
product. These issues are extremely difficult to control in the company and would be much
harder to control at a subcontractor‘s facility. When portions of a product are outsourced
overseas, these issues become even more difficult to identify and control. The probability of
poor quality increases as control over production process decreases.
Companies must approach outsourcing with care and ensure contractual stipulations are
in place that clearly define critical quality indicators. These indicators should identify specific
activities and events that need monitoring to prevent poor quality work from occurring. The
contracting company needs to have their quality personnel embedded in the subcontractor‘s
facility from the start of production to final delivery. This will insure that problems are
identified early, corrective action taken, and changes to processes are implemented to prevent
repeated mistakes. The cost of these added quality inspections, onsite quality inspectors, and a
robust system for tracking the production process remotely must be factored into the cost
benefit analysis when deciding to outsource. Failure to do so may result in unexpected cost
increases. A study conducted by AMR Research showed over 50% of manufacturers
outsourcing production, experienced cost overruns (Upton 2007).
2.2.2. Changes in Global Competitiveness

Trends show that manufacturing costs are rising globally. As developing countries
prosper, wages rise and competition increases. The more outsourcing projects that flow into a
country, the greater the demand for labor. This eventually leads to an imbalance in the supply
and demand for skilled workers and wages have to increase. This in turn will cause a decrease
in outsourced work entering the country and a new equilibrium will be reached, but at a
higher wage level. With lengthy production processes such as shipbuilding, prices need to be
negotiated and locked in at the beginning, to prevent spiraling labor costs from eroding any
anticipated savings from outsourcing. The rise in oil prices underscores how quickly global
commodity markets can affect costs associated with manufacturing ships and other long-term
projects.
2.2.3. Transportation Complexities

Transportation costs associated with global outsourcing are high. Not only does the
finished product have to be shipped back to the parent company, all material that goes into the
production has to be shipped to the subcontractor‘s facility if the material used in the
production is unique and tightly controlled by specifications. Hazards during the
transportation of the assembled units from the subcontractor‘s facility to the company are
very real. Storms have sunk many vessels and caused much cargo to be lost. Barges used in
the transportation of large assemblies are not very seaworthy and heavy lift seagoing vessels
are very expensive to lease. While insurance may cover the loss or damage to an assembly,
the delay in producing and delivering huge products such as ships would be prohibitively
expensive. This requires delivery schedules to be coordinated with seasonal weather patterns
over the course of delivery. For an Atlantic crossing, two or three weeks of fair weather
would be required to insure a safe delivery. If an East Coast company in the U.S. outsourced
the units to Asia, more than a month would be needed to insure a safe delivery. The cost of
this risk has to be factored into the decision to outsource and extensive mitigations steps put
in place.
26 MD Sarder
2.2.4. Design Changes

One of the most important aspects of subcontracting out work on a product is the
necessity of a complete and mature design. Both the company and the subcontractor need to
know the final configuration of the product to price the production process in an accurate
manner and to ensure the lowest production costs throughout the process. This situation may
exist for some products, but products like warships are rarely designed in advance and the
design is never static.
One of the reasons for the high cost of warships is the constant change that occurs to the
design as the ship is built. Production usually starts on the lead ship of a class before the
design is completely finished. This allows a head start on a very lengthy process but adds
tremendous risk to the program in the form of potentially added costs to change items that
have already been built. In addition, changes to the design are constantly being incorporated
as the ship is being built. All of these changes present obstacles to outsourcing for cost
savings. Changes to the design after the award of a production contract with an offshore
subcontractor can quickly drive up the delivered cost of the product. This factor alone may be
sufficient to prevent the offshoring of portions of warships.
2.3. Quality Dimensions in Outsourcing
Quality can be defined in many ways. It can be said that quality is a product or service
that consistently has zero defects, conforms to particular specifications, and is satisfactorily
received by the customer (Outsourcing the Quality Function 2008). It can also be stated as the
thought process sought out by organizations to create an overall drive toward efficiency, the
reduction of waste, and the continual creation of more streamlined management processes [4].
Either way quality is defined by the customer who receives the service or good. At the level
of strategic operations, many researchers have developed different quality frameworks. For
example, Garvin (1987) developed a quality framework considering an eight dimension
product quality, and Parasuraman et al. (1991) derived a five dimension model of service
quality. Table 1 summarizes quality dimensions for both products and services.
Quality may sometimes be overlooked when a company chooses outsourcing just to
reduce cost. That company looks at factors of the outsourced vendor and decides it is much
more cost effective for that company and its workers to perform the work than to pay current
workers or hire new workers to do the job. Many of those companies‘ investigations do not
surpass the cost factor and fail to research the complete capabilities of the vendor. Possibly
the vendor is not suitable for the work given them and may even lack the skills to perform the
job according to specifications. This results in unsatisfied internal and external customers.
The company has to re-evaluate the use of the vendor and what changes will have to be made
to accommodate the shortcomings of the vendor. These shortcomings can affect material that
is wasted due to low quality, lost external customers because of bad service, and an impacted
schedule because the planned date has not been met. If an outsourced company uses its own
equipment and procures its own material, the parent company runs the risk of outdated
equipment that is not able to meet the required end result or material that does not meet the
requirements of the product. Every one of the items spells loss of revenue for the company
and ultimately the loss of an overall profit. All the work that goes into fixing the problems
caused by the outsourced vendor negates the benefits of low labor cost and possibly material
costs.
Table 1. Quality Dimensions of Products and Services
Table 2. Quality Dimensions of Global Outsourcing

28 MD Sarder
Bad quality can also affect the safety of a product or service. For example, in 2007
Americans dealt with many health hazards stemming from products such as chemical tainted
pet food and lead painted toys, all exported from China (Middler 2007). These safety hazards
resulted in international food bans and product recalls on items made in China. Defects like
these can lead to serious illness and even death.
Outsourcing is no longer an operational cost cutting process but a strategic way to drive
corporate performance and competitiveness. It is now a process of continuous improvement
by both the outsourcing organization and the outsourcing vendor to meet the ever changing
business needs. There are several sectors in outsourcing that can be reviewed for their quality.
Outsourcing quality can be divided into product quality and service quality. Given the
differences, it is inappropriate to adopt either of the quality dimensions from product quality
or service quality as a whole.
Although existing quality frameworks are not directly appropriate for global outsourcing,
previous studies on quality measures are useful in developing a more accurate quality
dimension for global outsourcing industry. Ma et al. (2005) implemented an exploratory
study on service quality and identified seven factors to measure it: features, availability,
reliability and assurance, empathy, conformance and security. Hongeyan and Joern (2008)
identified eight quality dimensions for Business Process Outsourcing. Hongeyan and Joern‘s
quality dimensions can be considered as the base framework for global outsourcing. Table 2
shows the dimensions of global outsourcing.
3. QUALITY ASSURANCE IN GLOBAL OUTSOURCING

Assuring quality in global outsourcing is very challenging due to the multiple layers
involved in the supply chain. Supply chain layers include worldwide retailers who outsource
products or services globally, intermediaries such as 3PL/ 4PL, freight forwarders, brokers,
overseas manufacturers and their sub contractors, and various levels of vendors. These layers
are sometime loosely integrated and hence it is hard to maintain quality throughout the chain.
Some layers have quality assurance, but to truly ensure quality products and services, every
member of the supply chain‘s layers should be considered quality assurance so that the work
is done according to specifications. One could say that this creates a culture of quality that is
ingrained to every layer of the supply chain including an outsourced vendor. Companies may
actually decide that in order to meet their quality objectives, some services or products must
be outsourced overseas to more skilled laborers. They feel that they do not have the skills in
house, and quality is better met by outsourcing the necessary work. A test may be needed on a
product and the company may not have the facilities, equipment or the skilled manpower to
perform it and therefore they find a company that is more capable and has the facility to
perform the test. By that decision, a needed operation is performed and the company‘s
schedule is not interrupted if accurately planned.
Steps can be taken to help ensure the vendor provides services and products at quality
levels that are acceptable to both internal and external customers. As stated before proper
integration of the outsourced work into the supply chain is paramount. No work can properly
be accomplished and managed without an integration plan to guide and oversee the vendor‘s
work. If outsourcing is a strong option for the company, but there is a lack of trained workers,
the company should provide training for the vendors to prepare them for the work that needs
to be accomplished. The company should also work on the cultural differences between them
and the outsourced vendor. They should not seek to completely change the vendor‘s way of
accomplishing work, but they should strive to understand the vendor‘s culture. This will assist
in making decisions on how to define requirements to the group and how to help them meet
the requirements. U.S. companies should understand that there are different ways at arriving
to a solution as long as the requirements are met. In realizing the cultural differences, U.S.
companies should make sure the vendor clearly understands what is expected of them. Words
that are used in the U.S. may have a totally different meaning to someone in India or China.
The company may feel they clearly defined their requirements and the vendor may feel they
clearly accomplished the work according the requirements as they read or understood them.
Only later, sometimes too late, they find out the product or service did not meet the
requirements and the vendor did not clearly understand. A liaison from the parent company
should network with a liaison from the vendor who has a clear understanding of the English
diction. They will assist in knowing whether the company is effectively providing their
requirements to the vendor and the vendor clearly understands what is needed of them. The
company should also set up quality metrics that are understood by the vendor and should
become a part of the vendor‘s way of business. In order for quality to become a complete part
of the company‘s supply chain, the outsourced company has to make quality inherit to their
business as well. The company should be able to provide back to the vendor what work is
acceptable and what goals are not being met. They should also provide suggestions on how to
achieve the required goal. Incentives should be provided to the vendors who continuously
provide quality products and product non-confirming vendors should be addressed
appropriately, including termination of their services if they continue not to meet the expected
quality level.
3.1. Trends of Technology Use in Outsourcing
As mentioned earlier ensuring the quality of products and services throughout the supply
chain network is very challenging due to the multiple layers involved and the lack of control
over those layers. Technology can play an important role in improving quality performance in
global outsourcing. Use of technology in the Supply Chain Management (SCM) are on rise.
Aberdeen group published the evolution of SCM technologies for the past few decades as
shown in Figure 1.
The use of technologies in the SCM was rising in 1980s and 1990s and expected to rise in
the next decade. Technology allows the rapid development of various ready-to-use best-
practice templates that suits most needed business processes. It offers ready-to-run user
interfaces and screens, in addition to the generic built-in out of the box interfaces and
integration scenarios that are compatible with most business applications and software
(Hongeyan and Joern 2008).
Innovative use of technologies in the SCM is the key to assure quality in global
outsourcing. Companies are investing to develop appropriate technologies in various areas
including supply chain visibility, inventory optimization, supplier/customer collaboration,
performance management, etc. Figure 2 shows survey results of application investment areas
conducted by Aberdeen Group in 2008.
30 MD Sarder
Figure 1. Evolution of Supply Chain Management Technologies (Aberdeen Group 2008).
Figure 2. Top Application Investment Areas (Aberdeen Group 2008).
3.2. Technology Enablers
Companies look to technology to increase and maintain quality levels, decrease costs, and
ultimately, to grow the bottom line. It is necessary for companies to identify ―Technology
Enablers‖ – the most appropriate technologies in information, communication and operational
systems for competitive advantage. Technology enablers are the solution that can be used to
identify, assess, and ensure the quality of products and services. Although process and
technology both play key roles in assuring the quality of products and services to an
outsourcing supply chain network, the companies that most successfully leverage technology
will significantly differentiate themselves from the competition. In addition to the traditional
and well-understood outsourcing solutions of planning, execution, coordination, and
networking, some of the exciting new technologies – 3D visualization, Radio Frequency

Identification, agent technology, satellite technology, and Web services – are significant for
improving and ensuring quality in the global supply chain networks.
Table 3 shows some key driving forces, actions, capabilities, and technology enablers for
the global outsourcing companies for their supply chain network. Effective implementation of
these technology enablers will help companies to improve the quality of outsourced products
and services.
Table 3. Technology Enablers of Global Outsourcing
The Technology Enablers must be weighted for the costs and benefits of each possible
implementation. This task requires companies to not only have an understanding of the
possible solutions, but also the financial ramifications of each potential component of
enablers. Technology solutions must be compared on the basis of functionality, cost, benefit
and ease of maintenance. In considering the range of solutions to a problem, the company
must also consider whether the solution can be purchased ―off the shelf‖ or developed in-
house. An off-the-shelf solution may be easier and cheaper to implement, but there are times
when it is more effective to develop an in-house solution as opposed to modifying an existing
tool. Four major technology enablers for global outsourcing are supply chain visibility,
information timeliness, data integration, and innovation in technology. All together these
enablers share real time information related to the quality of products and services, integrate
information so that appropriate control can be deployed with the innovative uses of
technologies. The following sections describes these enablers briefly. Once all technology
enablers are identified, it is necessary to assess their impact on quality dimensions. Figure 4
shows the impact of technology enablers on global outsourcing quality.
3.2.1. Supply Chain Visibility

As global outsourcing continues to become complicated, visibility of quality information
is rapidly becoming the fundamental building block for adaptive supply chain networks.
Because competition is transitioning from among individual companies to among supply
networks, visibility to both intra- and inter-organizational information is critical for rapid
response. Information technology advances now make extended visibility across
organizations possible. Information visibility of orders, plans, supplies, inventory, and
32 MD Sarder
shipments is key to successfully coordinating events across the network and to monitoring
analytics that track the health of the network and allow for proactive action.
Figure 3. Impact of Technology on Global Outsourcing Quality.
Theoretically, it is possible for an order captured by a retailer to be simultaneously

propagated to the suppliers across the network and to have inventory checks made against it
at all points. Distributors, logistics service providers, and all relevant departments across
different organizations can have full visibility of the order flow, both into the system and back
to the customer. The customer, in turn, can track the shipment of the order and make changes
based on predefined rules. Therefore, the goal is to develop a system that provides total
visibility of the order, automates order management, and monitors product use by customers
across the network, replenishing when necessary, without having any manual intervention,
other than exceptions.
The greatest financial value comes from leveraging visibility information to identify and
eliminate root causes of delays, and to rapidly respond to changes that could negatively
impact the business if mismanaged or left unattended. All of this hinges on the ability to
rapidly analyze data to understand its impact, collaborate, and simulate to understand what
options exist to solve a given problem and to score each option to ensure that actions are
aligned with corporate objectives.
3.2.2. Information Timeliness

Once organizations overcome the visibility barrier and can receive accurate information,
the next step is to increase the velocity of response by accessing and distributing information
rapidly across the supply network. Velocity of response is rapidly becoming the key
differentiator in business performance. The success of Dell Computer in the high-tech market,
Wal-Mart in the retail market, and Toyota in the automobile market is closely linked to their
access to timely information across their networks. These companies create value far greater
than the average value created by their peers. That is because of their ability to plan rapidly
and efficiently move both information and physical assets through the supply network at far
greater velocities than their competition. This enables them to maintain margin parity with the
competition and yet create returns on assets and invested capital that far exceed the norm. The
velocity of value creation is the single most critical differentiator that adaptive supply chain
networks can help create.
3.2.3. Data Integration

The discrete, dynamic, and distributed nature of data and applications requires software
that not only responds to requests for information, but also intelligently anticipates, adapts,
and supports users. Systems need to have the capability to help coordinate tasks among
workers and help manage cooperation among distributed programs. In response to these
requirements, researchers from several fields are banding together around a common broad
agenda: the development of intelligent software agents.
Agents are packets of simple software capable of sensing the local environment,
autonomously executing delegated tasks, and communicating results to designated entities,
which could be human users, agents, applications, or business workflows. Designed to
improve the velocity of response, agents are key to providing visibility into real-time
distributed business processes across the supply network.
They can execute a wide range of functional tasks, such as searching, comparing,
learning, negotiating, and collaborating. These capabilities enhance the adaptability of the
supply network, help to significantly reduce variability and the costs associated with
exception management, and address some key barriers to widespread collaboration among
supply network partners.
Adaptive agents increase the value of business transactions by allowing for real-time,
active, and predictive monitoring of critical business events and parameters across the
extended supply network. By detecting relevant conditions faster and formulating an
optimized response faster through intelligent response, the occurrence of supply chain
glitches that impact customers is less likely.
3.2.4. Technology Innovation

The single largest challenge to building adaptive supply chain networks is the issue of
cross-enterprise collaboration created because of the lack of standards and the prohibitive
costs of building application integrators. Expected to reduce current integration costs by 70%
to 80%, Web services technology could be the solution because it allows firms to interconnect
software.
Notable technology innovations include response management applications,
transformation from status tracking to exception-based process management platforms with
34 MD Sarder
alerting, escalation policies, resolution advice or workflow. These innovations deliver value
in terms of inventory and lead time reductions, improved on-time deliveries, improved cross-
company, and cross-department synchronization.
Information sharing in construction supply chain means key data information such as
material stock situation, capital arrangement, schedule, transportation situation etc. remain
open to relevant parties involved. For example, a contractor will improve construction
planning skills if he knows the material supplier‘s production distribution ability, while the
supplier will provide materials more reliably to the contractor if he knows the contractor‘s
scheduled plan. Obviously, managers make decisions with a broader view by sharing
information, information sharing, which is the basis of considering construction supply chain
as a whole system but not a part, is a key step for successful construction supply chain
management.
Figure 4. Quality Monitoring and Controlling Over Multi-layered Global Outsourcing.
Hitachi selected Camstar‘s Electronics Suite for its out-of-the-box functionality designed
specifically for Electronics manufacturing processes, and for its ability to streamline
production through electronic management and enforcement of process specifications, and for
the system‘s unique multi-level work-in-process (WIP) tracking capabilities. Hitachi now
efficiently collects accurate and timely information on work orders, WIP status, yield, high-
investment production equipment, material usage and defect analysis. As a result, Hitachi
more accurately controls and manages production planning, work order progress, materials,
quality, full product build traceability, and equipment certification - all critical business
requirements.
3.3. Modeling Cost of Poor Quality
In global outsourcing there are two major actors, one is the manufacturer and the other
one is the supplier. As a measure to ensure quality of products, each of these actors should be
responsible to pick some cost due to the poor quality of their products. This model determines
the cost of poor quality for both actors. In order to make this model easy and clear to analyze,
only one kind of supply is considered, and only decision variables both relevant to the
manufacturer and their supplier are considered. The manufacturer‘s demand quantity is
confirmed as q . The material supplier‘s common supply capability is C , as supplier delivers
material for several manufacturers, so the supplier‘s ability to meet this manufacturer‘s
demand is  C,   (0,1) , the supplier‘s enlarged production capability is C . If production
min  C  C, q
efficiency is 1, then delivery quantity of supplier d is .
Cost of Poor Quality Model for Manufacturer
CT  F (q  d )  pd  K (q  d )
d  min  C  C, q
C T means manufacturer‘s total cost, F means penalty cost of not satisfying retailer‘s
requirement, p means unit price of material , K means unit penalty to supplier if delivery
delayed, q means ordering quantity, and d means delivery quantity.
Therefore, manufacturer‘s function is as follows:
x ( q , C )
E (C T )  F   q   C  C   f ( )d
0
x ( q , C ) 1
 p ( C  C ) f ( )d  p  qf ( )d
0 x ( q , C )
x ( q , C )
K   q   C  C   f ( )d (1)
0
x ( q , C )
 ( F  K )
0  q   C  C   f ( )d
x ( q , C ) 1
 p ( C  C ) f ( )d  p  qf ( )d
0 x ( q , C )
q  C
x(q, C ) 
C
Cost of Poor Quality Model for Supplier

For material suppliers, if penalty cost is very high, they will consider delivering materials
that meets the manufacturer‘s requirements, on time delivery, and enlarging production
capacity to meet ordering quantity. If supply is more than ordering quantity, the supplier will
pay for the left material storage cost, if production is less than ordering quantity, supplier will
pay for penalty cost. Penalty costs also include late delivery and sub standard material cost.
So the cost for poor quality model of supplier is:
P B  Pd  h  C  C  q   k C  K  q  d 

 C  C  q  max  C  C  q,0

36 MD Sarder
P B means supplier‘s total cost, h means left material storage cost, and k
means other
penalty cost. Therefore the material supplier‘s cost function is as follows:
x ( q , C )
E(PB )  p ( C  C ) f ( )d
0
 C  C  q  f ( )d
1 1
 p q f ( )d  h  (2)
x ( q , C ) x ( q , C )
x ( q , C )
k C  K 
0
 q  ( C  C ) f ( )d
Total cost of poor quality for entire Supply Chain Model is as follows:
x ( q , C )
E (C TB )  F 
0
 q  ( C  C ) f ( )d
1
(3)
 k C  h  ( C  C  q) f ( )d
x ( q , C )
4. CASE ANALYSIS
Call centers are service oriented organizations and are usually used for sales, technical
support and other customer related calls. These centers are used mainly for communications
(LAN line phones and cell phones), computers and other electronics. They are also used for
credit service support. For example, if you must speak with a service representative to resolve
a bill issue with American Express, you will most likely be routed to a call center overseas.
Other examples of companies that utilize call centers are Dell, Compaq, and AT&T. Dell
largely uses outsourcing for its call center applications. The majority of the centers are
located in India. In 2004, Dell had to move its call centers associated with OptiPlex desktops
and Latitude laptops back to the U.S. because the center was not able to satisfactorily deal
with the large volume of calls generated by the rapid growth of those product lines (McCue
2005). But although Dell has experienced setbacks due to Indian call centers‘ lack of quality,
the company has plans to further expand its call center base in India and possibly other
overseas locations (McCue 2005).
In the beginning, call centers were mainly just telephones and posts. But the centers now
provide numerous communication services, including phone, letter, email, Web chat, video
and email [7-differentiator]. This development in the call centers operations requires more
skilled workers within the vendor‘s company. Most companies begin outsourcing call center
work to reduce costs for their companies. The companies chose vendors because of their base
cost and not because of their ability to perform up to the expected level. The companies failed
to focus on issues that would provide excellent customer satisfaction and ultimately increase
the companies‘ revenue. This included selecting companies that emphasized quality and had
the labor skill to manage whatever product or service the company required. Companies
sometimes fail to realize that the vendor‘s service quality will become an extension of their
company as far as the external customer is concerned, and so if the vendor‘s service is not up
to the expectation of the customers calling in, then the parent company will take a hit for not
meeting the company‘s expectations.
CONCLUSION
Outsourcing is about letting those with expertise in a particular field perform the service
or produce a good better than the company who is outsourcing. A strong level of quality
obtained easier when the vendor is skilled in its field. When a company chooses a vendor not
based only on cost, but also on its expertise and quality level, then it is sure that the
appropriate benefits will be realized. These benefits include revenue increase and customer
satisfaction.
This study developed the theoretical dimensions of service quality for the BPO industry
and explored how technology affects these quality factors. Technology is a main enabler of
BPO and a major factor of its success. The effect of technology in BPO is built upon
standardization, integration, automation and innovation. These factors not only drive and
maintain but also improve the reliability, tangible, and conformance, responsiveness and
flexibility, security along the whole of process activities.
As the application objective of BPO is shifting towards that of enhancing the
competitiveness of BPO buyers, the value of the technology driving BPO is increasing. The
use of standard integration interfaces, best-practice templates and configuration options
enhance BPO quality. Technology provides the execution platform to enable benefits, like
speeding up the adoption of best-practices, interfaces and new upgrades, and providing a
sustainable quality level during maintenance activities. The underlying technology provides
business value to both the buyers and the service providers. Due to this value, companies
seeking BPO are actively seeking ways to leverage the advantages by making the most of
technology. Therefore, this study provides the quality factor and standards driven by
technology when selecting a BPO service provider.
However, the quality dimensions and quality enablers discussed above are not exhaustive
and overlapping exists among them. We hope to provide managerial implications to
practitioners by this study. Given the boom of BPO applications and the limitations on the
research of BPO quality theory, it is also expected to invite further study in greater depth and
width. A broadly recognized quality framework for BPO would be helpful to push BPO
development forward.
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Chapter 3
A COST OPTIMIZATION MODEL FOR

INTRA-SHIPMENT IN A SUPPLY CHAIN
Henry Lau
University of Western Sydney, School of Business,
Penrith NSW, Australia
ABSTRACT
In this research, a decision model is developed aiming to optimize the costs related to
the shipment of goods from one or more suppliers to the wholesaler which has received
order placed by customers. The various suppliers have a variety of purchase prices for the
goods and they also have varying delivery lead times. Moreover, the wholesaler is also
allowed to consider to purchase the goods from other wholesalers which belong to the
same organization (known as intra-shipment) and normally with a relatively higher price
than the suppliers. Due to the immediate availability of goods in store, it is assumed that
there is zero lead time for delivery. As such, the supplier needs to make a decision based
on the computation of all the costs involved and identifies and optimum arrangement that
optimize the costs. The model to be developed in this paper is able to provide expertise
advice to support the decision to be made by the wholesaler, taking into consideration all
the expected costs and achieve the minimization of total logistics costs.
Keywords: intra-shipment, replenishment, inventory control, optimization
INTRODUCTION
From the wholesalers‘ perspective, it is always the idea that the logistics cost and in
particular the storage cost needs to be minimized through the streamlining of the flow of
goods in the entire supply chain network. To achieve this, the approach is to minimize the
inventory of items especially in the wholesalers‘ section. In today‘s business environment, it

Email: h.lau@uws.edu.au.
42 Henry Lau
is also essential that customers are able to receive the goods on schedule. In order to remain
competitive, wholesalers need to be ensure a balance between cost of goods and the time of
delivery. From time to time, wholesalers need to make an important decision as whether they
should purchase the items from suppliers which agree on certain lead time but not guaranteed
or they can obtain the goods from their partner wholesalers (from the same company) with a
relatively higher price through a process known as intra-shipment. As these are partner
wholesalers have the items in stock and normally not located far away, the lead time can be
guanranteed and normally goods can be instantly obtainable. This paper proposes a new
decision rule that computes all expected total costs and identifies the optimum arrangement of
either to order the quantity needed from the suppliers directly or to replenish the goods from
other wholesalers through intra-shipment. In many cases, wholesalers face a dilemma with
their operations. When a sudden request for goods from a retailer exceeds the inventory on
hand at the wholesaler, a decision has to be made in order to fullfil the demand. The
wholesaler needs to evaluate whether it is appropriate to admit the loss generated due to the
backorder (by ordering the goods from the suppliers) or to accept an intra-shipment from
other wholesalers. The proposed decision rule is based on the computation and comparison of
the total costs of intra-shipping a certain portion of the demand, and in supplying the
remaining portion from an external supplier.
Thomas and Griffin [1] conducted extensive study regarding an integrated planning and
control approach and concluded that a holistic model is needed to deal with supply chain
operations. Erenguc et al. [2] has extended the study and came up with the suggestion that
even the operational network is based on a holistic approach, practitioners still have to deal
with various levels of planning and control issues, some of which can be relatively
complicated. While Köchel et al. [3] stressed the importance of organizing shipments of
resource units between the nodes of the logistics network; Weber [4] provided
complementarity and substitutability in the shipment related problem. Burton and Banerjee
[5] examined the cost effects of two lateral transshipment approaches in a two-echelon supply
chain network and discovered that a lateral shipment approach was considerably superior to a
policy of no such shipments, albeit at the expense of increased transportation activity. Minner
and Silver [6] evaluated two simple extreme transshipment strategies and developed an
analytical approach for estimating the approximate total expected costs. There are many
papers that deal with goods replenishment issues [7-14]. However, most authors assume a
decision rule is applied when asking for a shipment from other wholesalers. Axsäter [15] has
come up with a novel idea that lateral transshipment can be considered when the suppliers are
not able to deliver the goods in compliance with the request of customers and he proposed a
decision model to help manager make the important choice regarding inventory
replenishment. Archibald et al. [16] proposed another approach to deal with lateral
transshipment based on the fundamental concept suggested by Axsater [15]. Tagaras and
Cohen [17] evaluated the an qualitative approach to deal with transshipment for achieving
cost optimization through the use of a simulation software and proved to be useful.
In this paper, a new decision rule is introduced for intra-shipment. Axsäter [18] worked
out a solution in a similar area for a warehouse facing a Poisson type of demand for goods. It
gives a number of alternative decisions for the warehouse to consider. The approach has been
evaluated and the results are encouraging. Based on such idea, a new approach has been
developed, which deals with multiple suppliers and variable lead times in delivering goods
together with the cost of intra-shipment. In this approach the replenishment quantity from the
A Cost Optimization Model for Intra-Shipment in a Supply Chain 43
supplier and the intra-shipment quantity from other wholesalers can be computed,
consequently the most cost effective decision can be obtained.
PROBLEM DESCRIPTION
Consider a certain (finite) number of wholesalers that operate independently of each other
in a certain local area. The wholesalers supply goods to local retailers whose requests for
orders from the wholesalers are assumed to follow independent compound Poisson
distributions1 as described by Axsäter [18]. The wholesalers usually replenish their stock
from a supplier. The lead time of the supplier follows some probability distribution. In
addition, trans-shipment from other wholesalers (being in the same cost centre) is also a
convenient and feasible option to partially/fully meet retailer demands. We define such
transfer of products between wholesalers belonging to the same cost centre as intra-shipment,
i.e., we call the lateral trans-shipment between two wholesalers of the same cost centre, as
intra-shipment. Due to the close proximity between the individual wholesalers, compared
with the normally large distances from their suppliers, intra-shipments are usually assumed to
have no lead time, but they do incur additional cost.
We assume that all wholesalers apply a periodic review policy descibed by Rosenshine
and Obee [19] to replenish from external suppliers. To formulate the periodic review policy,
we review the unsatisfied demands in the previous period, the inventory position, and the
expected demand in the current period, and then make the order at the beginning of this
period. Unsatisfied demands or surplus orders of this period will be regarded as initial
demands or will be added to inventory position of the next period. If the wholesaler does not
employ a (R,Q) review policy, its inventory position could be lower than R of (R,Q) policy or
even near zero, which can decrease the holding costs of the wholesaler. However, the
wholesaler that uses a periodic policy has the possibility that its inventory position may be
lower than zero. This potentially increases the back-order cost. One possible solution is to
make trans-shipment from other wholesaler so as to make the inventory position of the
wholesaler non-negative as soon as possible.
A detailed description of the present model is as follows. Let W1 ,,WM be M
wholesalers in a certain local region. Let n be the number of retailers requesting goods from
wholesaler Wi (i = 1,, M ) in a time interval of length t. It has a Poisson distribution with a
known arrival intensity i . that is,
 i t
e (i t ) n
Pi ,t (n) = , n = 1,2, ，
n!
where i is the retailer arrival intensity at wholesaler i.
1
For consistency, we assume the same distribution of retailer demands as Axsäter (18) but we note that our
mathematical model as well as the decision rule for intra-shipment is also applicable to other discrete retailer
demand distributions with simple substitution.
44 Henry Lau
Let S ij ( j  1, N i ) represent any supplier of Wi with unit goods prices p ij ; let Lij be
max
delivery lead time of S ij ; let g ij (t ) be the probability mass function of Lij . Lij is an upper
max
bound on the delivery lead time of supplier S ij . This assumption of a finite value for Lij is
consistent with the fact that no supplier will take an infinite time to deliver its goods. A
max
reasonable (finite) value for Lij always exists for each S ij .
Figure 1. A schematic diagram of the supply chain of wholesalers, retailers and suppliers.
In our model, the period to update the wholesaler is set to the maximal lead time of the
given supplier. So all the orders made should be received in the period. Wi therefore there will
be no outstanding orders from its suppliers at the initial point of a new period, which will
simplify the total cost model and decision rules for intra-shipment. So the inventory level of
the wholesaler is equal to its inventory position.
For reasons related to the efficiency of operations and management, it will also be
assumed that once wholesaler Wi has taken a decision not to make any trans-shipment, it will
place an order for goods with one single supplier instead of using a combination of suppliers.
Likewise, once wholesaler Wi has taken a decision to make any trans-shipment, it will
place an order with one single wholesaler instead of using a combination of wholesalers.
Figure 1 illustrates the relationships of suppliers, wholesalers, and retailers. All the
wholesalers belong to the same cost centre. The dashed black lines represent the possible
intra-shipment within the cost centre.
We shall model the dependence of the total cost of the operation imposed on one
wholesaler in regard to intra-shipment, i.e., we provide the cost function of one wholesaler
with respect to the variable, size of intra-shipment, and determine an appropriate order action
for the wholesaler. Naturally, the cost function provides a useful decision rule for intra-
shipment and the size of intra-shipment by obtaining its minimization.
In the present model multiple suppliers are allowed to replenish goods for each
wholesaler.
This assumption is consistent with the real-life situation in supply chains where each
wholesaler is serviced by a host of goods suppliers. Secondly, one may consider the general
case of variable supply lead time. Such consideration is also realistic as goods supplied from
far-away suppliers are invariably subject to all kinds of unforeseen transport and traffic
conditions that may either hasten or delay the arrival of the goods.
By considering the probability mass functions of the lead times of suppliers, the
variability of the arrival times of goods can be taken into account.
Another significant advantage of this model is the ease of implementation of the decision
rule, which stems from the basic available information of the wholesalers and their suppliers.
All calculations can be done in a straightforward manner using mathematics software by
simply plugging in the required inputs.
Note that the lead-time probability mass functions of the suppliers are assumed to be
known either precisely from information supplied by the suppliers or approximately from past
experience with the suppliers.
COST MODEL FOR THE WHOLESALER WITH INTRA-SHIPMENT
Let x (0  x  d i (0)   i (0)) be the number of goods units that are trans-shipped from
wholesaler Wk to Wi ( k  i ) to partially meet the demand d i (0) at Wi with the initial
inventory level  i (0) , with the remaining portion di (0)   i (0)  x being satisfied by one
of the suppliers. For ease of reference, the notations used in the model are summarized below:
M = the total number of wholesalers

Wi = the ith wholesaler
N i = the total number of suppliers to Wi
S ij = the jth supplier of Wi
Pij = the unit selling price by Sij to Wi
qk = the unit intra-shipment price from Wi to Wk
46 Henry Lau
bi = the back-order cost rate at Wi per unit item per unit time
hi = the holding cost rate at Wi per unit item per unit time
t 0 = the initial time
t = the tth unit time interval after t0
g ij (t ) = the delivery lead time probability mass function of Sij.
Lij = the lead time of Sij with duration equal to Lij times unit time interval.
Lijmax = the maximal lead time of Sij with duration equal to Lmax
ij times unit time interval.
d i (0) = the initial retailer demand appearing at Wi

i (t ) = the retailer arrival intensity of the tth time interval at Wi
f i ,nm = the probability of n retailers at Wi with a total demand of m
dî (t ) = the expected retailer demand at wholesaler Wi in the tth time interval
D̂ij = the expected retailer demand at wholesaler Wi over Lijmax
Pijk (x) , Bijk (x) , H ijk (x) Cijk (x) are the purchase cost, the back-order cost, holding
cost, and the total cost to Wi for trans-shipping x units from Wk and supplying the
remainder of demands from Sij, respectively.
Under the consideration of the current supply/intra-shipment model for any time interval,
such as the tth, and any fixed supplier S ij ,
 m
m(i (t )) n
dî (t ) = e i 
 ( t )
f i ,nm .
m =1 n =1 n !
Firstly, Given the tth time interval ( 0  t  Lij

max
) and n retailers, the conditional
probability that n retailers require m demands is
Pd i ,t (m | n)  fi ,nm .
Meanwhile, given the th time interval ( 0  t  Lij

max
), the probability of n retailers
arriving at Wi follows the Poisson distribution,
(i (t ))n
Pd i ,t (n)  e i (t ) .
n!
The probability of retailer demands at Wi over the tth time interval is thus given by
m
Pd i ,t (m)   P(m demands under condition of n retailers at Wi ) P(n retailers at Wi )
n 1
m
  Pd i ,t (m | n) Pd i ,t (n)
n 1
m
  f i ,nm Pd i ,t (n)
n 1
m
(i (t )) n
  f i ,nme  i (t )
n 1 n!
Therefore, the expected retailer demand at Wi by time interval t is given by

dî (t ) = mP
m =1
d i ,t ( m)
 m
m(i (t )) n n
  n! f i,m .
 i ( t )
= e
m =1 n =1
max
Since there is no infinite demand at wholesaler i in practice, we set d i as the upper
bound of retailer demands at wholesaler i in the numercial simulation.
It also follows that the expected retailer demand at Wi over the maximal lead time of Sij
max
(i.e., Lij times unit time intervals) is given by the sum of all the expected demands above,
Lmax
ij
Dˆ ij =  dˆ (k )
k 1
i
m(i (k )) n n
Lmax
ij  m
=  e i ( k )  f i ,m .
k 1 m 1 n 1 n!
Furthermore, if the ith wholesaler makes its orders from the jth supplier, the expected
delivery lead time is
Lmax
ij
E ( Lij ) =  t gij (t ) ,
t 1
Our mathematical model will determine an appropriate course of action for Wi in

response to the appearance of d i (0) that would minimize its operation cost, as follows.
Over one scheduling period (i.e., the maximal lead time), the expected retailer demands
for the ith wholesaler is D̂ij . The purchase cost of the ith wholesaler is therefore composed of
48 Henry Lau
the cost to purchase from the supplier, Sij and cost to purchase from the other wholesaler, Wk2.
Hence,
 
Pijk ( x) = d i (0)   i (0)  x  Dˆ ij p ij  qk x.
Consider 0 <  i (0) . In this case, Wi has no backlogged orders. The appearance of
d i (0) at t 0 adds to the backlog. If 0 < di (0)   i (0) , then no intra-shipment is needed.
On the other hand, if  i (0) < di (0) , then that the total number of back-ordered units at Wi
at the initial time is di (0)   i (0) . Now x units of the required goods have just arrived from
a nearby wholesaler Wk ( k  i ), so the number of back-ordered units at Wi is in fact
d i (0)   i (0)  x .
The goods by intra-shipment arrive at the wholesaler with zero lead time, which will not
produce back-order cost, while the remaining goods from the supplier are expected to arrive
at the wholesaler after the expected lead time, E(Lij), which will generate some back-order
cost. Among the remainging goods, some goods ( d i (0)   i (0)  x ) are demanded at t = 0
so the back-order time is E(Lij) while the other demands D̂ij appear over the whole period. If
those demands happen before the ordered goods arrive, the wholesaler will suffer from the
back-order cost; if they happen after the arrival of goods the wholesaler has to carry the
burden of the holding cost. Consequently, according to the delivery time of ordered goods we
devide Lijmax into two sub-intervals, [0, E(Lij)] and (E(Lij), Lijmax]. Next, we prove the back-
order cost is due to expected demands. Consider the expected demand over unit time interval,
such as the hth time interval, the expected demand over this day is dî (h) . The back-order
cost for this demand is given by bi d i (h)( E ( Lij )  h) , as presented in Figure 2, and then the
back-order cost for all expected demand over the interval [(0, E ( Lij )] is calculated by its
sum. Thus,
E ( Lij )
Bijk ( x) = bi d i (0)   i (0)  x E ( Lij )  bi  dˆ (t )( E( L

i ij )  t ).
t 0
Figure 2. Schematic of the expected demand at the tth day and its lead time.
2
It is assumed that the wholesaler has the stocks on hand but its available stocks, sk may be less or more than
di (0)   i (0) . The actual number of intra-shipment  k  min(( d i (0)   i (0), sk ) .
We formularize the holding cost for the demands generated over the sub-interval,
( E ( Lij ), Lmax
ij ] in the same way, as follows
Lmax
ij
H ijk ( x) = hi  dˆ (t )(t  E ( L
t  E ( Lij )
i ij )).
Finaly, the total cost of wholesaler i over one review period is
Cijk ( x) = Pijk ( x)  Bijk ( x)  H ijk ( x)

 (d i (0)   i (0)  x  Dˆ ij ) pij  q k x  bi (d i (0)   i (0)  x) E ( Lij )
E ( Lij ) Lmax
ij
 bi 
t 0
dî (t )( E ( Lij )  t )  hi  d (t )(t  E ( L
t  E ( Lij )
i ij )).
We state our first decision rule for intra-shipment as a proposition.

Proposition. For the current supply/intra-shipment model, if the condition
0 < di (0)   i (0) is not satisfied, and then for the given supplier Sij, Wi should make an
intra-shipment from Wk ( k  i ) to satisfy the demand d i (0) only if
qk < p ij  bi E ( Lij ) ( k  i ).
Proof
Clearly, if the condition 0 < di (0)   i (0) is not satisfied, then the total expected cost of
Wi for trans-shipping x units from Wk ( k  i ) and supplying the remainder of d i (0) from S ij
is Cijk (x) . The result follows by rewriting the expression for Cijk (x) as
Cijk ( x) = Pijk ( x)  Bijk ( x)  H ijk ( x)

 q k   p ij  bi E ( Lij ) x  d i (0)   i (0)  p ij  bi E ( Lij ) 
E ( Lij ) Lmax
ij
 Dˆ ij pij  bi 
t 0
dî (t )( E ( Lij )  t )  hi  dˆ (t )(t  E ( L
t  E ( Lij )
i ij )).
The total cost function of Wi with respect to x is a linear function with the form
y  Ax  B . So, if qk  ( pij  bi E ( Lij ))  0 , the total cost function is decreasing
function regarding the variable x. The more goods are trans-shipped from the other
wholesaler, the more costs are saved. However, if qk  ( pij  bi E ( Lij ))  0 , the total cost
function is an increasing function regarding x. Under this condition the intra-shipment from
the other wholesaler raises the cost of Wi.
50 Henry Lau
Given the fixed supplier Sij our decision rule for intra-shipment therefore is
qk  ( pij  bi E ( Lij ))  0 . If this decision rule is not satisfied, then Wi should satisfy the
demands d i (0) by using supplier S ij .
Furthermore, we give a corollary to estimate the favorite wholesaler to make trans-
shipment.
Corollary. It is assumed that the preceding decision rule is valid. For any fixed supplier
*
Sij the intra-shipment should be ordered from W * , where k (not necessarily unique) is such
k
that
q *   pij  bi E ( Lij )  min qk  ( pij  bE ( Lij ))

k
for all the wholesalers exclusive wholesaler i.
Proof
The cost function above is a linear function about the size of intra-shipment and its slope
is qk  ( pij  bi E ( Lij )) . Given the fixed x ( x  0) , if q  ( pij  bi E ( Lij )) is the
k*
minimal, Cijk(x) is correspondingly the lowest by intra-shipment from W * .

k
It is natural that if we decide to make intra-shipment we prefer to intra-ship from the
wholesaler that provides the lowest price. So our model is consistent with the practical
considerations.
As we mentioned, the trans-shipped amount should be  k = min(( d i (0)   i (0)), s k )
where sk is the available stocks of the kth wholesaler.
So we have to consider both factors: the selling price of the wholesaler and its available
stocks, and make the trade-off between them. Let C ij be the minimal cost of Wi that makes
partial or full orders from the given Sij. We thus obtain another decision rule for estimation of
the favorite wholesaler that
Cij  min min {Cijk ( x)} .

k i 1 x   k
As the ith wholesaler is allowed to obtain their supplies from a wide choice of available
suppliers, not limited to the certain supplier, the total cost of Wi achieves the global
minimization by
Ci  min{Ci1 ,, Cij CiNi } ,
where the suffix Ni is the number of the suppliers of wholesaler i.

Consequently, by minimization of both Cijk (x) and C ij we can determine the optimal
solution of wholesaler i to satisfy the retailer demands. We will explain our decision rules and
minimization of the total cost of one wholesaler by simulation study.
NUMERICAL RESULTS
In this section, the developed model is illustrated with three examples. For simplicity,
only identical wholesalers are considered and retailer arrival intensity at different unit time
intervals is assumed to be the same, i.e.,  (t )   (constant) for any t. Also, in the absence
of specific information about retailer ordering patterns, it is reasonable to assume that the
n
probability mass function f i, m is the same as the assumption of Axsäter [18], where a retailer
demand of size m follows the geometric distribution,
f i1,m  p(1  p) m1 m  1,2,3,

.
Initial Case
We first consider a hypothetical region where there are only two wholesalers for a certain
line of products, W1 and W2 and one supplier to replenish them.
Without loss of generality, since the two wholesalers are assumed to be identical, one
need only consider the problem of intra-shipment from the point of view of any wholesaler,
W1 say.
Therefore take W1 as fixed and consider the decision-making process at W1. Furthermore,
take b1 = 2, h1=1, λ1 =1, p=0.8, p11=2.2, and Dmax =303.
The unit time interval can be defined as one week, one day, or even half of either. There
is exactly one product supplier, S11 for W1, and it has variable lead time with L11  5 .
max
Finally, the current inventory level at W1 is  1 (0)  0 and the initial demand at W1 is
d1 (0)  6 .
Under assumption that another wholesaler has the adequate stocks the case is divided into
four groups that differ in the intra-shipment price from W2 and expected lead time from S11.
Group one has q 2  5 and E ( L11 )  3 , Group two has q 2  9 and E ( L11 )  3 , Group three
has q 2  7 and E ( L11 )  4 , and Group four has q 2  7 and E ( L11 )  2 . For simplicity, we
do not define the probability mass function of the supplier but directly give its expected lead
time. Application of our decision rule for intra-shipment is shown in Table 1. All costs are for
the wholesaler W1. Each line gives the results for each group.
In Group three the decision rule is satisfied and the cost of W1 keeps decreasing with
more intra-shipments while in Group four the decision rule is not satisfied.
However, the cost of W1 in Group four is quite a bit lower than that of Group three. This
is related to the problem of supplier selection the related discussion of which is given in
Section 4.3.
3
Since a retailer demand f i1,m follows the geometric distribution and f i ,nm is obtained by m-fold convolution, f i ,nm
deceases quickly and goes to zero when m become large. Given p=0.8 in the simulation, Dmax =30 is large
enough.
52 Henry Lau
Table 1. Results for the initial case. x represents the size of intra-shipment
Total Cost of Wholesaler 1
q2 E(L11) x=0 x=1 x=2 x=3 x=4 x=5 x=6
5 3 60.4 57.2 54 50.8 47.6 44.4 41.2
9 3 60.4 61.2 62 62.8 63.6 64.4 65.2
7 4 74.7 71.5 68.3 65.1 61.9 58.7 55.5
7 2 47.9 48.7 49.5 50.3 51.1 51.9 52.7
Figure 3. The total cost function with a variable, size of intra-shipment.
Figure 3 clearly illustrates the tendency of total cost of W1 with increasing intra-
shipments for Group one and two. Zero in the x-axis means no intra-shipment between
wholesalers; dots denote the total costs of W1 for Group one; Stars denote the total costs of W1
for Group two. When the decision rule is satisfied (Group one), W1 saves its cost by intra-
shipment. However, when the decision is not satisfied (Group two) W1 has to increase its cost
with trans-shipment from W2, and then W1 should order products from its supplier, rather than
from another wholesaler.
In Section 4.2 and 4.3 we consider a different variation of 4.1. In the present subsection
we suppose that the stocks of the wholesaler which is asked for intra-shipment is enough to
satisfy its counterpart. Section 4.2 considers the case that the trans-shipped wholesaler has
limited stocks. That is, we need to employ another decision rule to decide from which
wholesaler to make intra-shipment under the assumption that there are more than two
available wholesalers in the local area.
More Wholesalers with Limited Stocks
Here we consider that there are four wholesalers W1, W2, W3 and W4 and one supplier for
them. We also investigate the second decision-rule process at W1. Take b1, h1, λ1, p, p11, Dmax,
 1 (0) and d1 (0) are the same as those in section 4.1. The supplier, S11 for W1 has variable
lead time with L11  10 and E ( L11 )  3 . This case is divided into three groups according to
max
the other three wholesalers: Group one has q 2  8 and  2  6 , Group two has q3  7 and
 3  5 , and Group three has q4  6.5 and  4  3 . Clearly, we should make a trade-off
between wholesalers‘ selling prices and their stocks. This can also be verified in Figure 4.
Figure 4. Trends of total costs of W1 with intra-shipment from W2, W3, and W4, denoted by crossing line,
dot line and star line respectively.
As shown in Figure 4, the first decision rule is satisfied for each group, i.e., W1 benefits
from intra-shipment from W2, W3, or W4. Note that the dashed lines represent the total costs of
W1 if it makes more intra-shipments from W3 and W4. Now we need to decide from which one
to order intra-shipment so as to minimize the cost of W1. By the corollary, W4 is the best
54 Henry Lau
choice but taking its stocks into consideration we find that W1 does not benefit the most from
W4 by intra-shipment. On the contrary, W2 has adequate stocks to satisfy the full demands at
W1 but its selling price is relatively expensive. According to the second decision rule,
C113 (5) is the minimal. Consequently, W1 should make intra-shipment from W3 and order all
the available stocks at W3.
Multi-Supplier and Multi-Wholesaler
In this subsection we consider another variation of the previous cases. There are four
wholesalers W1, W2, W3 and W4 in a local area and three suppliers to replenish them. For
consistency, we still take W1 as the object of study.
For fair comparison we use max{L11 , L12 , L13 }  5 as the review period so we
max max max
ignore their respective maximal lead times given in the tables below. All the other parameter
values are the same as those in the previous subsection.
In Table 2 the cost in each cell is calculated under the condition that the demands of W1
are satisfied by a combination of the given supplier and wholesaler. For example, the value
56.7 represents the total cost of W1 by making three orders from W2 and the rest from S13.
Table 2. The total cost of W1 by making orders from certain suppliers and wholesalers
Supplier 1 Supplier 2 Supplier 3

p11=2.6 E(L11)=4 p12=2.8 E(L12)=3 p13=3.3 E(L13)=2
Intra-
shipment W2 W3 W4 W2 W3 W4 W2 W3 W4
Size q2=7 q3=8 q4=9 q2=7 q3=8 q4=9 q2=7 q3=8 q4=9
0 78.2 78.2 78.2 65.7 65.7 65.7 57.6 57.6 57.6
1 74.6 75.6 76.6 63.9 64.9 65.9 57.3 58.3 59.3
2 71.0 73.0 75.0 62.1 64.1 66.1 57.0 59.0 61.0
3 67.4 70.4 73.4 60.3 63.3 66.3 56.7 59.7 62.7
4 67.8 71.8 62.5 66.5 60.4 64.4
5 65.2 70.2 61.7 66.7 61.1 66.1
6 68.6 66.9 67.8

The blank cells indicate that the wholesaler cannot provide trans-shipments of more than
its stocks. The global minimum in Table 2 (i.e., 56.7) indicates the optimal solution for W1 to
make orders. In addition given S11 and S12, W1 will save the most with intra-shipment from W3
and W2 respectively, as presented in Table 2. We also give Figure 5 to describe the contents in
this Table.
Table 3. The total cost of W1 by making orders from the combination of one supplier
and one wholesaler
Supplier 1 Supplier 2 Supplier 3

p11=6.7 E(L11)=3 p12=5.5 E(L12)=4 p13=4.3 E(L13)=5
Intra-
shipment W2 W3 W4 W2 W3 W4 W2 W3 W4
Size q2=10 q3=12 q4=14 q2=10 q3=12 q4=14 q2=10 q3=12 q4=14
0 85.8 85.8 85.8 80.6 80.6 80.6 76.5 76.5 76.5
1 86.1 88.1 90.1 81.1 83.1 85.6 77.2 79.2 81.2
2 86.4 90.4 94.4 81.6 85.6 89.6 77.9 81.9 85.9
3 86.7 92.7 98.7 82.1 88.1 94.1 78.6 84.6 90.6
4 87.0 95.0 103.0 82.6 90.6 98.6 79.3 87.3 95.3
5 87.3 97.3 107.3 83.1 93.1 103.1 80.0 90.0 100.0
6 87.6 99.6 111.6 83.6 95.6 107.6 80.6 92.7 104.7
From Figure 5, given supplier 1, C11 = C113(5) is the minimal; given supplier 2,
C12 = C122(3) is the minimal; given supplier 2, C13 = C132(3) is the minimal. By the formula,
Ci  min{Ci1 ,, Cij CiNi } we obtain
C1  min{C11, C12 , C13}  C13  C132 (3) .
Consequently, under the condition above, W1 achieves the minimal cost by ordering from
S13 and W2; and the size of intra-shipment is 3.
In the case of multi-suppliers and multi-wholesalers any wholesaler, like W1, first of all,
needs to determine which supplier to replenish from. That is, we estimate the total cost of W1
by full replenishment from each supplier. Given the supplier, the wholesaler then determines
whether it will make an intra-shipment and which wholesaler it will order from.
Table 3 describes a special case in that the decision rule for intra-shipment is not satisfied
and thus there is no intra-shipment for wholesaler 1. This is equivalent to selecting only the
favorite supplier. Here we set b1 = 1, max{L11 , L12 , L13 }  6 and keep all the other
max max max
parameter values unchanged.

56 Henry Lau
Figure 5. Results for the case of multi-supplier and multi-wholesaler. x represents the size of the intra-
shipment.
As presented in Table 3, W1 need to make all the replenishment from S13 in order to
minimize its operation cost. Hence, our model also provides a decision rule for selection of
suppliers to wholesalers without intra-shipment.
CONCLUSION
In this paper we describe the derivation of a decision rule that may be used for intra-
shipment decision-making in supply chains made up of suppliers, wholesalers and retailers, in
any local region. The suggested decision rules will minimize the total expected future costs of
the wholesaler when considering replenishment from one supplier and intra-shipment from
one wholesaler. Some major advantages of this approach include the pragmatic inclusion of
multiple suppliers for wholesalers as well as variable goods delivery lead times, both of
which are important relaxations of the properties of previous models that neglect the central
features of real operations in inventory systems. Another advantage of the present model is
the straight-forwardness of its implementation which requires only direct calculations and a
comparison of total costs. Numerical examples have also been included to illustrate the
effectiveness of the technique.
REFERENCES
[1] Thomas D., Griffin P., 1996. Coordinated supply chain management. European Journal
of Operational Research, 94, 1–15.
[2] Erenguc, S.S., Simpson, N., Vakharia, A.J., 1999. Integrated production/distribution
planning in supply chains: An invited review. European Journal of Operational
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[3] Köchel, P., Kunze, S., Nieländer, U., 2003. Optimal control of a distributed service
system with moving resources: Application to the fleet sizing and allocation problem,
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[4] Weber, C.E., 2004. More on complementarily and substitutability in the transshipment
problem, European Journal of Operational Research, 156 (1), 213-222.
[5] Burton, J., Banerjee, A., 2005. Cost-parametric analysis of lateral transshipment
policies in two-echelon supply chains, International Journal of Production Economics,
93-94, 169-178.
[6] Minner, S., Silver, E.A., 2005. Evaluation of two simple extreme transshipment
strategies, International Journal of Production Economics, 93-94, 1-11.
[7] Alfredsson, P., Verrijdt, J., 1999. Modeling emergency supply flexiblility in a two-
echelon inventory system. Management Science, 45, 1416-1431.
[8] Guinet, A., 2001. Multi-site planning: A transshipment problem, International Journal
of Production Economics, 74 (1-3), 21-32.
[9] Rudi, N., Kapur, S., Pyke, D., 2001. A two-location in-ventory model with
transshipment and local decision making. Management Science, 47, 1668-1680.
[10] Dong, L., N. Rudi., 2004. Who benefits from transshipment? Exogenous vs.
endogenous wholesale prices. Management Science, 50, 645-657.
[11] Wong W., Cattrysse D., Van Oudheusden, D., 2005. Inventory pooling of repairable
spare parts with non-zero lateral transshipment time and delayed lateral transshipments.
European Journal of Operational Research, 165, 207-218.
[12] Koster, R., Le-Duc, T., Roodbergen, K.J., 2007. Design and control of warehouse order
picking: A literature review, European Journal of Operational Research, 182 (2), 481-
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[13] Nagy, G., Salhi, S., 2007. Location-routing: Issues, models and methods, European
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[14] Young, H.L., Jung, W.J., Young, S.J., 2007. An effective lateral transshipment policy to
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[15] Axsäter, S., 1990. Modelling emergency lateral transshipments in inventory systems.
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58 Henry Lau
[18] Axsäter, S., 2003. A new decision rule for lateral transshipments in inventory systems.
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Chapter 4
LOCATION STRATEGIES
AND CONSIDERATIONS IN SUPPLY CHAIN
AND OPERATIONS MANAGEMENT
Terry Damron1,*, Amye Melton1 and Alan D. Smith2

1
Austin Peay State University, Clarksville, Tennessee, US
2
ABSTRACT
Using a qualitative business case-study method, this chapter examines how two
Pittsburgh-headquartered firms (i.e., a global manufacturing and a domestic service
restaurant chain) used location strategies to take advantage of availability of skilled labor,
transportation facilities, tax rates, regulatory environment, real estate tax, and other
considerations to expand their operations. Supplier considerations and associated
strategies also were essential to the firms‘ successful expansion plans.
Keywords: case study, operations strategy, supply chain management, supplier collaboration,
supplier integration, stakeholder theory
INTRODUCTION
Successful businesses constantly look to expand, strategically leveraging their location
strategies through work with local, state, and national governments and supplier partners as
they try to attract new businesses.
Location strategies are extremely useful in the retention of current customers through
good supplier collaboration and integration.
*
Corresponding Author address: Department of Marketing, Austin Peay State University, Clarksville, TN 37044,
Email: DamronT@apsu.edu.
60 Terry Damron, Amye Melton and Alan D. Smith
Location Tools and Strategy
Location decision-making helps provide the framework to allow markets to continually

expand, underlying the successful acceleration of the global economy. Location has a
significant impact on the overall risk and profit of the company. Depending on the product
and type of production or service, transportation costs alone can total as much as 25% of the
product‘s selling price (Basu and Nair 2012; Brito and Botter 2012; Bulcsu 2011; Carvalho
Cruz-Machado and Tavares 2012). Up to one-fourth of a firm‘s total revenue may be needed
just to cover freight expenses of raw materials coming in and finished products going out.
Location may influence other costs such as taxes, wages, raw material costs, and rents. As all
costs are being taken into account, location may adjust total operating expenses as much as
50%. Companies make location decisions relatively infrequently, usually since demand has
outgrown the current plant‘s capacity or because of changes in labor productivity, exchange
rates, costs, or local attitudes. Additionally, companies may relocate their manufacturing or
service facilities due to shifts in demographics and customer demands. Typical location
options for any organization include expanding an existing facility instead of moving,
maintaining current sites while adding another facility elsewhere, or closing the existing
facility and moving to another location (Drezner 2009; Heizer and Render 2011).
Decisions regarding location are fairly dependent on the type of business. When dealing
with industrial location decisions, the strategy usually centers on minimizing costs, though
innovation and creativity also may be critical. For retail and professional service
organizations, the strategy focuses on maximizing revenue. Cost and speed of delivery are
two significant driving forces essential to the warehouse location strategy. Overall, the
objective of location strategy is to maximize the benefit of location to the firm (Kumar,
Shankar and Yadav 2011; Mathirajan, Manoj and Ramachandran 2011; Paksoy and Cavlak
2011). Since location is such a significant cost and revenue driver, it has the power to make or
break a company‘s business strategy. Location decisions utilized in a low-cost strategy
require particularly careful consideration. Once management makes a decision to commit to a
specific location, many costs are set in place and difficult to reduce. If a new factory is
located in a region with high energy costs, even good management and an efficient energy
strategy may not help the company overcome the disadvantage. Management may have
similar problems with its human resource strategy if labor in the selected location is
expensive, ill-trained, or has a poor work ethic. As with most costs, location costs can be
divided into two categories: tangible and intangible. Tangible costs are those that are readily
identifiable and precisely measured (e.g., utilities, labor, material, taxes, depreciation, and
other costs that accounting and management can base on defined activities). Costs such as
transportation of raw materials, transportation of finished goods, and site construction are
typically factored into the overall cost of a location. Intangible costs, which are less easily
quantified, include quality of education, public transportation facilities, community attitudes
toward the industry and the company, and quality and attitude of prospective employees.
Purpose of Study
In the past, vendor selection may have hinged on lowering operational costs; but in
today‘s business climate, socially conscious consumers, the proliferation of the Internet, and
Location Strategies and Considerations in Supply Chain … 61
24/7 media coverage lead companies to choose vendors more carefully. Firms must look
beyond costs and quality to consider possible environmental costs. To augment traditional
low-price and high-quality products, companies must engage in social responsibility to
improve their corporate image and responsiveness to the needs of stakeholders. For example,
a firm must consider how its suppliers treat their workers.
Essentially all companies, large (United States Steel) and small (Primanti Brothers
Restaurant), face ever-increasing consumer demand to improve environmental stewardship
and the quality of life for factory workers. Often, profit and legal forces promote offshoring
firms‘ production facilities. Many of these facilities are located in countries where the
workers, sometimes children, work long hours in substandard and unsafe factories, earning
low wages. Although no federal laws require companies to maintain a transparent supply
chain, some states have enacted legislation requiring a degree of transparency, enabling
consumers to learn whether companies and their supply chain partners engage in illegal or
unethical practices. For example, companies operating in California must adhere to the
California Transparency in Supply Chains Act of 2010. This law requires companies
conducting business in the state to disclose corporate policies and steps taken to eradicate
slavery and human trafficking in their supply chains.
To ensure the integrity of their supply chain partners and prevent consumer backlash,
companies can proactively inspect factories during the vendor selection process. Such
inspections require supply chain partners to meet specific standards such as those concerning
employee age, wages, and health and safety.
BACKGROUND
For many firms, locating near customers is of great importance, especially for service-
orientated firms. Service organizations, like drug stores, restaurants, post offices, or barbers,
find that proximity to market is the main location factor. When transporting finished goods is
expensive or difficult, manufacturing firms find it useful to be close to customers. Factors
such as perishability, transportation costs, or bulk lead firms to locate near their raw materials
and suppliers. Companies relying on inputs of heavy or bulky raw materials encounter
expensive inbound transportation costs, making transportation costs a major factor. When
producing goods for which there is a reduction in bulk during production, proximity to raw
materials is important. Surprisingly, both manufacturing and service organizations prefer to
locate near competitors. This concept, called clustering, occurs when a major resource is
found in that region. Resources include natural resources, information resources, venture
capital resources, and talent resources. Many of the factors influencing strategic location
decisions also are considered in strategic vendor and supplier selection.
Although industrial-sector location analysis may center primarily on cost minimization,
the service sector focuses on revenue maximization. Manufacturing firms find costs tend to
vary considerably among locations, while service firms find location often has more impact
on revenue than cost. For service firms, the location focus frequently is dependent on
determining the volume of business and revenue (Paksoy and Cavlak 2011; Pettersson and
Segerstedt 2011; Pradhananga, Hanaoka and Sattayaprasert 2011; Von Haartman 2012).
Geographic information systems (GIS) help firms make successful, analytical location
decisions. GIS are extremely useful in storing and displaying information which can be linked
to location coordinates measured and updated in real time. For example, retailers, banks, food
chains, gas stations, and print shop franchises all can use geographically coded files from the
system to conduct demographic studies. Reviewing a combination of population, age, income,
traffic flow, and density figures within a specific geographic area, a retailer can pinpoint the
optimal location for a new store or restaurant. Within each area reviewed, GIS offer
information related to factors that influence location decisions, including residential areas,
retail shops, cultural and entertainment centers, crime incidence, and transportation options.
Analytical tools (shipping models, transportation algorithms) can be important in
deciding on a location. The purpose of the transportation model is to determine the best
pattern of shipments from numerous points of supply or sources to numerous points of
demand or destinations, thereby minimizing total production and transportation costs.
Essentially every firm with a network of supply-and-demand points encounters such a
decision (More and Babu 2012). Through use of a transportation model, a firm finds an initial
realistic solution and then the model provides step-by-step improvements until an optimal
solution is achieved. Other models are more robust and can include intangible factors in the
location decision. A number of authors (Hamidi, Farahmand, Sajjadi and Nygard 2012;
Kumar, et al. 2011; Mathirajan, et al. 2011) have suggested such modeling can lead to
optimality in location selection. Selecting a location with the best qualitative conditions may
prove more profitable than simply choosing the lowest cost location, an approach found in
many transportation models. However, the researchers recognize a favorable location may not
be a feasible location, as production capacity must be taken into consideration. In effect, firms
must use quantitative and cost/benefit analytical techniques to eliminate locations where
required resources simply are not available.
Rajkumar (2013) sought to understand the major factors in industrial location selection
for information technology organizations and the elements of industrial location factors for
IT-based organizations. The study segmented location selection into 7 dimensions:
manpower, technology, social, hedonistic, industrial site, economic factor, and governmental.
Each of these factors was broken down into more precise elements for measurement.
Structural equation modeling helped to develop coefficients of covariance among the
dimensions, resulting in the identification of technological factors as most important in
making location-selection decisions, followed by manpower and social constructs.
Economical and industrial constructs were of medium importance to location selection, while
governmental and hedonistic constructs had the least impact. While the study took place in
India, the dimensions could easily be related to any geographic area, though social and
governmental dimensions may have a larger coefficient in Asia than in African or European
countries.
Ho, Lee, and Ho (2008) performed an empirical study to determine a new method for
developing a location strategy. Many types of analyses have been performed on methods of
determining location, but few incorporate both a qualitative and quantitative research method.
Using an analytic hierarchy process (AHP), the researchers hoped to allow management to
determine criteria influencing location strategy and indicate the importance of each criterion.
The case study considered a manufacturer of desktop and laptop computers that was
anticipating more demand from the Chinese market.
The AHP phase of location selection considered many critical success factors needed to
have a competitive advantage in the location and created a hierarchy of importance of each
factor. An overall priority ranking was developed from these factors.
The criteria selected were (from highest to lowest in the priority ranking): proximity to
stakeholders, human resources, risks, flexibility of capacity, and quality of life. The firm
identified several reasons for the selection of their criteria. Proximity to stakeholders consists
of customers, since the modern supply chain is customer driven, and suppliers, since there is
uncertainty in order cycle time and demand. The criterion of human resources is defined as
labor availability and productivity. Risks identified were the future trend of land prices,
transportation infrastructure, availability of utilities, and probability of the occurrence of a
strike, theft, or natural disaster. Flexibility of capacity was considered important because the
location needs to be able to satisfy both current and future production requirements. Quality
of life was selected in order to attract skilled employees.
When compared to a cost-based approach (i.e., total costs for each location are projected
and the location with the lowest cost is selected), AHP results were very similar. However,
the location associated with the lowest cost was not the same optimal location selected in the
AHP-GP model. These results support the argument for a model including both qualitative
and quantitative factors, as a purely cost-based approach may result in a lower-quality
location with costs similar to those associated with a higher quality location.
METHODS
Qualitative Business Case Study
The qualitative business case study is an approach to research that helps the exploration
of a study of interest within its context using a variety of data sources. This ensures the issue
is not explored through one lens, but rather a variety of many possible viewpoints to help to
reveal and understand the concepts associated with the study.
According to Baxter and Jack (2008), a common problem associated with case studies is
the researchers‘ tendency to attempt to answer too broad questions or topics with too many
objectives. To avoid this problem, Yin (2003) and Stake (1995) suggested placing boundaries
on a case. This case is bound both by time and place and by definition and context; namely
only one company, dealing with SCM integration/collaboration, and for the fiscal 2014
period.
Sample Selection
Personal interviews of upper-to-middle management, along with comments from

convenient samples of employees, were used to gather perceptions concerning the accuracy of
the various firms‘ strategic management processes within a customer service focus. Most of
the information contained in this case study was obtained from management and/or the firms‘
websites.
CASES
CASE 1: United States Steel Corporation (USS)
Company Overview
United States Steel Corporation (USS), otherwise known as US Steel, is a major steel
producing company based in Pittsburgh, PA. In operation since 1901, the company is one of
the largest steel manufacturers in the world, with operations in the U.S., Canada, and Europe.
The company was created when J.P. Morgan and Elbert Gary bought Carnegie‘s Steel
Company, combining it with Federal Steel Company. In the company‘s golden era, it
produced more than 65% of the steel used domestically. Many acquisitions and
consolidations led to the considerable reduction of the company‘s market share. USS employs
more than 40,000 employees globally, with annual revenues in excess of US$3.93 billion.
The company has been labeled as a major source of pollution; achieving the dubious
distinction of the eighth most polluting company in the U.S.
As the domestic growth in production of steel began to slow, USS began to look for other
options to expand their company. They became involved in the energy field, acquiring
Marathon in 1982 and Texas Oil and Gas Corporation in 1986. This prompted the 1986 name
change to USX Corporation. In 2001, the company restructured, with steel and steel-related
businesses resuming operations under the United States Steel (USS) name and the energy
business of USX becoming Marathon Oil Corporation. This corporate split allowed USS to
focus primarily on steel, returning to a more global scale of production.
At the time of the split, significant portions of the domestic steel industry were plagued
with bankruptcy and other major economic problems. Some global companies sought
bankruptcy protection, only to find they were unable to continue their operations. USS
expanded and increased global production through acquisition of these companies, including
VSZ (Slovakia), Sartid (Serbia), and Stelco, Inc. (Canada). The company also maintains
facilities in Mexico and Brazil that help with warehousing and distribution, as well as a series
of strategic joint ventures that were designed to enhance their SCM operations, integration,
and collaboration efforts.
Location Decisions
A global producer of steel, USS committed significant planning resources in their
location strategies. In order to get their products overseas, it was necessary for USS to invest
in facilities and steel manufacturing plants at strategic global locations. As the industry began
to decline domestically, management knew was necessary to look beyond the boundaries of
previous operations. Unfortunately, many manufacturers met their demise due to an apparent
reluctance to change and embrace globalization. USS was able to capitalize on other
companies‘ shortcomings and planned accordingly for the future growth. The following
discussion details some of the strategic location decisions USS makes in order to control the
total costs of operations.
As mentioned previously, shipping costs may be one of the main costs associated with a
business. Given the nature of the products USS produces, timing and estimating shipping can
be extremely costly and quite complicated. The firm has focused on the distribution end of
operations, selecting locations on different continents to process and hold materials until they
are required for sale or distribution. USS currently operates warehouses and processing
centers abroad, including those in Mexico, Canada, Brazil, and Europe (Slovak Republic).
With locations in other parts of North America, as well as South America and Europe, steel
products are made available at significantly reduced delivery times. Warehousing and storing
products can create considerable cost; however, costs are saved elsewhere if suppliers are
properly managed. If management can reasonably predict and plan out their shipping
necessities because of reserves that exist in other continents, they can save a great deal in
unexpected last minute shipping costs.
Decisions concerning warehouse and processing facility locations are not the only
location decisions that significantly impact USS logistical planning initiatives. Selecting
where to produce steel in its various refined forms is an important decision. On a domestic
side, the company has major corporate headquarters in a large number of regional facilities.
For bulky items, transportation via water remains most economical, especially since the Ohio
River system offers an efficient means for transportation by barge. The Ohio River Valley
continues to serve as home to many facilities; however, other locations in the southern and
western regions complement the overall production process. USS operates mines necessary to
obtain the raw materials and fuel needed for the production of steel. Hence, management must
ensure facilities are located in accordance with their respective resources and distribution
channels. SCM involves the planning and management of activities required to convert raw
materials into finished goods for end-product consumers. To mitigate the demand
management risk, management needs to invest in sound communication infrastructure as a
means of avoiding communication failures. Further, management should take steps to reduce
risks associated with demand forecasting in order to adequately deal with volatile demand and
decline problems (Diabat, Govindan and Panicker 2012). As described by Drezner (2009),
uncertainty is a major risk when selecting a new location to build a facility. USS has
attempted to choose stable locations that are unlikely feel the effects of major changes in a
market. If demand in Europe or South America increases, then they have facilities in central
locations among those continents in order to meet the need of consumers. With production
facilities in Europe, management can adjust to demand volatility at a global scale faster than
if they produced only domestically. With a central European location, USS can ship to any
area of Europe, Africa, or Asia faster than a domestic facility. Because many U.S. locations
are near major waterways, products are easily shipped into international waters if necessary.
USS has made it clear that selecting and implementing a strong location strategy can help
with not only saving costs, but propelling a company to ongoing success as an industry
leader.
CASE 2: Primanti Brothers Restaurant (PBR)
Company Overview
This study contrasts the location decisions of a large company with a much smaller
enterprise, Primanti Brothers Restaurant (PBR), also located in Pittsburgh. Locally owned
and operated since 1933, PBR is a sandwich shop best known for a signature sandwich
featuring a generous serving of crunchy, tart coleslaw and crispy French Fries on top of soft
Italian bread. Operations began when Joe Primanti opened a sandwich cart in Pittsburgh‘s
Strip district and began selling to truck drivers nearly 24 hours a day. Eventually, Primanti
expanded to a small storefront on 18th Street, where his brothers and a nephew joined the
business.
In 1974, Primanti Brothers was sold to Jim Patrinos, who continued on with the tradition
of serving quality food to busy local residents. A second location was opened in Oakland near
the University of Pittsburgh, and was very successful with both students and professionals in
the area. Eventually, PBR opened 17 locations in the greater Pittsburgh area, including
locations at Heinz Field, PNC Park, and Consol Energy Center. Three out-of-state locations in
Florida were established and all restaurant locations are strategically placed in convenient
locations to better serve a growing customer base.
Location Decisions
Since the time of its inception, PBR has placed great focus and effort on location
strategy. The company‘s original strategy of serving locals in busy areas has allowed the
restaurant chain to gain popularity and grow. The firm has expanded well beyond Pittsburgh,
strategically placing all restaurants in convenient and high traffic areas. PBR‘s very
successful business model is based on convenience and premium food choices.
When making location decisions, PBR lends considerable weight to the customer
convenience factor. By placing their restaurants in busy areas, such as major league sports
stadiums and arenas in downtown Pittsburgh, the company is able to serve large volumes of
consumers on game days. PBR also has opened restaurants near major universities such as
Robert Morris University and the University of Pittsburgh, as these are prime locations for
attracting local college students‘ business. Additionally, PBR strategically places restaurants
near major highways, providing added convenience for customers. PBR establishments
positioned in close proximity to business clusters attract business professionals interested in
evening hours and happy hour promotions. As costs associated with delivery of products can
play a considerable role in strategic location decisions, PBR has positioned the majority of its
restaurants within the greater metropolitan Pittsburgh area. Proximity to intermodal
transportation platforms enables management to operate in a more efficient and cost sensitive
manner, dramatically cutting the costs associated with distributing the products needed at the
various restaurants. Such location strategies enhance greater collaboration and integration
efforts to promote uniform high-quality standards through product offerings.
DISCUSSION
Company Comparisons
Both USS and PBR provide excellent examples of location strategies for manufacturing
firms and service organizations, respectively, regardless of clientele size. Although the benefit
of quality location strategies is significant, there are other, less tangible benefits associated
with supplier relationship management and operational efficiencies. By selecting companies
that are so different on the surface, the possibility is created to examine a substantial and
material view of the practical applications of location strategy.
These differences stem in part from the location decisions required during the companies‘
creation phases. Both USS and PBR were created in early 1900s Pittsburgh in the midst of the
steel industrial growth and manufacturing boom. USS had large-scale business intentions,
originally intending to become a world leader in steel production. As a result, USS had to
make location decisions common to manufacturing companies, working to keep costs low
and, at the same time, move toward expansion. Although PBR came from more humble
beginnings than USS, it had a similar intent to grow and differentiate via high-quality service
and very reasonable prices. The original small local business required relatively low scale
production and an extremely simple location strategy: sell where the most people are present.
However, PBR slowly grew into a national restaurant chain and began making location
decisions consistent with those of other service organizations, focusing on revenue.
Regardless of original intensions, both organizations carefully considered location strategy as
an important part of their long-term strategies of profitability and growth in their respective
markets.
Location Strategy Comparisons
In terms of the specific aspects of their location strategies, USS and PBR have more
similarities than differences. For both companies, locating near customers is the primary
aspect of location strategy. A large company with global reach, USS been able to attain close
proximity to customer through acquiring struggling steel companies around the world. These
acquisitions allow USS to produce steel close to its international customers, to reduce costs,
employ indigenous populations, and expedite the delivery process, thus adding further value
for customers. The addition of warehousing facilities in Mexico and Brazil increased the
company‘s global presence and opened access to local markets to take advantage of regional
transportation systems. Although service and retail companies like PBR need to minimize the
distance from clientele, they still must develop extensive supplier networks.
Hastings (1999) investigated and documented a cautionary tale concerning global
expansion without consideration of true strategic value. In the early 1990s, management at
Lincoln Electric decided to expand globally. They expanded rapidly overseas, purchasing
foreign firms and building plants at an incredible rate. Quick actions and poor analysis led to
several damaging decisions. For example, management wrongly assumed the company‘s
incentive pay system would work in any country and could be implemented quickly. The
system was not widely accepted, especially where Lincoln purchased firms with similar
traditions. Further, Lincoln incorrectly assumed targeting certain markets would require the
purchase of an existing firm or opening of a new branch instead of exporting equipment
domestically, spending large sums of money on acquisitions. These unnecessary acquisitions
did not fit well with Lincoln‘s organizational culture, as management assumed the domestic
management style would be effective in other countries. With no international experience and
a shortage of quality managers to run global operations, Lincoln overestimated its ability to
do business in a foreign country. The firm assumed operational efficiency alone would enable
them to compete in the international markets. They believed that a low-cost, high-quality
manufacturing operation would lead to international success. Management failed to place
emphasis on market knowledge, distribution, and other important factors.
Management eventually recognized operational efficiency alone could not create a
sustainable competitive advantage. They recognized developing relationships in new markets
and understanding the international business environment would help to build a quality
reputation. Although the domestic Lincoln work culture was a significant competitive
advantage in the U.S., management eventually came to understand that culture could not be
duplicated at every location. Changes were made to adapt to the local cultures. Most
successful global companies realize that both company and international cultures are
significant factors in any location decision. A recent trend entails insourcing from more local,
not global, suppliers for food and related restaurant materials as a means of increasing quality
and promoting a more socially conscious reputation (O'Flynn 2012). USS experiences similar
pressures, which places further emphasis on establishing supplier collaboration and
integration efforts.
PBR has benefitted from locations in the vicinity of major sport complexes, near
colleges, and close to busy highways like I376 and I79 in Pittsburgh. These strategic location
decisions are geared not just for the current local population, but for future growth and flows
of potential customers. Management at USS and PBR have made exceptional decisions in
locating near customers, providing valuable customer convenience creating the opportunity to
emerge as leaders in their respective markets.
The key difference between the two companies is the motivation for selecting a specific
location strategy. Shipping costs are significant motivators for USS, primarily because it is a
manufacturing company. USS manages to reduce shipping costs in a few ways besides
proximity to manufacturing facilities, suppliers, and transportation hubs. A common strategy
for bulk and commodity manufacturers is to locate near waterways in order to reducing
shipping costs, such as the Ohio River. By locating different stages in the steel production
process along waterways, USS is able to inexpensively move the product in its various stages
of production from one process to the next. PBR, however, is a service organization and,
therefore, did not create a location strategy with the primary objective of cutting costs. The
motivation for PBR‘s strategy was revenue based, and mainly focuses on locating near
customers.
Evaluation
As seen in this evaluation of two different forms of business, location strategy is a vital
component of business. For any type of business, location strategy can contribute to success
or struggles. Whether in formation, functioning, or growing, companies must focus on
location strategy if they want to achieve optimal success. Location strategy can impact a
business in many ways, mainly in financial terms. If USS incorrectly chooses a location, the
cost of shipping products can significantly impact finances. For PBR, location serves
primarily to attract the customers they target and make it convenient for their consumers to
access their facilities, as illustrated in Table 1.
Selecting the location with the highest priority ranking based on the many intangible and
tangible factors, as illustrated in Table 1, should allow a company the greatest probability for
success in its new location.
Regardless of business size, location decisions are of high concern to management and
the company as a whole. Though USS is larger than PBR, location strategies impact the firms
similarly. To minimize shipping and delivery costs, USS should examine locations in close
proximity to raw materials and transportation.
Table 1. Brief location strategies advantages and disadvantages
Advantages Disadvantages
Effectively reduces costs, and can increase Planning costs and time in making
revenue. decisions.
Locate close to suppliers. Many factors to be considered, can impact
the end decision.
Ability to identify new markets for business. Too much focus on location strategy,
company may overlook benefits through
focus on other OM strategic decisions.
Minimize shipping, receiving, and production
costs.
Enables business to reach optimal target market.
Expand to places where demand is highest.
The firm chooses locations close to waterways, enabling timely and cost-effective
delivery, as well as easy access to international waters. PBR chooses locations convenient to
loyal patrons and large numbers of prospective customers, including stadiums, college areas,
and highways. As Gerdeman (2012) noted, geographic expansion often provides access to
new markets with the potential of adding resources. Such moves should be viewed as
strategic calculations to increase competitive advantage by complementing and creating new
sources of value to its existing business.
CONCLUSION
It is extremely difficult to predict demand and revenue. In effect, management must
carefully consider the factors they think will lead to a location‘s success and select a location
based on those factors. Management should consider factors that make them successful in
their own country, or in other locations, and determine whether they will apply in the culture
of the new location, as well. Ultimately, the value of location is primarily due to availability
of resources and supporting industries through supplier collaboration and integration,
management‘s commitment to capture and use knowledge gained from relocation, and the
ability to strategically leverage this knowledge to differentiate the firm from its competitors.
Models that are more integrative in scope and not driven only by low-costs factors may be
more effective since they add qualitative factors that are intrinsically and extrinsically
important to all the stakeholders involved in the location, including collaboration and
integration of suppliers. The consideration of costs and available resources is important
because if costs are too high or there are insufficient resources in a location, it will be
impossible for the company to succeed.
USS and PBR employ location strategies that benefit their business models in the most
efficient and effective ways possible. They are able to reduce costs of production, shipping,
and receiving products. The companies also benefit from locating in areas where they can
easily reach customers. The companies‘ location strategies have allowed them to become
leaders in their respective industries. USS is a worldwide producer of steel and is a well-
respected and trusted name in the steel industry, and PBR is a staple name in the Pittsburgh
and surrounding areas. Much of the success and future decisions of these companies will
continue to center on location strategy and following operational model to reduce costs,
maximize profitability, and promote intensive supplier collaboration and integration.
ACKNOWLEDGMENTS
The authors extend their gratitude for the valuable contributions of reviewers. Peer
reviewing and editing are commonly tedious and thankless tasks.
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Chapter 5
BALANCED RESILIENCE:
A PRACTICAL FRAMEWORK FOR MANAGING
SUPPLY CHAIN PERFORMANCE
Michael Reiss
Stuttgart University, Germany
Institute of Business Administration,
Department of Organizational Design and Behavior
ABSTRACT
Performance frameworks in general determine the key performance dimensions and
the pivotal enablers (and disablers) of performance. The scope of performance
frameworks for supply chain management has widened considerably since the early days
of supply chain management. Some innovative new frameworks have been developed to
replace others, like the lean, agile, or efficient consumer response frameworks. Some
new, but less innovative frameworks such as leagile or lean-six sigma frameworks blend
already existing frameworks. However, none of these frameworks meets all of the three
basic requirements for a performance framework, i.e., ―feasibility,‖ ―orientation,‖ and
―balance,‖ sufficiently. A better score is reached by the balanced resilience-framework
which deploys the methodology of force field analysis. This framework is realistic owing
to its focus on resilience, orienting since it specifies the core determinants, and balanced
due to a combination of risk and opportunity management. The core parameters comprise
the building-up of barriers to failure (risk management) and the dismantling of barriers to
success (opportunity management).
INTRODUCTION
Performance management for designing and redesigning supply chains encompasses 1)
performance dimensions (i.e., supply chain metrics of effectiveness and efficiency, key

email: michael.reiss@bwi.uni-stuttgart.de.
74 Michael Reiss
performance indicators, perspectives) to accomplish performance measurement

(Gunasekarana, Patel & McGaughey 2004) and 2) crucial determinants of performance
(enablers and disablers). The two constituents serve as a framework for deploying patterns
(e.g., supply chain governance, business relationship management, hub-spoke transport
networks, continuous improvement, multi-echelon inventory optimization), tools (e.g., RFID,
value stream mapping), skills (e.g., certified Six Sigma Black Belts) and processes (e.g.,
DMAIC: Define-Measure-Analyze-Improve-Control, delivery process, inventory
management) for managing a supply chain (Frederico & Martins 2014). There are three
clusters of performance dimensions: 1) market-focused indicators (e.g., cash flow, market
share, profit) 2) resource-focused indicators (e.g., uptime, availability, learning) and 3)
relationship-focused indicators (e.g., coordination costs, customer lifetime value, cohesion,
retention, trust).
Major challenges to performance management concern the performance metrics (e.g.,
measures of customer satisfaction, continuous improvement) as well as the interdependencies
between (1) performance indicators (e.g., trade-offs), (2) indicators and determinants (e.g., the
performance impact of standardization) and (3) between performance determinants (e.g.,
standardization and globalization, reactive and proactive intervention, centralization and
decentralization of inventory systems). Some relationships are challenging because they are
ambiguous and/or ambivalent: the interplay of short-term and long-term performance for
instance implies an ambivalent status of short-term performance: on the one hand, it
constitutes a facilitator of long-term performance (via subsidizing and financing). On the
other hand it may turn out to be an inhibitor, especially if short-term success causes self-
complacency or short-term exploitation of resources. Likewise, the interdependency between
effectiveness (quality, reliability, etc.) and efficiency (cost, time, etc.) is ambiguous: the
controversy between the ―quality is free‖-hypothesis and the ―quick but dirty‖-dilemma (e.g.,
swift coordination processes resulting in poor compromises) perfectly illustrates this fuzzy
relationship. Cost efficiency in turn is afflicted with the trade-off between production costs
and coordination costs (e.g., as a result of negotiating processes or controlling behavioral
risks).
FRAMEWORK ARCHITECTURES
Generic frameworks of performance management, often originally designed for corporate
performance (e.g., organizational resilience, Sheffi 2005; Välikangas 2010), have been
transferred to supply chains, strategic alliances and other governance systems. Yet, this
transfer requires that consideration is given to the existing differences, e.g., with respect to
different levels of coordination costs.
Frameworks such as resilient, lean, agile, or sustainable supply chain management
mandatorily incorporate several basic principles. Only occasionally they also encompass tools
(e.g., scorecards for performance measurement, predictive maintenance, telematics, RFID,
collaboration tools, knowledge sharing tools) or standard processes such as implementation,
concurrent engineering, cloud computing, or make-or-buy-decision models.
One category of frameworks is focused on a single critical success factor or a cluster of
closely related success factors. This architecture is characteristic of the ―lean,‖ ―agile,‖
Balanced Resilience 75
―market based view,‖ ―efficient consumer response‖ (Corsten & Kumar 2005), and ―Six
sigma‖-models. Some focused frameworks are part of supply chain risk management (Sodhi,
Son &Tang 2012; Wieland & Wallenburg 2012; Singh & Wahid 2014): this mainstream
approach is mostly reflected in the resilient supply chain. Mixed frameworks constitute a
second species of mainstream frameworks. The labels ―blended‖ or ―hybrid‖ frameworks are
usually applied if they contain antithetic components, i.e., radically diverse determinants of
supply chain performance. This holds for coopetition (mixing competition and cooperation)
or mass customization (mixing mass production and customized production). ―Blending‖ is
restricted to antithetic performance determinants, hence it does not include the prevalent
mixing of similar constituents, e.g., SPC, quality circles, and quality awards in Total Quality
Management-approaches. The basic logic of hybrids derives from the typical situation that
two antithetic frameworks A and B, which represent second best solutions as a consequence
of their weak points and drawbacks, are available. Instead of selecting one of these second
best frameworks (A or B) or searching for a superior novel framework (C), the blending
approach advocates a mix of the two second best solutions (A & B). Particularly from a
heuristics point of view, it makes more sense to blend existing frameworks than to search for
a new ―best way of supply chain management.‖
Both costs and benefits of framework blending depend on the way the respective
frameworks are coupled in order to create a high performing configuration. The manifold
ways of coupling derive from a spectrum of archetypal patterns that determine the
architecture of a blended framework. Figure 1 outlines six blending patterns that are
embedded in the additive (complementary) and/ or alternative (crowding-out) paradigms of
blended architectures (Reiss 2012).
ADDITIVE BLENDING
AMALGAM BUNDLE SUPPLEMENT SECTORAL/ SUBSIDIARY MENU

BLENDING BLENDING BLENDING SEQUENTIAL BLENDING BLENDING
BLENDING
ALTERNATIVE BLENDING
Figure 1. Patterns of framework blending.
Within amalgam mixes and blended bundles blending is performed in a ―total‖ fashion
yielding new genuinely hybrid frameworks that incorporate both genes of their parent
frameworks: Whereas blending is mandatory in bundles, supplement configurations are based
76 Michael Reiss
on optional blending. In the case of sectoral and sequential coupling, supply managers pick
different frameworks to apply them in distinct sectors or stages. By this strictly separated
handling, tools can be contingently adjusted to different segments of the context (e.g.,
downstream or upstream, A- or C-customers). Subsidiary blending combines a default
(standard) approach (e.g., insourcing) and a fallback approach (e.g., outsourcing as the
exception). Blended menus offer at least two frameworks as alternative options for ad hoc-
choices: since frameworks are not pre-selected within a contingent supply management
approach, the whole range of diverse options has to be provided.
Blending patterns are quantitatively specified by fixing the proportions of blending: in
sequential blending the duration of the episodes substantiates the blending. 50:50-proportions
stand for balanced blending (e.g., within bundles), while an 80:20-ratio indicates the
dominance of one category (e.g., within subsidiary blending). Postponement operations
determine the fractions of ―push‖ and of ―pull‖ or of standardization (mass) and
differentiation (Kim 2014).
FOCUSED FRAMEWORKS
Lean SCM: Lean management is focused on efficiency, foremost the elimination of
waste, i.e., non-value added activities (such as inventories or lead time) detected by value
stream analysis as well as of mistakes in general (―poka-yoke‖). Suppliers are closely
integrated in product development (via simultaneous engineering) and order processing.
Parallel to this, customers are integrated into product development (e.g., as pilot users),
complaints systems, and pull-systems (Kanban). Furthermore, various forms of joint
production, systems sourcing and Just-In-Time sourcing characterize the lean SCM-
framework. The team-based continuous improvement process (kaizen) serves mainly as a
device for waste management (Mason-Jones, Naylor & Towill 2000).
Agile SCM: Agility is focused on flexibility (Backhouse & Burns 1999; Rigby, Day,
Forrester & Burnett 2000; Goldsby & Griffis 2006). It characterizes the ability to respond
rapidly to changes in demand (volume, variety), enabled by production and logistics
technologies such as Web-EDI, digitalization (e.g., simulation, additive manufacturing), the
―Internet of things,‖ and telematics. Particularly with respect to project work along the supply
chain, agility relies on incremental heuristics based on empowered ―entrepreneurial‖
teamwork. They provide imperfect second best solutions instead of a holistic optimization
based on hard factors such as algorithms or standardized procedures.
Six Sigma SCM: Its focus in on the effective supply chain (Drohomeretski, Gouvea da
Costa, Pinheiro de Lima & da Rosa Garbuio 2014). On a high performance level, the
approach pursues the radical improvement of process quality, not only product quality. This
requires high quality standards implemented across the entire supply chain, including tier n-
suppliers.
Resilient SCM: This framework is characterized by robustness and adaptive capacity
towards threats and shocks (Pettit, Fiksel & Croxton 2010; Klibi, Martel & Guitouni 2010;
Bhamraa, Daniab, & Burnarda 2011; Spieglera, Naima & Wikner 2012; World Economic
Forum & Accenture 2013; Business Continuity Institute 2014). Resilience covers both
traditional risks (e.g., bullwhip effect, propagation of quality defects) and current risks, such
as lack of coordination along the supply chain, fraud, corruption, moral hazard, disruption,
crises, embargos, strikes, disasters, and discontinuities in the wake of cyber-attacks,
epidemics, and geopolitical turbulences.
In addition, the relevant spectrum of focused frameworks contains generic frameworks
with a range of application beyond the specific performance aspects of SCM. Several generic
frameworks originate in risk management such as risk sharing, risk transfer or hedging which
are also deployed in supply chain risk management. Further generic frameworks deal with the
interplay of ―learning from success‖ and ―learning from failure‖ (Edmondson 2011).
BLENDED FRAMEWORKS
Leagile SCM: Leagility approaches blend efforts to improve efficiency (waste
management) and effectiveness (agility). The standard coupling pattern (figure 1) is sectoral:
the upstream section of the supply chain represents the realm of lean management, the
downstream section is dominated by agile management (Van Hoek 2000; Goldsby & Griffis
2006).
Sustainable SCM: This mainstream framework implies multiple blending (Carter &
Rogers 2008; Foerstl, Reuter, Hartmann & Blome 2010; Fearne, Garcia Martinez & Dent
2012; Mari, Lee & Memon 2014; Pereseina, Jensen & Hertz 2014). First, the simultaneous
attainment of environmental, social and economic goals which is addressed by holistic
approaches like closed-loop supply chains (e.g., cradle-to-cradle), reverse logistics
(Govindana, Soleimanib & Kannanc 2015), recycling, product recovery, refabrication, life
cycle assessment (ISO 14040), social life cycle assessment (Fan, Wu, Chen & Apul 2015),
product lifecycle management (Stark 2011), and total value of ownership-models. Secondly,
sustainable SCM requires an optimal blend of short-term performance and long-term
performance: while long-term performance is the characteristic goal, short-term performance
serves as a precondition for reaching this goal.
Lean Six Sigma SCM: This framework combines waste elimination projects and high-
performance quality programs (Jeyaraman & Teo 2010; Drohomeretski, Gouvea da Costa,
Pinheiro de Lima & da Rosa Garbuio 2014). In analogy, Agile Six Sigma SCM blends agility
and quality approaches.
Antifragile SCM: An antifragile supply chain is both resilient and capable of exploiting
shocks and threats as opportunities for performance improvement (Taleb 2012; Derbyshire &
Wright 2014; Aven 2015). Some cognate approaches, e.g., the Beyond resilience-approach
(Accenture 2013), adopt the basic idea of antifragility, i.e., the alignment of risk management
and opportunity management.
Ambidextrous SCM: Ambidexterity accomplishes both the exploitation of existing
business, e.g., new generations of car models, and the exploration of new businesses, e.g., car
sharing, no-emission vehicles or self-steering cars (Kristal, Huang & Roth 2010; Blome,
Schoenherr & Kaesser 2013). Within a sectoral coupling pattern, venture units are in charge
of explorative innovations whereas exploitative innovations are the job of the R&D
departments of OEMs and suppliers.
Coopetitive SCM: In addition to contract-based co-operation along the supply chain there
are various species of organized competition, mainly used as strategies to identify the most
78 Michael Reiss
suitable supplier. Moreover, (serial) coopetition is also deployed in the shape of

precompetitive co-operation and post-competitive co-operation (Gast, Filser, Gundolf &
Kraus 2014; Wilhelm 2011; Ehrenmann & Reiss 2011; Walley 2007).
Make & buy-strategies: Combinations of insourcing and outsourcing replace the
customary make-or-buy-paradigm. The two options go along with different costs of
coordination to reach a required level of supply security. They are the result of either additive
patterns or subsidiary patterns of blending.
Push-pull-systems: They couple downstream pull-control with upstream push-control
(Simchi-Levi, Kaminsky & Simichi-Levi 2008). The core challenge for supply chain
managers is determining the decoupling point where customer order-driven pull-forces and
forecast-driven push-forces meet.
Mass customization: This framework combines mass manufacturing of standard
components with configuring these components for customized products (Piller &Tseng
2009/2010; Barman & Canizares 2015; Reiss & Koser 2004). Traditional approaches rely on
a segmentation of the supply chain into an upstream mass manufacturing segment and a
downstream customizing segment (including self-customizing by end customers).
Outpacing: This competitive strategy couples product-focused activities (e.g., new
product development) and process-focused activities (e.g., robots, automation, digital factory,
chaotic inventory systems, swap containers, RFID) in a serial fashion (Gilbert & Strebel
1987). Figure 2 outlines the two modes of sequentially coupling product innovations and
process innovations.
EFFECTIVENESS
BLENDING OUTPACING
PRODUCT INNOVATIONS
BLENDING
FOCUSING
FOCUSING
EFFICIENCY
PROCESS INNOVATIONS
Figure 2. Blended architecture of Outpacing.
The relevant spectrum of blended frameworks also contains generic frameworks not
specifically dedicated to supply management: the performance of portfolio management –
such as technology portfolios, energy mixes, (human) resources portfolios, or business
relationship portfolios – relies on the mixing of assets.
Blended mixes of significantly diverse assets – e.g., technologies with an expiring patent
protection on the one hand and emergent technologies on the other - are capable of supporting
both risk management (e.g., via cross-subsidizing) and opportunity management (via creating
synergy). Moreover, the spectrum also encompasses blended frameworks which only cover a
specific sector of SCM. For instance, the area of application of Scrumban, a blend of agile
management and Kanban (Ladas 2008), is restricted to managing development projects within
SCM.
EVALUATION OF PERFORMANCE FRAMEWORKS: CRITERIA

On a meta-level, any framework for performance management is expected to meet three
generic criteria: feasibility, orientation, and balance.
Feasibility: All building blocks of a performance-oriented approach to SCM should be
realistic, all goals should be achievable in order to avoid mission impossible projects and
activities. Several dilemmas (e.g., the innovator's dilemma), traps (e.g., the success trap, the
failure trap, the ―success breeds failure trap‖), and paradoxes (e.g., the Icarus-paradox or
Brooks‘s law: „Adding manpower to a late project makes it later―) have fostered an
awareness for the systematic misjudgments of feasibility. A tentative assessment of feasibility
is based on a performance scale with three critical levels of performance: existence denotes
average and normal performance, which is assessed by help of statistics (median, modal
value, etc.) and the benchmarking of supply chains. Excellence characterizes above average
success determined by best practices or world class performance. Inversely, exit stands for
extremely bad performance, manifested in customer loss, flops, market exit or long-lasting
standstills in production and supply.
Corresponding to the divergent aspiration levels of performance management, i.e.,
excellence and existence, there are two polar clusters of SCM frameworks:
Excellence-focused approaches contain models of management excellence such as the
model of the European Foundation for Quality Management (Kim, Kumar & Kumar 2010),
high-performance systems-approaches, efficient consumer response, Zero defect, 100%
service level, 100% uptime, perfect production, product development in half the time, ―total‖-
approaches, e.g., from Total Quality Management or Total Productive Maintenance, Best-of-
breed, Six Sigma, conflict transformation, and ambidexterity. As a rule, excellence-focused
approaches overestimate the knowledge base of SCM (―Supply Chain Management Body of
Knowledge‖) and underestimate the inherent complexity of supply processes. Moreover,
excellence approaches normally operate on ―secrets‖ or ―panaceas,‖ i.e., guarantors of
success which is not consistent with the insufficiencies of the available knowledge base that
actually contains a plethora of highly conjectural elements.
Resilience-focused approaches are – just like the viable systems-model - less ambitious,
but more realistic than excellence-focused approaches. They pursue robustness of supply
systems with respect to obstacles and risks. ―Resilience management‖ serves as the umbrella
terms for these approaches, both on the inter-organizational and intra-organizational levels.
Orientation: All approaches to supply management should provide goal-path-data which
specify both performance dimensions (Bhagwat & Sharma 2007) and performance
determinants. Some mainstream approaches offer plausible but rather vague, unspecific or
80 Michael Reiss
incomplete navigation data: they merely provide visions, guidelines, manifestos, doctrines,
charters, outlines of appropriate mindsets as well as principles. However, these approaches do
not contain specific roadmaps that would indicate milestones on the way to performance. On
the other hand, the pragmatic toolbox-approaches do deliver operational inputs (e.g., service
level agreements, supply chain towers, buffers, telematics, insurance, etc.), yet do not
substantiate their performance impact. Orientation in SCM is ensured when all involved
players are able to deal not only with abstract visions and principles, but also with concrete
supply processes.
Balance: Unlike biased performance approaches, a balanced approach encompasses all
criteria of supply chain performance. For instance, balanced scorecards or 360 degree
feedbacks intend to meet the expectations of all clusters of stakeholders in SCM. Balancing is
required with respect to effectiveness (quality, security, environmental sustainability, etc.)
and efficiency (costs, response time, speed, etc.). Last but not least balance means giving
equal weight to risks and to opportunities of supply thereby dedicating equal attention to
determinants of success and of failure in supply management. Risks and opportunities enter
performance management models both as factors (e.g., unfavorable or favorable conditions)
and as effects, for instance downside or upside effects and negative or positive deviations vis-
à-vis expectations. The underlying notion of opportunity (―chance‖) is not restricted to
―business‖ opportunities. One determinant, for instance a conflict, may have multiple, even
ambivalent impacts: predominantly negative impacts (risks, threats, etc.) characterize so
called dysfunctional conflicts whereas functional conflicts have mainly positive impacts
(opportunities such as improving motivation or enabling change).
Trade-offs between the three meta-criteria represent a major challenge for performance
frameworks and a hurdle to fulfill all three criteria simultaneously. Balance demands complex
frameworks, whereas orientation and feasibility are rather attained by help of simple
frameworks. As a consequence, focused frameworks in general outperform with respect to
orientation and feasibility, whereas blended frameworks reach superior scores on the balance
scale: due to the innate ―bias‖ of all focused frameworks their major disadvantage is ignoring
or at least underestimating the relevance of certain dimensions and/ or determinants.
Blending serves as a potent device for balance, an advantage captured in the ―best of both
worlds-concept‖: blended frameworks basically inherit the strengths and weaknesses of their
parent frameworks (figure 3). Their interplay may enable a synergistic accumulation of the
strengths of both frameworks. At least, a mutual compensation of strengths and weaknesses
can be reached. Unfortunately there is also a dark side of blending. Some mixes may turn out
to be compromises that only provide some vague ―wishy-washy‖ orientation. Furthermore,
conflicts between antithetic building blocks of frameworks may cause a state of confusion
and disorientation. This holds especially for hybrid mixes: mixing antithetic elements like
water and fire may generate ―steam‖ instead of ―firewater.‖ Stringent incompatibilities, like
between ―slack as a precondition for flexibility‖ and ―slack as a species of waste,‖ end up in
basal disorientation (chaos). Figure 3 shows the evaluation model for the hybrid combination
of two antithetic frameworks, i.e., lean SCM and agile SCM. The evaluation is boiled down
to just one characteristic strength and weakness of each framework.
Figure 3 encompasses ―productive tensions‖ (above the diagonal) in a hybrid
construction as well as ―unproductive frictions‖ (below the diagonal). To consolidate both
effects they must be aggregated, taking into consideration weights and positive or negative
signs. The results of the consolidated evaluation depend on the respective blending patterns
and on proportions (figure 1). As a rule, additive patterns create more orientation problems
(i.e., conflicts) than alternative blending patterns.
LEAN
SCM
EXCELLENCE
+ +
- COMPENSATION
+
STRENGTH SYNERGY
WASTE ELIMINATION
CONFLICT
EXISTENCE
COMPENSATION
WEAKNESS
REACTIVE ADAPTATION CHAOS

- CONFLICT -
- +
EXIT AGILE
SCM
WEAKNESS STRENGTH
INCREMENTALISM FLEXIBILITY
Figure 3. Evaluation of a blended framework (leagile SCM).
EVALUATION OF FOCUSED FRAMEWORKS

Lean SCM: Continuous improvement delivers insufficient orientation data as long as the
dimensions of improvement are not substantiated. As a consequence, possible trade-offs and
incompatibilities between performance dimensions (e.g., employee and customer satisfaction)
rest undiscovered and not handled. Hence, this approach is prone to unbalance.
Agile SCM: Flexibility is a vague orientation as long as the context factors which require
flexibility remain unspecified (Tang & Tomlin 2008). These factors encompass demand
volatility, supply factors (e.g., new process technologies, renewable energies, raw materials)
and/ or regulatory factors. Agility must not be exclusively focused on the volatility of demand
(e.g., requirement churns) or on hypercompetition, but should also deal with changes in the
supply markets (e.g., supply of rare earths) as well as in laws, regulations, technical standards,
and IT-security. Moreover, the costs of agility - unlike its benefits - are not sufficiently taken
into account, a fact that results in some lack of balance of this framework.
Six Sigma SCM: First, covering the entire supply chain including tier n-suppliers with an
extremely high level of aspiration seems unrealistic, especially against the background of the
so called 1.5 sigma shift. In addition, the framework is unbalanced as a consequence of
neglecting costs, primarily costs of coordination.
Resilient SCM: This framework is realistic and not impaired by disorientation. However,
due to the innate focus on mastering risks, the approach is unbalanced since improvements
(opportunities) are not integrated into the framework.
82 Michael Reiss
EVALUATION OF BLENDED FRAMEWORKS

Leagile SCM: Basically, the blending attains some compensation between the respective
strengths and weaknesses of the parent frameworks. Still, major weaknesses of the parent
frameworks are not compensated: the controversial interpretations of redundancy as ―slack vs.
waste‖ causes disorientation. Moreover, the demarcation of lean and agile sectors of the
supply chain is vague or obsolete: even downstream processes have become objects of lean
management. This holds not only for standardized service processes (e.g., McDonaldization,
e-commerce) but also for the industrialization of the building sector via standardized products
and processes.
LONG-TERM
PERFORMANCE GOALS
LONG-TERM BALANCED
BIAS ORIENTATION
sustainability bifocal performance system

visionary approach cross-subsidizing
high hyperopia balanced allocation of resources
market-exit risk migration plan
financing deficit stamina
... ...
exploitation
sprint mode
myopia
low self-complacency
investment deficit
...
LOW SHORT-TERM
PERFORMANCE AMBITIONS BIAS
SHORT-TERM
PERFORMANCE GOALS
low high
Figure 4. Unbalanced blending in sustainable SCM.
Sustainable SCM: A sound solution for problems with trade-offs between environmental
and economic goals, e.g., green local sourcing versus cost-effective global sourcing, is
missing. Unless compromises are found, the framework seems merely visionary, i.e.,
feasibility is not safeguarded. Likewise, no solid balance between short-term and long-term
performance goals has been established. Figure 4 highlights the bias of sustainable SCM
towards long-term performance goals (e.g., strategic missions, future generations). This
hyperopic approach seems unrealistic since long-term performance is dependent on short-
term performance as well as on operational activities. Whenever short-term performance
(e.g., in the energy mix) is neglected, the migration from present to future solutions is at risk.
Lean Six Sigma SCM: The questionable feasibility of the six sigma-framework is
inherited and by no means compensated by the lean component.
Antifragile SCM: The immanent ―resilience plus‖-approach establishes a balance which
however does not cover the entire scope of relevant opportunities, such as learning from
successful role models. The orientation provided is impaired by the fact that the specification
of management parameters is extremely poor.
Ambidextrous SCM: The orientation potential of this framework is diminished by the

academic dispute between the ―complement school‖ and the ―conflict school‖ over the
rationale of blending exploration and exploitation. In addition, the framework does not
encompass the entire range of blending patterns, e.g., subsidiary blending that utilizes
exploitation as a fallback in case exploration efforts fail. Consequently, the framework is not
capable of offering information on the optimal allocation of R&D budgets.
Coopetitive SCM: Coopetition is afflicted with incompatibility issues that cause
disorientation: co-operation amongst competitors in the supply chain causes high coordination
costs since it is not trust-based. (Organized) competition amongst partners may be detrimental
to trust. The disorientation effect is less severe with patterns of alternative blending.
Make & buy-strategies: The underlying blending allows balancing the coordination costs
of different governance arrangements (e.g., contracts). Make: buy-proportions also reflect the
respective attitudes to risk. For risk management purposes subsidiary blending serves as an
attractive option.
Push-pull systems: The optimal decoupling point represents an ambiguous orientation.
First, this concept ignores the bi-functional involvement of customers into supply processes:
customers are not only involved as principals, i.e., via order activities. Customers actually
have a second voice as co-producers, produsers or prosumers, i.e., as providers of resources.
Figure 5 outlines the relevant versions of a push-pull-blending based on different levels of
integrating customer resources into supply processes.
Secondly, the exclusive positioning of volatility in the downstream section of the supply
chain neglects supply volatility in the wake of bottlenecks in the upstream section of the
supply chain as well as changes in process technologies (e.g., Internet of things) and business
models of suppliers (e.g., servitization, build-operate models).
DEVELOPMENT PROCUREMENT PRODUCTION ASSEMBLY DISTRIBUTION
CO-CREATION
CO-PRODUCTION
PRODUCT FINALIZATION
SELF CUSTOMIZING
CUSTOMER SELF SERVICE
CUSTOMER FEEDBACK
PUSH = PULL =
supplier resources customer resources
Figure 5. Resource-focused push-pull systems.
Mass customization: Orientation problems relate to the choice of the optimal strategy of
mass customizing, e.g., against the background of the segmentation-modularization interface:
whereas segmentation is connected to one supply chain (postponement), modularization
84 Michael Reiss
affects several supply chains (carry-over parts). Even the prevalent segmentation mode offers
merely poor orientation: the decoupling point is not only determined by postponement but
also by different organizational solutions for the customizing activities, i.e., via vendor
customizing, third party customizing, or self-customizing by end customers (Reiss & Koser
2001).
Outpacing: Basically, the framework enables a balance of effectiveness and efficiency.
However, the lack of performance measures causes several deficits in orientation. As a
consequence, the support for performance-based decisions for one of the two sequential
blending patterns is rather poor.
The evaluation of existing frameworks reveals that none of them meets all meta-criteria
sufficiently. Especially, a balanced framework which couples risk and opportunity
management is missing or only exists rudimentarily. Although the resilience framework is
consistent with the challenging context of SCM, opportunity management represents the blind
spot of this approach.
THE ARCHITECTURE OF THE BALANCED

RESILIENCE FRAMEWORK
The balanced resilience framework (BR-framework) is capable of integrating opportunity
management into the resilience approach. The labeling of this new framework is adopted
from familiar nomenclature, e.g., the Supply Chain Balanced Scorecard. Lessons learned
from other blended frameworks such as leagile or antifragile SCM are integrated. The core of
the BR-performance framework is a model of four categories of performance determinants
(Figure 6).
The design of the framework follows the methodology of force field analysis which
differentiates the direction and the strength of the respective performance determinants
(Swanson & Creed 2014; Thomas 1985).
As for direction, determinants facilitating success (performance enablers) as well as
those inhibiting success (performance disablers) are incorporated. Both enablers and
disablers of performance are differentiated into determinants with either a strong performance
impact or a moderate impact. Enablers comprise traditional (critical) success factors that
furnish excellence as well as barriers to failure that (merely) inhibit (more or less existential)
threats, for instance a supply chain becoming the victim of a winner take all-situation.
Correspondingly, disablers comprise failure factors (e.g., provoking forced market exit or
flops) as well as barriers to success that inhibit excellent success (e.g., bureaucratic
compliance systems).
The assessment of strengths relies on the simple metrics underlying force field analysis
that differentiates between ―weak = 1,‖ ―medium = 2,‖ and ―strong = 3.‖ Whenever the
assessment of forces is supposed to capture the uncertainty of the knowledge base (Supply
Chain Management Body of Knowledge), primarily one of two procedures can be deployed:
The first option employs several, more or less optimistic scenarios for supply chain
performance, i.e., a menu of alternative force fields. The second option utilizes probabilities.
In probability approaches the strength of forces is assessed by ―impact x probability.‖
Probability metrics should not aspire numerical precision but rather align to the outlined
metrics of impact measurement, for instance differentiating between „rarely (1),‖

―occasionally (2)― and ―frequently (3).‖ This realistic approach also characterizes some
assessment tools in risk management, e.g., the failure mode and effect- analysis. The resulting
range of expected strengths encompasses 1 2, 3, 4, 6 and 9. Unfortunately, the information
content of these expected values is impaired by netting out effects: an expected value of ―3‖
either signals a likely, but weak performance determinant or a rare, but strong determinant.
PERFORMANCE LEVEL OF PERFORMANCE

PERFORMANCE
ENABLERS DISABLERS
inhibit
success
EXCELLENCE
EXCELLENCE
SUCCESS provoke
BARRIERS failure
opportunity
impact
zone
SUCCESS FAILURE
FACTORS EXCELLENCE FACTORS
EXISTENCE
EXISTENCE
generate risk
success impact
zone
FAILURE
BARRIERS
EXIT
inhibit
failure
Figure 6. Architecture of the BR-framework.
Prevalent frameworks concentrate on the factors with major impact, i.e., success and
failure factors. As a rule, a listing of factors characterizes the essence of the framework. The
range of prevailing success factors contains inter alia customer and supplier relationships,
information and communication technology, and materials flow management (Ab Talib &
Abdul Hamid 2014). The standard list of failure factors gathers disruption, disaster, cyber-
risks (World Economic Forum & Deloitte 2014), flops, excessive inventory, long cycle times,
low uptime, excessive setup times, poor quality, incompatibility, external pressures and
resource limits (Pettit, Croxton & Fiksel 2013).
By contrast, the BR-framework concentrates on barriers. This focus serves as a safeguard
of feasibility: given the limited validity of the supply chain management body of knowledge,
categorizations as success or failure factors are rather conjectural and often not substantiated
by sound information. On the one hand, the list of failure barriers contains generic barriers,
such as fallbacks, BATNA, contingency plans, insurance, security management, escape
options, decoupling, (unrelated) diversification, stamina and tolerance (e.g., in dealing with
conflicts). On the other hand, there are supply-specific barriers, like postponement, dual
sourcing, order splitting, slack resources in equipment and inventory (e.g., buffers, safety
stocks), freezing of product requirements, and risk sharing (e.g., pain/gain share mechanisms
between suppliers and OEMs).
86 Michael Reiss
The scope of barriers to success ranges from generic determinants like inertia, so called
―anti-patterns‖ (e.g., group think, paralysis by analysis), contractual lock-ins, complacency to
supply-specific determinants such as waste, lack of dedicated resources, competitive
disadvantages, missing global standards, and costly (bureaucratic) infrastructures.
The space between the upper limit of the existence-level and the excellence-level in
figure 6 depicts the opportunity impact zone while the space between the lower limit and the
exit level defines the risk impact zone of performance management. The overall interval
between „best case― and „worst case― marks the uncertainty that performance-oriented supply
chain managers have to cope with.
The prevalent listing of performance determinants is not sufficient for successfully
applying the BR-framework. Determinants have to be modeled as forces, i.e., both direction
(enablers or disablers) and strength (barriers or factors) of their performance impact have to
be fixed in order to safeguard orientation. A major challenge for modelling derives from the
fact that many determinants are ambiguous (e.g., ―customer integration‖ standing for
―customer requirements‖ or ―customer resources‖) and/ or ambivalent (e.g., conflicts having
both enabling and disabling performance-effects). So, the collected determinants only serve
as proxies, i.e., rather vague hints to forces. Quite frequently, the modelling as forces requires
a decomposition of ambivalent determinants into enabling and disabling forces. One
determinant represents several forces: supply chain governance (Richey Jr., Roath, Whipple
& Fawcett 2010) for instance compromises a facilitating infrastructure (reduction of
coordination costs) and an inhibiting infrastructure (bureaucracy, compliance). Likewise,
learning processes may build-up a barrier to failure or dismantle a barrier to success. Existing
business relationships diminish coordination costs on the one hand (dismantle success
barriers) or represent lock-ins excluding promising alternative relationships (build-up success
barriers).
A precise (numerical) specification is especially mandatory in the case of quantitative
determinants like ―stocks,‖ ―multiple‖ sources, or ―postponement.‖ Depending on the
respective amounts or doses, the determinant in question will be alternatively allocated in the
cluster of success barriers or failure barriers.
Figure 7 visualizes an application of the BR-framework in the graphical representation of
traditional force field analysis: relevant forces (performance determinants) are measured on a
scale from 1 to 3 and visualized by the respective lengths of horizontal arrows. Barriers are
characterized by strengths of 1 or 2, while success or failure factors have impacts of 3. The
overall net-impact of enabling and disabling forces in the example is positive, i.e., a minor
performance improvement can be obtained. For a further increase of performance, the
strengthening of enablers and/ or the weakening of disablers serve as parameters of
intervention. According to the BR-framework, barriers are promising candidates for
intervention since the feasibility of intervention is higher than operating on factors.
Sometimes, the costs of intervention decide whether the defensive strengthening of failure
barriers (e.g., more buffers or risk sharing) or the offensive weakening of success barriers
(e.g., investment in resources, closing gaps in standardization) are more appropriate. The
activities of intervention change the rating of forces and consequently the overall net
performance-impact.
PERFORMANCE PERFORMANCE
ENABLERS DISABLERS
3 2 1 1 2 3
supplier relationship management

+3 quality defects -3
+2 on-demand manufacturing
limited resources -2
organized competition inertia
+1 -2
contractual lock-ins
+3 risk sharing -1
+2 buffers lack of standards -2
---- ----
Σ +11 Σ -10
1
+15 -15
Figure 7. BR-framework in action.
CONCLUSION
The BR-framework for managing the performance of supply chains aligns two core areas
of supply chain management: Risk management is accomplished by building-up failure
barriers and opportunity management effected by dismantling success barriers. The BR-
framework is capable of assessing the performance impact of various mainstream
developments in SCM, such as product lifecycle management, globalization, virtualization,
regulation, modularization, servitization, supply chain mobility, smart products,
projectification of businesses, sustainability, multi-sided markets, organized coopetition
(auctions, tendering), digital convergence, long tail-business models (―selling less of more‖)
and cloud computing. Moreover, it reflects the bifocal orientation of pivotal supply systems
and industries, e.g., the automotive supply chain, the energy supply networks and IT-industry.
The BR-framework handles determinants of performance as forces. Unlike prevalent
approaches which predominantly rely on lists of determinants, the modeling of forces not
only enables the concrete assessment with respect to direction, impact, and probability. In
addition, transforming determinants into forces obliterates the ambiguity and the ambivalence
inherent in existing frameworks, two deficits that are accountable for significant
disorientation.
The BR-framework meets the basic requirements of feasibility, orientation, and balance
better than the other prevalent frameworks: feasibility due to the concentration on barriers,
orientation owing to relying on forces and balance due to simultaneously integrating ―shields‖
(building-up failure barriers) as well as ―spears‖ (dismantling success barriers) into the
management of supply chain performance.
Nevertheless, major investment into the further development of the BR-framework is
needed to compensate evident shortcomings and deficits. This concerns for instance the
88 Michael Reiss
dynamics of framework performance: depending on the sustainability of forces, performance

levels erode over time, a problem captured in the so called 1.5 sigma shift for instance.
Moreover, intertemporal interdependencies between success and failure (e.g., success or
failure creating success, Edmondson 2011; Gino & Pisano 2011) have to be incorporated into
the framework. Dynamics is also an issue concerning the infrastructures of supply chains.
Amongst the soft infrastructures the dynamics of trust is most challenging, since both positive
spirals (self-enforcing tit-for-tat-based trust building) and negative spirals (fragility of trust)
occur. Moreover, the management of the performance of a single supply chain has to be
integrated into the coordinated management of clusters of several interconnected supply
chains: the performance of carry-over parts- or platform-strategies requires a cross-supply
chain assessment of performance that takes account of both specific opportunities (e.g.,
economies of scale) and risks (e.g., propagation of defective carry-over parts into multiple
supply chains).
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Chapter 6
VIRTUAL OPTIMIZATION OF A WIRELESS, SOLAR

PV/WIND HYBRID SYSTEM CONTROLLER
FOR STREET-LIGHTING APPLICATIONS, BASED
ON ENVIRONMENTAL CONDITIONS
S. E. Sadique*
Weisberg Division of Engineering, Marshall University,
Huntington, West Virginia, US
ABSTRACT
At present generation of electricity using renewable sources has significance
priorities due to global warming, pollution etc. which focuses attention to invest in
renewable energy. Under this circumstances, the idea of working on the implementation
of renewable energy sources is becoming more appealing. In this study, HOMER
software has been used to perform simulations of hybrid (solar PV/wind) systems for
street-lighting applications. HOMER allows the designer to compare many different
design options based on their technical and economic merits. Statistical analysis of the
collected high resolution (10 minutes) data for CEI and monthly averaged Environment
Canada data of TIA was also performed. In all, 32 different hybrid PV/wind system
scenarios were simulated to estimate the cost and determine the feasibility of a system
design using CEI and TIA datasets. Moreover, system sensitivity analyses were
performed using sensitivity variables such as wind turbine hub height and annual capacity
shortage. In summary, the 10-min solar/wind resolution data has an impact on the hybrid
solar/wind system design. As a result, the following recommendations may be made: (i)
It is necessary to compare the computer simulations to long-term performance
measurements of an actual operating hybrid PV/wind system for street lighting to
corroborate the simulation results. (ii) Since only two well-known micro-wind turbines
were studied, it would be beneficial to study other emerging micro-wind turbine options
with higher performance in the 1-4 m/s range and simulate their performance using
*
Weisberg Division of Engineering, Marshall University, One John Marshall Drive, Huntington, WV 25755,
Email: sadique@marshall.edu.
94 S. E. Sadique
HOMER software as well as physical testing. This is in order to determine if such

technologies are able to provide distinct advantages over solar-only configurations.
Keywords: HOMER, hybrid PV/wind system, street-lighting, statistical analysis, simulations
1. INTRODUCTION
Renewable energy has had a higher growth rate in the last few years compared with coal
and lignite energy. In addition, wind-power and solar-power technologies have grown
substantially among renewable energy options currently available [1]. It is presumed that
solar and wind energy are sustainable, clean energy sources that can be focused to address
problems with increasing energy demands and reduce environmental pollution worldwide [2].
The design of the Wind-Solar hybrid power system (WS-HPS) has been studied with four
main aspects: (i) a hybrid control strategy for the wind-solar system with maximum power
point trace, (ii) charging and discharging of the battery for increasing lifetime, (iii) light-
emitting diode (LED) dimming control for energy saving, and (iv) real-time monitoring to
assess the performance and for maintenance. It is aimed to enable maximum power point
tracking (MPPT) of the WP-HPS and efficient charge-discharge control of the battery and
LED street lighting dimming is controlled. The energy efficiency enhanced by the WP-HPS
design [3].
Electrical power needs are supplied by a large number of local power companies. Due to
the isolation of many dwellings, agricultural sites, and industrial sites, there is considerable
interest in novel forms of electricity production. Two such forms of production are solar
photo-voltaic (PV) cells based on DC power-generating arrays and wind turbines based on
propeller-driven DC power generators. Electrical power generation and special sources of
electric power, like wind turbines, are frequently discussed in the public media. The
additional factor of the general concern and interest for environmental issues is a further
enticement to attract the student‘s interest in these ―green-technology‖ forms of electricity
generation.
Distributed electricity generation from Renewable Energy Sources (RES) such as solar
and wind are increasingly seen as cost effective alternatives to centralized carbon-based
generation. A disadvantage, common to wind and solar options, however, is their
unpredictable nature and dependence on weather and climatic changes. The hybrid systems
that combine solar and wind generating units with battery backup can attenuate their
individual fluctuations and reduce energy storage requirements significantly. However, some
problems stem from the increased complexity of the system in comparison with single energy
systems. This complexity, brought about by the use of two different resources combined,
makes an analysis of hybrid systems more difficult [4].
In order to efficiently and economically utilize the renewable energy resources, an
optimum match design sizing method is necessary. Various optimization techniques such as
the probabilistic approach, graphical construction method, iterative and artificial intelligence
(AI) techniques have been recommended by researchers.
A probabilistic approach based on the convolution technique presented to incorporate the
fluctuating nature of the resources and the load, thus eliminating the need for time-series data,
to assess the long-term performance of a hybrid solar-wind system for both stand-alone and
Virtual Optimization of a Wireless, Solar PV/Wind Hybrid System Controller … 95
grid-connected applications [5]. On the other hand, a graphical construction technique for
figuring the optimum combination of battery and PV array in a hybrid solar-wind system has
been presented in the literature [6]. An iterative optimization technique has proposed
following the loss of power supply probability (LPSP) model for a hybrid solar-wind system
[7, 8]. The number selection of the PV module, wind turbine and battery ensures the load
demand according to the power reliability requirement, and the system cost is minimized.
Similarly, an iterative optimization method was presented to select the wind turbine size and
PV module number needed to make the difference of generated and demanded power (DP) as
close to zero as possible over a period of time [9].
A hybrid PV/wind system using a simulation based optimization procedure conducted the
optimization by OptQuest, which integrates various heuristic methods [10]. It is postulated
that the response surface methodology (RSM) was used in size optimization of an
autonomous PV/wind integrated hybrid energy system with battery storage [11]. RSM is a
collection of statistical and mathematical methods which relies on optimization of response
surface with design parameters. Later a methodology is developed to perform the optimal
sizing of an autonomous hybrid PV/wind system according to the loss of power supply
probability (LPSP) and the levelized cost of energy (LCE) concepts [12]. The methodology
aims at finding the configuration, among a set of systems components, which meets the
desired system reliability requirements, with the lowest value of levelized cost of energy. A
methodology for optimal sizing of stand-alone is developed using PV/wind-generator systems
[13]. The proposed methodology is based on the genetic algorithms (GA) and compared with
linear programming. An optimal sizing model for a stand-alone hybrid solar-wind system was
developed employing battery banks based on the loss of power supply probability (LPSP) and
the annualized cost of system (ACS) concepts [4]. There was a demonstration on an
evaluation of the combined solar and wind system for highway energy requirements such as
lighting, SOS, billboard etc. [14]. A new model Savonius wind turbine was designed and its
prototype was manufactured.
Currently various software (models) have been developed for simulation Renewable
Energy (RE) systems. Examples include HOMER, Hybrid2, INSEL, MATLAB, PROLOAD,
RETScreen, RPM-Sim, SIMENERG, WDLTOOLS, WINSYS.
In this study, the response surface, output performance measure, is the hybrid system
cost, and the design parameters are the PV size, wind turbine rotor swept area and the battery
capacity. HOMER (Hybrid Optimization Model for Electrical Renewables) software was
used to perform simulation of a hybrid PV/wind system for street-lighting applications using
performance characteristics of Global Power Design‘s (GPD) controller, selected solar and
wind generators, as well as Centennial College‘s 5-year, high resolution 10 minutes solar and
wind dataset. HOMER allows the designer to compare many different design options based
on their technical and economic merits.
Key Objectives of this project are:
a) Determine the effect of solar/wind data resolution on the system design and its value
for future end user and commercial point of power applications
b) Determine which system would require the least energy storage and lowest projected
system capital cost.
96 S. E. Sadique
c) Set expectations for a physical installation and testing of controller prototypes in a

phase II ―proof of product‖ research project, to be completed under the FedDev
Applied Research & Commercialization Initiative.
2. EQUIPMENT AND METHODOLOGY

The hybrid PV/Wind system for street lighting includes the following components
(Figure 1): i) photovoltaic (PV) panels, ii) wind turbine, iii) batteries, iv) controller and v)
street lamp (load). Power generated by the PV array during the day is stored in the battery
bank through the energy controller, which controls the complete system. The wind generator
starts generating power when wind reaches the cut-in speed and the output is stored also in
the battery bank. The stored energy is drawn by the electrical load (street lamp) through the
controller. The battery bank is designed to feed the loads up to a certain number of days with
no sun or wind, depending upon the system requirement.
Figure 1. Hybrid PV-Wind System Street Lighting Schematic Diagram.
2.1. Location
All scenarios have been simulated for Toronto, Ontario climate conditions using CEI and
TIA dataset resources:
 Latitude = 4340
 Longitude = 7924
Toronto's continental climate is moderated by Lake Ontario; its climate is among the
mildest in Canada east of the Rocky Mountains. It sits in a pocket of the humid continental
climate (Köppen climate classification Dfa) climate zone found at the south-western end of
Lake Ontario covering the southern part of the city - including downtown, where the annual
average temperature exceeds 9°C (48°F). There is a high degree of variability from year to
year and sometimes even over a period of days, particularly during the winter months [15].
2.2. Solar PV Panels
Two types of solar PV modules selected by GPD have been used for this study: (1)
Suntech 175 W STP175S-24/Ab-1 (Figure 2) and (2) Sanyo 215 W HIP-215NKHA6 (Figure
3). Solar PV modules are installed fixed with no tracking; Oriented at Azimuth = 0 o, i.e.,
facing due south; Slope = 59 o, i.e., latitude +15 o for maximizing output in winter.
i. Suntech 175 W STP175S-24/Ab-1

Suntech PV module is mono-crystalline Si and it‘s efficiency = 13.67%; Temperature
coefficient of power = -0.47% /oC; Nominal cell operating temperature = 45oC [16].
Suntech PV module features are the following:
 High conversion efficiency based on leading innovative photovoltaic technologies

 High reliability with guaranteed +/-3% power output tolerance, ensuring return on
investment
 Attractive appearance
 Withstands high wind-pressure and snow load, and extreme temperature variations
 Easy to install
Figure 2. Suntech 175 W STP175S-24/Ab-1 solar PV module.
Suntech 175 W STP175S-24/Ab-1 PV module characteristics of this module are

presented in Table 1.
98 S. E. Sadique
Table 1. Suntech 175 W STP175S-24/Ab-1 PV Module Electrical Characteristics
Characteristics STP175S-24/Ab-1
Open-Circuit Voltage (Voc) 44.2 V
Optimum Operating Voltage (Vmp) 35.2 V
Short – Circuit Current (Isc) 5.2 A
Optimum Operating Current (Imp) 4.95 A
Maximum Power at STC (Pmax) 175 Wp
Operating Temperature -40oC to +85oC
Maximum System Voltage 600 V DC
Maximum Series Fuse Rating 15 AMPS
Power Tolerance ±3%
ii. Sanyo 215 W HIP-215NKHA6

SANYO‘S Technology: HIT solar cells are hybrids of mono crystalline silicon
surrounded by ultra-thin amorphous silicon layers, and are available solely from SANYO
[17].
Module Efficiency: 17.1%
Cell Efficiency: 19.3%
Power Output: 215 Watts
Figure 3. Solar PV module Sanyo 215 W HIP-215NKHA6.
SANYO silicon wafers located inside HIT solar panels are made in California and
Oregon, USA (from October 2009), and the panels are assembled in an ISO 9001 (quality),
14001 (environment), and 18001 (safety) certified factory. Unique eco-packing minimizes
cardboard waste at the job site. The panels have a Limited 20-Year Power Output and 5-Year
Product Workmanship Warranty.
2.3. Wind Turbine
Two types of wind turbines selected by GPD have been used for this study: (1) GUS-1B
Vertical Wind Turbine [18] and (2) Air-X Horizontal Wind Turbine [19]. Figure 4 shows the
GUS-1B Vertical Axis Wind Turbine. The GUS Vertical-Axis Wind Turbines (VAWT)
silently converts wind energy into electricity. It is of a vertical axis type, with double helix
blade design.
Figure 5 shows the AIR-X Horizontal Axis Wind Turbine. The AIR-X wind generator
introduces the latest evolution in small wind turbines. AIR-X makes lower noise. Previous
AIR wind turbines relied on their aero-elastic blade design for protection in high winds,
causing loud flutter noise in winds above 35 mph (16 m/s). AIR-X‘s circuit monitors the wind
speed and electronically slows the blades as it reaches its rated output, preventing it from
going into flutter. This results in a quieter wind turbine. In high winds, the AIR-X wind
turbine will continue to produce power at a reduced level until the wind decreases, at which
point maximum output will resume.
Figure 4. GUS-1B Vertical Axis Wind Turbine.
Figure 5. AIR-X Horizontal Axis Wind Turbine.

100 S. E. Sadique
2.4. Battery
Solar Batteries are specifically designed and used for renewable energy applications due
to their higher freeze resistance, excellent high ‐ rate power discharge and their quick
recharge rate, making them ideal for hybrid power generating applications. FullRiver DC 105
AH, 12 V, AGM Lead Acid batteries have been used for this study (Figure 6).
Figure 6. FullRiver DC 105 AH, 12 V, AGM Lead Acid battery.
FullRiver DC 105 AH battery specifications are the following:
 Nominal Voltage: 12 V
 Rated Capacity (20 hour rate): 105 AH
The FullRiver DC 105 AH battery characteristics are presented in Table 2 [20].
2.5. Charge Controller
Charge Controllers maximize the amount of power sent to the batteries to ensure minimal
power loss. The charge controller periodically stops charging, reads the battery voltage,
compares it to the voltage setting and if the battery is charged, it completely shuts off all
current going to the battery. This function is performed within a few milliseconds. Only when
the battery has dropped below its voltage set point generators will startup and resume
charging. GPD‘s charge controller characteristics are the following [21]:
 Pure Solar Scenario:

 Controller has two isolated inputs
 Both inputs operate at the solar panels‘ Mpp unless charger goes into finish rate
charge or float
 Controller will not operate until panel Voc voltage is over 10 Vdc
 Controller will shut down if panel voltage is above 30 Vdc
 The solar panels are fully isolated from the battery at all times. Ie battery voltage
is not equal to panel voltage
 Controller maximum output to the battery from each source is set at 10 Adc. Ie
max. total controller current is 10 + 10 = 20 Adc
 During bulk charge the controller will attempt to put out maximum current up to
a set gassing point voltage (2.37 Vpc at 25°C, for a 24 Vnom the gassing point is
28.44 Vdc at 25°C). This profile assumes 100% of discharge energy has been
applied to battery. An additional 10% required for full charge.
Table 2. FullRiver DC 105 AH battery characteristics
20 Hour Rate (5.3 A to 10.5 V) 105 AH

Capacity 77oF (25oC) 10 Hour Rate (9.5 A to 10.5 V) 95 AH
5 Hour Rate (17.2 A to 10.2 V) 86 AH
Internal Resistance Full charged Battery 77oF (25oC) 4.0 mOhm
104oF (40oC) 102%
Capacity Affected by Temperature (20 Hour 77oF (25oC) 100%
Rate) 32oF (0oC) 85%
5oF (-15oC) 65%
Capacity after 3 month storage 91%
Self-Discharge 77oF (25oC) Capacity after 6 month storage 82%
Capacity after 12 month storage 64%
Max. Discharge Current 77oF (25oC) 1000 A (5
Terminal Standard M8
Initial Charging Current ≤ 0.2 x C20
Charging (Constant Cycle
14.5V - 14.7 V/77oF (25oC)
Voltage)
Float 13.6 V - 13.8 V/77oF (25oC)
 Pure Wind Scenario:

 Controller has two isolated inputs
 Both inputs operate at the wind turbines‘ Mpp unless charger goes into finish
rate charge or float. This is defined as the maximum loading on the turbine until
the voltage falls
 Controller will not operate until wind turbine Voc voltage is over 10 Vdc
 Controller will begin braking if turbine voltage is above 28 Vdc or if the turbine
has reached wind speed above maximum power output or if less charge current
is required
 The turbines are fully isolated from the battery at all times. Ie battery voltage is
not equal to wind turbine voltage
 Controller maximum output to the battery from each source is set at 10 Adc. Ie
max. total controller current is 10 + 10 = 20 Adc
 During bulk charge the controller will attempt to put out maximum current up to
a set gassing point voltage (2.37 Vpc at 25°C, for a 24Vnom the gassing point is
28.44 Vdc at 25°C
Controller Losses Modeling:

 400 mW continuous
 Input to battery conversion losses
 Solar
o Switching and Conduction Losses
o 1.5 W no load to 2.5 W full load + 3%
102 S. E. Sadique
 Wind
o Rectification / bridge losses
o 0.8V x I charge current (P = I x E)
o Switching and conduction (same as solar)
Light Timer is activated by the solar panel that acts as a photo sensor to turn ON the LED
light at dusk and OFF at dawn and with custom programming, the light can be turned off for a
few hours every night to conserve battery power. This fully adjustable lighting control
ensures that the LED light is on only during the required hours. The summary of the hybrid
PV/ wind system‘s components used in this study is shown in Table 3.
Table 3. Hybrid PV/ Wind System Components
No. COMPONENT CAPACITY COST DETAILS

1 1.1 Solar PV module 175 Wp $3 SunTech mono-crystalline Si,
per Watt Efficiency = 13.67%
Temperature coeff. of power = -
0.47% / oC
Nominal cell operating temperature
= 45oC
1.2 Solar PV module 215 Wp Sanyo mono-crystalline Si,
Module Efficiency: 17.1%
Cell Efficiency: 19.3%
2 2.1 Wind Turbine 70 Watts $1,200 GUS-1B by Greenpower Utility
at 10 m/s per unit Systems
2.2 Wind Turbine 146 Watts $1,000

at 10 m/s per unit AIR-X by Southwest Windpower
3 Battery 105 Ah, 12V $250 FullRiver
per unit
4 Streetlight 35 W $600 King Luminaire
4.1 LED 57 W
4.2 LED ON all night
5 5.1 Pol $1,500 Efston Science
5.2 Ar $500
5.3 Battery compartment $1,000
5.4 Transport & hole $500
5.5 Installation, 4h at $75 $300
3. CLIMATE DATA AND LOAD

Two sets of environmental recourses data have been used to simulate the Hybrid
PV/Wind system‘s scenarios: i) Centennial College‘s solar/wind 5-year data set, with high
10-minute resolution and ii) Toronto Int‘l Airport‘s (TIA) monthly average data.
3.1. Centennial Energy Institute (CEI) Data
The Environmental Data Collection tower/equipment used at Centennial College‘s

meteorological station is the 30-meter (100') NRG NOW System-Symphonie. The
components included in the package are listed in Table 4.
Table 4. Components of NRG NOW System-Symphonie
Qty Part and Description

30 Meter (100 feet) NRG TallTower™, 114 mm (4.5 inches) diameter with galvanized steel
1
baseplate, guy wires, screw-in anchors, and all necessary hardware for quick installation
1 Symphonie NRG Logger
2 16 MB Non-volatile MMC FLASH Memory Cards
Steel Shelter Box enclosure with mounting hardware for the
1
Symphonie NRG Logger
2 NRG #40 Maximum Anemometers with protective terminal boots
1 NRG #200P Wind Direction Vane with protective terminal boot
1 NRG 110S Temperature Sensor with Radiation Shield
3 Sensor Side Mount Booms with clamps for 30 m and 20 m level sensors
Li-Cor LI-200SA Pyranometer – General-purpose solar radiation sensor for gathering direct and
1
reflected solar radiation data.
1 Pyranometer Boom with Clamps – Mounting hardware for the Li-Cor LI-200SA pyranometer.
Symphonie SCM Card for Li-Cor LI-200SA Pyranometer – Signal conditioning module (SCM) for
1
interfacing pyranometer with the Symphonie NRG Logger.
NRG BP20 Barometric Pressure Sensor – Micro-machined absolute pressure sensor providing
1
high-level voltage output signal proportional to absolute pressure.
2 #2C Shielded Sensor Cables for 30 m and 20 m level anemometers
1 #3C Shielded Sensor Cable for 30 m level wind direction vane
1 Grounding Kit with lightning spike, ground rod, and 31 m solid copper grounding wire
1 Symphonie Data Retriever Software
i. Solar Insolation Data

The baseline data is a one-year time series representing the average global solar radiation
on the horizontal surface, expressed in kWh/m2, for each time step of the year. HOMER
displays the monthly average radiation and clearness index of the baseline data in the solar
resource table and graph. There are two ways to create baseline data: HOMER is used to
synthesize hourly data from monthly averages, or time series radiation data are imported from
a file. To synthesize data, the user must enter twelve average monthly values of either solar
radiation or clearness index. As the user enters values in the table, HOMER builds a set of
8,760 solar radiation values, or one for each hour of the year. HOMER creates the synthesized
values using the Graham algorithm, which results in a data sequence that has realistic day-to-
day and hour-to-hour variability and autocorrelation. The dataset can be a prepared text file
containing the solar radiation data in each time step for a complete year. Alternatively it may
be imported data with any time step down to one minute. HOMER detects the time step when
the user imports the data file. For example, if the data file contains 8760 lines, HOMER will
assume that it contains hourly data. If the data file contains 52,560 lines, HOMER will
assume that it contains 10-minute data [22, 23].
104 S. E. Sadique
The text file that contains the Centennial College‘s 10-minute solar radiation data has
been prepared and used for simulation in this study. Also, solar radiation monthly averages
were determined for each year and four years respectively (Table 5) using CEI resource data.
Table 5. Global Horizontal Solar Radiation Monthly Averages (kWh/m2/day)
Month 2006 2007 2008 2009 Average CEI

Jan 1.25 1.26 1.23 1.56 1.33
Feb 2.26 2.29 2.08 2.48 2.28
Mar 3.78 2.95 3.51 3.61 3.46
Apr 4.77 3.24 5.04 4.46 4.38
May 5.50 5.78 5.19 5.72 5.55
Jun 5.75 6.37 5.11 5.21 5.61
Jul 5.60 5.43 5.53 4.76 5.33
Aug 5.16 4.99 5.16 4.70 5.00
Sep 2.87 4.35 3.74 4.16 3.78
Oct 2.24 2.03 2.53 1.98 2.20
Nov 1.19 1.42 1.50 1.63 1.44
Dec 1.04 0.85 1.01 1.08 1.00
Average 3.45 3.41 3.47 3.45 3.45
Figure 7 shows the global horizontal solar radiation monthly averages (kWh/m2/day)
variation for four years: 2006, 2007, 2008 and 2009. As can be seen (Figure 7), although the
solar radiation monthly averages data vary from year to year, the annual averages data are
almost the same for four years.
7.00
6.00
5.00
Egl (kWh/m 2 /day)
4.00
3.00
2.00
1.00
0.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2006 2007 2008 2009
Figure 7. Global Horizontal Solar Radiation Monthly Averages (kWh/m2/day) Variation.
ii. Wind Speed Data

The text file that contains the Centennial College‘s 10-minute wind speed data has been
prepared and used for simulation in this study. Also, wind speed monthly averages were
determined for each year and four years respectively (Table 6) using CEI resource data.
Figure 8 shows the wind speed monthly averages (m/s) variation for four years: 2006,
2007, 2008 and 2009.
Table 6. Wind Speed Monthly Averages (m/s)
Month 2006 2007 2008 2009 Average CEI at 20 m

Jan 4.34 4.34 4.94 4.30 4.48
Feb 4.91 5.75 4.47 4.41 4.88
Mar 4.44 5.00 4.32 3.92 4.42
Apr 4.28 4.78 3.91 4.87 4.46
May 3.62 3.10 4.17 4.13 3.75
Jun 3.81 3.65 3.60 3.11 3.55
Jul 3.62 3.23 3.37 3.30 3.38
Aug 3.53 3.76 3.13 3.41 3.46
Sep 3.69 3.23 2.85 3.23 3.25
Oct 4.28 3.63 3.68 3.61 3.80
Nov 3.30 4.11 3.59 3.16 3.54
Dec 4.98 4.40 5.12 4.57 4.77
Average 4.07 4.08 3.93 3.83 3.98
30.00
25.00
20.00
Temperature (oC)
15.00
10.00
5.00
0.00
Nov
Jan
Apr
Aug
Feb
Mar
May
Sep
Dec
Jul
Jun
Oct
-5.00
-10.00
2006 2007 2008 2009
Figure 8. Air Temperature Monthly Averages (oC) Variation.
iii. Toronto Int’l Airport (TIA) Data(NASA)

Environment Canada‘s weather service – the Meteorological Service of Canada (MSC)
has been collecting environmental data and translating these into practical weather prediction
tools and services since 1871 [15]. The MSC maintains weather collecting stations throughout
Canada‘s territories, one of which is located at Pearson International Airport located in the
western environs of the GTA. In the case of long-term weather data for solar insolation, wind
data air temperature, etc. the MSC has published monthly averages. These averages, however,
are based on data collected over the period from 1971 to 2000. This is about to be updated in
2011.
106 S. E. Sadique
iv. Calculation of the 1971 to 2000 Climate Normals for Canada

―Climate averages,‖ ―climate means‖ or ―climate normals‖ are all interchangeable terms.
They refer to arithmetic calculations based on observed climate values for a given location
over a specified time period.
The World Meteorological Organization (WMO) recommends that countries prepare
climate normals for the official 30-year normals periods ending in 1930, 1960 and 1990, for
which the WMO World Climate Normals are published. In addition, WMO recommends the
updating of climate normals at the end of every decade as provided here for 1971 to 2000
[24].
3.2. Calculation Method
There are many ways to calculate ―climate normals‖; the most useful ones adhere to
accepted standards. The WMO considers thirty years long enough to eliminate year-to-year
variations. Thus the WMO climatological standard period for normals calculations are
computed over a 30 year period of consecutive records, starting January 1st and ending
December 31st. In addition, the WMO established that normals should be arithmetic means
calculated for each month of the year from daily data with a limited number of allowable
missing values. For normals values representing averages, such as temperature, a month was
not used if more than 3 consecutive days or more than a total of 5 days were missing. This
rule is referred to as the ―3 and 5 rule‖ established as a guideline for completeness by the
WMO. Furthermore, its corresponding year-month mean should not be computed and should
be considered missing. For normals values representing totals, such as precipitation, degree-
days, or days with, an individual month was required to be 100% complete in order for it to
be included in the normals calculation [24].
First, the average or total, as appropriate for the element, for all individual months was
calculated for all locations. Normals values were then calculated as the mean for each month
from all the individual months in the period that sufficiently fulfilled the requirement for
completeness for 1971 to 2000. With the exception of the annual standard deviation (see
calculations below), the annual normal value was calculated as the mean or total of monthly
normals values only for stations where means or totals for every month of the year were
available [24].
i. Solar Insolation Data

Solar radiation is the measurement of radiant energy from the sun, on a horizontal
surface. There are several standardized components of independent measurements. Each
component is assigned a different identifying number referred to as Radiation Fields (RF).
The standard metric unit of radiation measurement is the Mega Joule per square meter
(MJ/m2) [24].
Components measured and used by MSC:
RF1: Global Solar Radiation: the total incoming direct and diffuse short-wave solar
radiation received from the whole dome of the sky on a horizontal surface.
RF2: Sky Radiation (Diffuse): the portion of the total incoming short-wave solar
radiation received on a horizontal surface that is shielded from the direct rays of the sun by
means of a shade ring.
RF3: Reflected Solar Radiation: the portion of the total incoming short-wave radiation
that has been reflected from the Earth‘s surface and diffused by the atmospheric layer
between the ground and the point of observation onto a horizontal surface.
RF4: Net Radiation: the resultant of downward and upward total (solar, terrestrial
surface, and atmospheric) radiation received on a horizontal surface (RF1 + RF2 + RF3).
The TIA‘s global horizontal solar radiation monthly averages data are presented in Table
7 using RETScreen resource data [25, 26].
Table 7. Global Horizontal Solar Radiation (kWh/m2/day), Wind Speed (m/s) and Air
Temperature (oC) Monthly Averages Data
Month Global Solar Radiation, Egl Wind Speed (m/s) Air Temperature (oC)
Jan 1.68 5 -5.1
Feb 2.28 4.7 -4.3
Mar 3.6 4.8 0.0
Apr 4.9 4.7 6.8
May 5.36 4.1 13.3
Jun 5.82 3.7 18.7
Jul 6.18 3.6 21.6
Aug 5.28 3.4 20.5
Sep 3.9 3.6 16.2
Oct 2.5 3.9 9.5
Nov 1.28 4.5 3.8
Dec 1.18 4.7 -1.8
Average 3.67 4.2 8.3
Wind directions measured by U2A‘s are recorded to the nearest ten degrees, while those
from the 45B are provided to 8 points of the compass. All wind directions are defined as the
direction from which the wind blows with respect to true or geographic north. For example,
an easterly wind is blowing from the east, not toward the east. A wind direction observation
represents the average direction over the two minutes period ending at the time of
observation. The most frequent wind direction is based on the number of occurrences of each
of the 36 possible directions for each month. A monthly average is calculated for each
direction for all months having sufficient record (90% complete for hourly elements). The
direction with the highest average count is assigned as the most frequent wind direction for
the month. The most frequent wind direction for the year is simply deduced as the direction
with the highest average occurrence count for all months.
Wind speed and direction are greatly affected by proximity to the ground and by the
presences of obstacles such as hills, buildings and trees. It tends to increase in speed and veer
with height above ground. For meteorological purposes, the standard exposure of anemometer
cups is at a height of 10 metres above the ground surface.
The TIA‘s wind speed monthly averages data are presented in Table 8 using RETScreen
resource data [25, 26].
108 S. E. Sadique
Table 8. Global Horizontal Solar Radiation Monthly Averages (kWh/m2/day)
Month Average CEI TIA (NASA)

Jan 1.33 1.68
Feb 2.28 2.28
Mar 3.46 3.60
Apr 4.38 4.90
May 5.55 5.36
Jun 5.61 5.82
Jul 5.33 6.18
Aug 5.00 5.28
Sep 3.78 3.90
Oct 2.20 2.50
Nov 1.44 1.28
Dec 1.00 1.18
Average 3.45 3.66
ii. Air Temperature Data

Temperature measurements are made from self-registering maximum and minimum
thermometers set in a louvered, wooden shelter. The shelter is mounted on a stand so that the
thermometers are approximately 1.5 m above ground, which is usually a level, grassy surface.
At most climatological stations, maximum temperature is the highest temperature recorded in
a 24-hour period ending in the morning of the next day. The minimum values are for a period
of the same length, beginning in the evening of the previous day. Mean temperature is the
average of the two. At most principal stations, the climatological day begins at 0600 UTC
(Universal Time Coordinate) and ends at the onset of 0600 UTC on the following day. These
times are equivalent or close to midnight local standard time for most of Canada [24]. The
TIA‘s air temperature monthly averages data are presented in Table 8 using RETScreen
resource data [25, 26].
iii. The Difference between CEI’s and TIA’s Environmental Data

Current estimates of environmental data showed (revealed) that climate data from various
sources vary sometimes widely. Effects of micro-climates are not well known. Reliable data
sources are often interpolated over large distances, or supplemented by satellite-derived data
which still suffer from serious shortcomings. More work is needed to increase the reliability
and spatial coverage of solar radiation estimates [27].
iv. Solar Insolation Data

The CEI‘s and TIA‘s global horizontal solar radiation monthly averages data are
presented in Table 8.
Figure 8 shows the comparison between CEI‘s and TIA‘s global horizontal solar
radiation monthly averages (kWh/m2/day) variation.
7.00
6.00
Egl (kWh/m 2 /day)

5.00
4.00
3.00
2.00
1.00
0.00
Average CEI TIA (NASA)
Figure 9. Global Horizontal Solar Radiation Monthly Averages (kWh/m2/day) Variation.
v. Wind Speed Data

The CEI‘s and TIA‘s wind speed monthly averages data are presented in Table 9.
Table 9. Wind Speed Monthly Averages (m/s)
Month Average CEI at 20 m TIA (NASA) at 10 m

Jan 4.48 5.0
Feb 4.88 4.7
Mar 4.42 4.8
Apr 4.46 4.7
May 3.75 4.1
Jun 3.55 3.7
Jul 3.38 3.6
Aug 3.46 3.4
Sep 3.25 3.6
Oct 3.80 3.9
Nov 3.54 4.5
Dec 4.77 4.7
Average 3.98 4.2
6.00
5.00
Wind Speed (m/s)
4.00
3.00
2.00
1.00
0.00
Average CEI at 20 m TIA (NASA) at 10 m
Figure 10. Wind Speed Monthly Averages (m/s) Variation.

110 S. E. Sadique
Figure 10 shows the comparison between CEI‘s and TIA‘s wind speed monthly averages
(m/s) variation.
vi. Wind Speed Distribution - Histograms

The Weibull k value is a parameter that reflects the breadth of a distribution of wind
speeds. HOMER fits a Weibull distribution to the wind speed data, and the k value refers to
the shape of that distribution. It was observed a correlation between the Weibull k value and
the average wind speed, with higher annual average wind speeds tending to correspond to
lower Weibull k values [22]. Figure 11 shows the Weibull wind speed histograms for CEI‘s
and TIA‘s wind speed monthly averages (m/s) data.
Figure 11. The Weibull Wind Speed Distribution Histograms.
Table 10. Air Temperature Monthly Averages (oC)
Month Average CEI TIA (NASA)

Jan -0.57 -5.1
Feb -2.14 -4.3
Mar 3.03 0.0
Apr 10.53 6.8
May 16.30 13.3
Jun 22.24 18.7
Jul 24.36 21.6
Aug 24.07 20.5
Sep 19.86 16.2
Oct 13.08 9.5
Nov 7.31 3.8
Dec 1.35 -1.8
Average 11.62 8.3
The CEI data is over 5 years, from 2005-2009 only, whereas the TIA data is averaged
over 30 years, from 1971 to 2000.
The analysis of wind speed distribution histograms (Figure 11) shows that within a range
of 2.0 to 5.0 m/s the wind speed frequency has the maximum values and varies from 200 to
450.
Figure 12 shows the comparison between CEI‘s and TIA‘s air temperature monthly
averages (oC) variation.
vii. Air Temperature Data

The CEI‘s and TIA‘s air temperature monthly averages data are presented in Table 10.
As can be seen from Figures 9, 10 and 12 the climate data from CEI and TIA sources
vary from month to month since the CEI‘s data are monthly average for four years while
TIA‘s data are average for a 30 years period.
6.00
5.00
Wind Speed (m/s)
4.00
3.00
2.00
1.00
0.00
Average CEI at 20 m TIA (NASA) at 10 m
Figure 12. Air Temperature Monthly Averages (oC) Variation.
4. LOAD
Two types of LED lights of 57 W and 35 W each are used.
The street lights are switched on when the intensity of solar radiation is zero in the
evening and they are switched off at first light when the intensity of solar radiation is greater
than zero. Time Series Data (10 minutes averages) has been used.
In one Scenario the load profile incorporates dimming of the street lights from midnight
00:00 - 04:00 AM when the wattage of light is reduced to 67%. The 57W light is dimmed to
39W (Figure 13).
A more realistic, complex load profile will consider Dusk to Dawn operation of the street
lights and take into account variation in daylight hours. This will be based on the actual times
of Sunrise and Sunset, and can be inputted as an Hourly Time Series Load Profile.
A High Efficiency LED Light Fixture is claimed to throw the same amount of light on the
street as sodium vapor lights at 1/10th the power consumption with only a slight lumen
depreciation after 70,000 hours.
112 S. E. Sadique
The Simple and Complex Load Profile that has been used are shown in the Figures 13, 14
and 15.
Load Profiles
i. 57 Watts
(a)
(b)
Figure 13. 57 W Load (without dimming) Profile: (a) Daily and (b) Seasonal.
(a)
(b)
Figure 14. 57 W Load (with dimming) Profile: (a) Daily and (b) Seasonal.
ii. 35 Watts
(a)
(b)
Figure 15. 35 W Load (without dimming) Profile: (a) Daily and (b) Seasonal.
5. HYBRID PV/WIND SYSTEM FOR STREET LIGHTING

SIMULATION SCENARIOS
5.1. For All Scenarios
The climate data used for the different Scenarios remain the same. This includes
temperature, solar and wind resource data. Moreover, all Scenarios use one of the two basic
Load Profiles.
Assumptions:
 Location - GTA, Toronto

 Project Lifetime - 20 years
 System fixed O&M cost - Zero $
 System voltage - 24 V
 Battery - 105 AH, 12 V, AGM Lead Acid batteries
 Data on DC 105-12 provided by FullRiver
 Effect of temperature on capacity and lifetime not considered by HOMER
 Solar PV panel - Fixed with no tracking,
 Oriented at south (Azimuth = 0o), Slope = 59o
 Wind Turbine - GUS1B and AIR-X
The all system Scenarios that were run using HOMER are presented in Table 11.
114
Environmental Data
CEI
TIA
Scenario: 5 (6.9) Scenario: 3 (6.4)
35W
Hybrid
Suntech
GUS 1B
Scenario: 1 (6.1)
57W
Scenario: 3.1 35W with

(6.8) Temp. Effect
Scenario: 10 (6.3) Dimming 57W
Figure 16. Surface plot results of Scenarios.

Scenario: 6 Scenario: 4 (6.5)
35W
(6.10)
Sanyo
S. E. Sadique
Scenario: 2 (6.2)
57W
Scenario: 32 Scenario: 31
Air-X
(6.12) (6.11)
Table 11. System Simulation Scenarios
35W
Suntech
Scenario: 7 (6.6) Wind only

35W
Scenario: 8 (6.7) Solar only

(Suntech)
35W
5.2. Scenario No.1 - CEI Data, Gus1B, 175W Suntech, Fullriver 105Ah, 57 W
The summary of scenarios is presented in Table 12.
Table 12. Summary of Scenarios
Scenario
Variables Components Cost Remarks
No:
PV Panels: 3
Capacity Shortage: 0% NPC $10,298.00
1.1 Wind Tur: 1
Height : 7.62 m Levelized $3.458/kWh
Battery: 4
PV Panels: 4
Capacity Shortage: 1.4% NPC $9,063.00
1.2 Wind Tur: 1 Actual: 1.4%
Battery: 2
PV Panels: 3
Battery: 2
PV Panels: 3
Capacity Shortage: 4% NPC $8,577.00 No change
1.4 Wind Tur: 1
Height : 7.62 m Levelized $2.952/kWh from 2.5%
Battery: 2
PV Panels: 3
Capacity Shortage: 5% NPC $8,577.00 No change
1.5 Wind Tur: 1
Height : 7.62 m Levelized $2.952/kWh from 2.5%
Battery: 2
PV Panels: 2
Height : 10 m Levelized $2.850/kWh
Battery: 2
PV Panels: 3
1.7 Wind Tur: 1 Actual: 2%
Battery: 2
PV Panels: 2
1.8 Wind Tur: 1 Actual 3.7%
Battery: 2
Discussion:
Scenarios were run with a sensitivity analysis on wind turbine hub height vs capacity
shortage, with storage capacity and solar inputs as variables. The system uses the Suntech
175W solar module. The results are shown in Table 12. For the wind turbine hub height 7.62
m and 0% capacity shortage the optimal system is consisted of 3 PV Panels, one Wind
Turbine and 4 Batteries. From the surface plot (Figure 16) it can be seen that hub height
changes have no noticeable impact on system configuration. As the system capacity shortage
increases the number of PV panels and number of batteries is decreased or remains the same
due to the price difference of components. For higher hub heights the capacity shortage is
lowered due to greater wind power output.
5.3. Scenario No.2 - CEI Data, Gus1B, 215W Sanyo, Fullriver 105Ah, 57W
The summary of scenarios is presented in Table 13.

116 S. E. Sadique
Figure 17. Surface plot results of Scenarios.
Table 13. Summary of Scenarios
Scenario
Variables Components Cost Remarks
No:
2.0 PV Panels: 3
Wind Tur: 1
Battery: 4
2.1 PV Panels: 2
Wind Tur: 1
Battery: 2
2.2 PV Panels: 2
Wind Tur: 1
Battery: 2
2.3 PV Panels: 2
Wind Tur: 1
Battery: 2
Discussion:
Scenarios were run with a sensitivity analysis on wind turbine hub height vs capacity
shortage, with storage capacity and solar inputs as variables. The system uses the Sanyo
215W solar module. The results are shown in Table 13. For hub height 7.62 m and 0%
capacity shortage the optimal system is comprised 3 PV Panels, one Wind Turbine and 4
Batteries. From the surface plot (Figure 17) it can be seen that hub height changes have
noticeable impact on system configuration. As the system goes for higher capacity shortage
the number of PV panels and batteries are reduced. For higher hub height the capacity
shortage is lowered due to greater wind power. For 0% capacity shortage the NPC is the
highest and for other values of capacity shortage the NPC remains same.
5.4. Scenario No. 3.1 - CEI Data, Temperature Effect, Gus1B, 175W Suntech,
Fullriver 105Ah, 35W
The effect of temperature is taken into consideration. Ampere-Hour rating (accumulated

charge) of battery is affected by the ambient temperature. A typical relation between ambient
temperature and Ah capacity is shown below (Figure 18):
Figure 18. Effect of temperature on Ampere-Hour rating of battery.
The rate capacity data taken from this graph for the average temperature of GTA area is
shown below:
January % @-4.5 Degree 71%

February % @ -3.5 Degrees 73%
November % @ 4.0 Degrees 82%
December % @ -1.5 Degrees 77%
Considering the temperature effect, scenario 3.1 was simulated for the cold months of
January, February, November and December 2009. The unmet load and battery state of
charge is plotted as follows:
5.5. Battery State of Charge and Unmet Load Summary
i. CEI Data: 2 X 175 Suntech PV Panel, 1 GUS 1B, 2 X FullRiver DC‐105 Ah Battery
NO temperature effect Power Capacity Shortage is 0%.
118 S. E. Sadique
Considering Temperature effect the capacity shortage in power is as follows:
November 2009 December 2009

26-Nov 250 min 15-Dec 250 min
27-Nov 160 min 16-Dec 450 min
27-Dec 220 min
28-Dec 200 min
Total: 410 min Total: 1120 min
Net Total for 2009: 1530 min or 25.5 Hour

Annual Shortage in power: 0.60%
ii. CEI Data: CEI Data for 2009, System: 1 175W Suntech, 1 AIR-X, 2 Fullriver
105Ah, 35W
October 2009 November 2009 December 2009

1540 min – 25.7 hour 3360 min – 56 hour 3930 min – 65.5 hour
Net Total for 2009: 8830 min or 147.2 Hour

Annual Shortage in power: 3.3%
6. RESULTS AND DISCUSSION

The monthly average electric power output for the system capacity shortage 0% and 5%,
35W load and different wind turbine‘s hub heights is presented in Table 14.
Table 14. Monthly Average Electric Productions (kW)
Month 7.62 m 10 m 12 m 15 m
0% 5% 0% 5% 0% 5% 0% 5%
Jan 0.044 0.024 0.045 0.025 0.046 0.026 0.047 0.027
Feb 0.060 0.032 0.061 0.034 0.062 0.035 0.064 0.036
Mar 0.065 0.034 0.066 0.035 0.067 0.036 0.068 0.037
Apr 0.062 0.034 0.063 0.035 0.065 0.037 0.067 0.038
May 0.064 0.034 0.065 0.035 0.066 0.036 0.067 0.037
June 0.052 0.027 0.052 0.027 0.053 0.028 0.053 0.028
July 0.049 0.026 0.049 0.026 0.050 0.026 0.050 0.027
Aug 0.053 0.028 0.054 0.028 0.054 0.029 0.055 0.029
Sept 0.059 0.031 0.059 0.031 0.060 0.032 0.060 0.032
Oct 0.037 0.020 0.038 0.021 0.039 0.022 0.040 0.023
Nov 0.039 0.021 0.040 0.021 0.040 0.021 0.040 0.022
Dec 0.033 0.019 0.034 0.021 0.035 0.022 0.037 0.024
2 PV 1 PV
6.1. Load: 35W
Monthly average electric productions (kW) from the hybrid PV/Wind system is shown in
Figure 19.
As can be seen from Figure 14 at all hub heights more power is generated in case of 5%
capacity shortage since the number of PV panels is higher.
57 W load and different wind turbine‘s hub heights is presented in Table 15.
Figure 19. Monthly Average Electric Productions (kW).
Table 15. Monthly Average Electric Productions (kW)
Month 7.62 m 10 m 12 m 15 m
0% 5% 0% 5% 0% 5% 0% 5%
Jan 0.065 0.065 0.066 0.045 0.066 0.046 0.068 0.047
Feb 0.088 0.088 0.089 0.061 0.090 0.062 0.092 0.064
Mar 0.095 0.095 0.096 0.066 0.097 0.067 0.098 0.068
Apr 0.090 0.090 0.092 0.063 0.093 0.065 0.095 0.067
May 0.094 0.094 0.095 0.065 0.096 0.066 0.097 0.067
June 0.077 0.077 0.077 0.052 0.078 0.053 0.078 0.053
July 0.072 0.072 0.072 0.049 0.073 0.050 0.073 0.050
Aug 0.079 0.079 0.079 0.054 0.080 0.054 0.080 0.055
Sept 0.087 0.087 0.088 0.059 0.088 0.060 0.089 0.060
Oct 0.054 0.054 0.055 0.038 0.056 0.039 0.057 0.040
Nov 0.058 0.058 0.058 0.040 0.058 0.040 0.059 0.040
Dec 0.046 0.046 0.048 0.034 0.049 0.035 0.051 0.037
3 PV 2 PV
120 S. E. Sadique
Monthly average electric productions (kW) from the hybrid PV/Wind system is shown in
Figure 20.
Figure 20. Monthly Average Electric Productions (kW).
6.2. Power Output of Wind Turbine
Wind Turbine: GUS 1B

Wind Speed Data: CEI 10 min, 20 m
Load: 35 W
The wind turbine‘s monthly average electric production for the system capacity shortage
0% and 5%, 35 W load and different wind turbine‘s hub heights is presented in Table 16.
Monthly Average Electric Production by the wind turbine (kW )

0.080
0.060
Power output, kW
0.040
0.020
0.000
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
7.62 m 0% 7.62 m 5% 10 m 0% 10 m 5% 12 m 0% 12 m 5% 15 m 0% 15 m 5%
Figure 21. Wind Turbine‘s Monthly Average Power Output (kW).
Monthly average power output (kW) from wind turbine is shown in Figure 21.
As can be seen from Figure 17 the wind turbine‘s power output varies from month to
month, and it is higher in winter-spring period. The maximum values of wind turbine‘s
electric production are for the months - December, January, February and April.
Table 16. Monthly Average Electric Productions

by the wind turbine (kW)
Month 7.62 m 10 m 12 m 15 m
0% 5% 0% 5% 0% 5% 0% 5%
Jan 0.004 0.004 0.004 0.004 0.005 0.005 0.006 0.006
Feb 0.005 0.005 0.006 0.006 0.007 0.007 0.008 0.008
Mar 0.004 0.004 0.005 0.005 0.005 0.005 0.007 0.007
Apr 0.006 0.006 0.007 0.007 0.008 0.008 0.010 0.010
May 0.004 0.004 0.005 0.005 0.006 0.006 0.007 0.007
June 0.002 0.002 0.002 0.002 0.003 0.003 0.003 0.003
July 0.002 0.002 0.003 0.003 0.003 0.003 0.004 0.004
Aug 0.002 0.002 0.003 0.003 0.003 0.003 0.004 0.004
Sept 0.002 0.002 0.003 0.003 0.003 0.003 0.004 0.004
Oct 0.003 0.003 0.004 0.004 0.005 0.005 0.005 0.005
Nov 0.002 0.002 0.003 0.003 0.003 0.003 0.003 0.003
Dec 0.006 0.006 0.007 0.007 0.009 0.009 0.010 0.010
Annual Average Electric Production, % :

Wind
Load: 35 W
25
Pow er output, %
20 20
17
15 15
13
10 11
8 9
5 7
0
0 5 10 15 20
Wind Turbine Hub Height, m
0% capacity shortage 5% capacity shortage
(a) (b)
Figure 17. Wind Turbine‘s Annual Average Power Output (%): (a) Load 35W and (b) Load 57W.
The Wind turbine‘s annual average power output (%) for 35 W and 57 W loads is shown
in Figure 17.
The Figure 17(a) shows that the contribution of wind power is 7% at 7.62 m hub height
and 11% at 15 m hub height in case of 0% maximum annual capacity shortage. On the other
hand, the contribution of wind power is 13% at 7.62 m hub height and 20% at 15 m hub
height for 5% capacity shortage [Figure 17(a)].
The Figure 17(b) shows that the contribution of wind power is 5% at 7.62 m hub height
and 8% at 15 m hub height in case of 0% maximum annual capacity shortage. On the other
hand, the contribution of wind power is 5% at 7.62 m hub height and 11% at 15 m hub height
for 5% capacity shortage [Figure 17(b)].
35W load and different wind turbine‘s hub heights is presented in Figure 18.
122 S. E. Sadique
Monthly Average Electric Production (kW): PV and Wind

Load: 35 W
0.100
Power output, kW
0.080
0.060
0.040
0.020
0.000
7.62 m 0% PV 7.62 m 0% Wind 7.62 m 5% PV 7.62 m 5% Wind
(a)
Monthly Average Electric Production (kW): PV and Wind

Load: 35 W
0.120
Power output, kW
0.100
0.080
0.060
0.040
0.020
0.000
10 m 0% PV 10 m 0% Wind 10 m 5% PV 10 m 5% Wind
(b)
(c)
(d)
Figure 18. Monthly Average Electric Productions (kW) at hub height: (a) 7.62 m; (b) 10 m; (c) 12 m;
(d) 15 m.
Table 17. Summary of simulated results
Hybrid Wind only Solar only (Suntech)

Environmental
GUS 1B Air-X
Suntech Sanyo Suntech
35W 57W 35W with Dimming 57W 35W 57W 35W 35W 35W
Data
Temperature
Effect
CEI Scenario: 3 (6.4) Scenario: 1 Scenario: Scenario: 10 Scenario: 4 Scenario: 2 Scenario: 31 (6.11) Scenario: 7 Scenario: 8 (6.7)
PV Panel: 2 (6.1) 3.1 (6.8) (6.3) (6.5) (6.2) PV Panel: 3 (6.6) PV Panel: 4
Wind Tur: 1 PV Panel: 3 PV Panel: 2 PV Panel: 3 PV Panel: 2 PV Panel: 3 Wind Tur: 1 Height: 7.62m Wind Tur: 0
Battery: 2 Wind Tur: 1 Wind Tur: 1 Wind Tur: 1 Wind Tur: 1 Wind Tur: 1 Battery: 2 Wind Tur: 10 Battery: 2
Cap Sh: 0% Battery: 4 Battery: 2 Battery: 4 Battery: 2 Battery: 4 Cap Sh: 0% Battery: 2 Cap Sh: 0%
NPC: $8,092 Cap Sh: 0% Cap Sh: Cap Sh: 0% Cap Sh: 0% Cap Sh: 0% NPC: $8,577 Cap Sh: 0% NPC: $8,063
NPC: 0.6% NPC: $10,298 NPC: $8,910 NPC: $10,631 NPC: $16,121
PV Panel: 1 $10,298 NPC:
Wind Tur: 1 $8,092 PV Panel: 1 PV Panel: 2 PV Panel: 1 Height: 15m PV Panel: 2
Battery: 2 PV Panel: 3 PV Panel: 3 Wind Tur: 1 Wind Tur: 1 Wind Tur: 1 Wind Tur: 5 Wind Tur: 0
Cap Sh: 3.7% Wind Tur: 1 Wind Tur: 1 Battery: 2 Battery: 2 Battery: 2 Battery: 6 Battery: 2
NPC: $7,606 Battery: 2 Battery: 2 Cap Sh: 2% Cap Sh:3.8% Cap Sh: 3.3% Cap Sh: 0% Cap Sh: 1.1%
Cap Sh: 2. Cap Sh:1.6% NPC: $8,016 NPC: $8,314 NPC: $7,606 NPC: $14,563 NPC: $7,092
5% NPC: $8,577
NPC: $8,577
TIA Scenario: 5 (6.9) Scenario: 6 Scenario: 32 (6.12)
PV Panel: 2 (6.10) PV Panel: 3
Wind Tur: 1 PV Panel: 1 Wind Tur: 1
Battery: 4 Wind Tur: 1 Battery: 2
Cap Sh: 0% Battery: 4 Cap Sh: 0%
NPC: $9,813 Cap Sh: 0% NPC: $8,577
NPC: $9,737
PV Panel: 2 PV Panel: 1
Wind Tur: 1 PV Panel: 2 Wind Tur: 1
Battery: 2 Wind Tur: 1 Battery: 2
Cap Sh: 0.5% Battery: 2 Cap Sh: 1%
NPC: $8,092 Cap Sh: 0.1% NPC: $7,606
NPC: $8,910
Note: 1. Scenarios in the table 17 are for 7.62 m hub height. The scenario No.7 (―wind only‖) was run for 7.62 m and 15 m hub height. 2. Scenarios with other
hub height are also available in the scenario table.
124 S. E. Sadique
The Figure 18 shows that not only for 0% capacity shortage but also for 5% capacity
shortage at all hub heights most of the power (approximately 90%) is generated by PV panels.
The summary of results of simulated scenarios is presented in Table 17.
CONCLUSION
The analysis of the simulated scenarios results leads to the following conclusions:
 In summary, the 10-min solar/wind resolution data has an impact on the hybrid
solar/wind system design. The CEI data was real time data which was incorporated in
HOMER for simulation whereas the TIA data was monthly average data for over a
30 year period which was converted into high resolution data by HOMER using pre-
determined models. Comparing the high and low resolution datasets, the low
resolution dataset gave slightly more pessimistic energy production results, leading
to slightly more robust system configurations. The variation of results for these two
sources of data in all scenarios was in a range of 0.1% to 5%. The use of a lower
resolution dataset, therefore, provides a small safety margin for the system designer,
while the use of a higher resolution dataset provides more insights into where and
how system capacity shortages arise and might be mitigated.
 The differences are not impressive (dramatic), however, leading to the conclusion
that when relevant high resolution meteorological data are not available, publically
available monthly averaged (monthly resolution) environmental data (Environment
Canada, NASA, etc.) can be used effectively in a tested analysis software like
HOMER.
 Hybrid systems with Sanyo PV panels had higher battery state of charge compared to
systems with Suntech PV panels. The annual averaged battery state of charge for the
system with Sanyo PV panels was 90% and for the one with Suntech PV panels was
88% though Sanyo generated 518 kWh and Suntech generated 420 kWh of electrical
energy. For having zero hours of unmet load Sanyo PV module is better to be used
than Suntech PV panel; however, the price of the Sanyo PV panel is 50% higher than
that of the Suntech PV panel.
 The analysis of the individual contributions towards annual energy output of solar
and wind components of the systems for hybrid-powered street lights of 7.62 m
height, situated in the Greater Toronto Area, revealed that the GUS 1B Vertical Axis
Wind Turbine contributes only 7% for the least energy storage system using Suntech
PV panels and 6% for the least energy storage system using Sanyo PV panels.
 The hybrid system (2 PV, 1 Wind Turbine, 2 Batteries) with AIR-X wind turbine was
having 8 hours more unmet load than the system with GUS-1B though AIR-X wind
turbine has a higher rated capacity of 0.4 kW. The cut-in speed was 4 m/s for AIR-X
turbine and 3 m/s for GUS-1B wind turbine. Although AIR-X was generating 6 kWh
more electric energy than GUS-1B for the whole year, it was not generating any
power when wind speed was lower than 4 m/s. Therefore, AIR-X wind turbine is not
feasible for the hybrid solar/wind applications in GTA‘s real climate conditions.
 The simulation results show that hybrid (PV/wind) systems have half the system cost
(NPC of $8,092) compared to the systems using wind-generators exclusively (NPC
of $16,121). Hybrid (PV/wind) systems, however, have approximately the same cost
(NPC of $8,092) compared to systems using only PV sources (NPC of $8,063).
Therefore, it can be concluded that solar PV only and solar/wind hybrid systems,
using the technologies specified, offer nearly identical energy performance and NPC
results.
REFERENCES
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Systems, Wiley, 2011.
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Pamukkale University Faculty of Engineering, Journal of Engineering Sciences, Vol.
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[3] Lee Y-S, Gim J-H; Development of LED Street Lighting Controller for Wind-Solar
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sizing of autonomous hybrid PV/wind system. Energy Policy, Vol.35, Issue 11, pp.
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Sizing of Stand-Alone Photovoltaic/Wind-Generator Systems Using Genetic
Algorithms, Solar Energy, Vol. 80, 9, pp. 1072-1088, 2006.
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wind system. The Arabian Journal for Science and Engineering, Vol. 34, Number 1B,
pp. 217- 227, 2009.
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ment Canada, 1871.
[16] http://suntech-power.com/en/technology.html.
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Chapter 7
EXPLORING TRADITIONAL AND STRUCTURAL

APPROACHES TO OUTSOURCING FUNCTIONS
Alan D. Smith* and Steven R. Clinton

ABSTRACT
Outsourcing activities have been growing exponentially, as manufacturer and
suppliers are strategically incorporating their mutually beneficial relationships with better
lines of communication, warranty obligations, and information sharing. Supplier
collaboration and integrations are reinforced when the outsourcing benefits greatly
mitigate the inherent risks associated with fostering such relationships. A major problem
that many manufacturers face is finding the best suppliers for the material they need.
Many global suppliers can produce and create great products, but can sometimes be
unreliable, especially in term of service serve that have cultural and political
ramifications. At times, suppliers who are very reliable can sometimes create bad
products and materials. Service providers and manufacturers are generally looking to
improve upon the benefits that outsourcing can provide, especially in structured or more
traditional competitive environments.
Keywords: business strategy, supplier collaboration, supplier integration, quality risk

management, service quality, virtual assistants
INTRODUCTION
Outsourcing As an Operational Alternative
A very straightforward definition of outsourcing is the act of ―obtaining work previously

done by employees inside the companies from sources outside the company‖ (Pearce and
*
Corresponding Author address: Email: smitha@rmu.edu.
128 Alan D. Smith and Steven R. Clinton
Robinson 2009, p. 312). Companies leverage outsourcing to their advantage in order to

become more productive and profitable. ―Outsourcing allows a shop to take on more work
than its equipment, manpower and capacity would normally allow it to handle‖ (Steele 2007,
p. 16). This strategy creates opportunities for companies to focus on those tasks more
important than others, and gain production through work done by supply chain partners or
manufacturers/service providers outside the company. Undoubtedly, there are many benefits
to outsourcing and what this strategy can do for a company for the long-term future. ‗―We
continue to see an increase of outsourcing revenues,‖ stated analyst Alex Sumarta‘ (Steele, p.
16). Directly due to the ability for a company to concentrate on the more profitable tasks of
the company, outsourcing has become so compelling to use as a strategy based on the low-
cost cost perspective (More and Babu 2012; Paksoy and Cavlak 2011; Pettersson and
Segerstedt 2011). Conversely, with the involvement of an outside firm assisting the company,
this develops a disadvantage to involving a company in this strategy if culture and mutual
trust issues are not properly managed and mitigated early in the partnership. There are very
legitimate concerns about loss of autonomy, focus of control, quality, speed, and corporate
reputation that are at stake on sides of the outsourcing equation (Smith 2010; Smith and
Minutolo 2014).
Companies may tend to have a difficult time leaving the responsibilities of completing
tasks and production in the hands of an outside firm, especially if they are well insulated
against the effects of failure to complete the required tasks in a timely and quality matter.
This is understandable for a company not to invest in an outside firm, in part due to an initial
financial investment or a perceived lack of reliability with a firm that is not historically linked
to the company. The initial fear factors of important and sensitive knowledge transfer and
uncertainties surrounding unrealized financial gains and expectations are among the well-
documented risks of outsourcing, which will be explored later in this chapter. While cost
savings is a major factor that is frequently cited as a major reason in determining to choose
outsourcing, companies may ultimately select not to due to the feelings that the outside firm
does not hold the same company values as the hiring company. Ultimately, there are many
advantages and disadvantages that must be considered before a firm commits its time and
scare resources outsourcing.
Regardless if a company chooses the outsourcing strategy, there will definitely be a
decision on how to delegate the productivity. With this decision, a company will allow itself
to become profitable and productive, but how it accomplishes these feats will be determined
by the firm they choose to assist them and how they properly manage the supplier integration
and collaborative partnerships.
Strategies of Outsourcing
The strategy of outsourcing has evolved over time, and companies have developed trends
with which allow themselves to compete and be successful within their marketplaces.
Traditionally, ―Outsourcing is a phenomenal way to support your company and not have the
tremendous liability and overhead as you would if you took into your core business‖
(DeFelice 2007, p. 14). Many outsiders do not feel it is a resource, but it is genuinely
benefiting those companies who use it become more productive, and build connections.
Exploring Traditional and Structural Approaches to Outsourcing Functions 129
In this age of knowledge-based innovation, many trends have been identified to allow for
companies to use strategically leverage outsourcing. The theory of creating a more
personalized interaction between businesses, whether it is by customer-service calls or using
virtual assistants, with technology is typical in these times (Tiffany 2007). Many companies
have developed different trends due to the involvement of technology in this era, whether it is
via Internet or whatnot. Due, in part, to the increasing involvement of many nations in
assisting companies with outsourcing, there has been the philosophy of ―outsourcing the
outsourcing‖ (Tiffany 2007, p. 1). This involves companies having issues finding countries
with manpower to help them outsource the work, because there is a high demand of certain
countries to assist in this strategy. Both of these trends involve the use of technology, and the
use of technology itself is a trend being used because it is creating easier access from one firm
to another and more efficiency and effectiveness in completing tasks.
Involving multiple firms in the completion of tasks has developed several different types
of trends for outsourcing and the productivity by companies. ―Utility services and modular, or
‗component,‘ offerings are trends that are emerging as the outsourcing industry reaches a new
level of maturity‖ (Ferranti 2005, p. 1). The use of offshoring, where companies relocate
certain business processes to another has been implemented in many of the top multinational
companies (Ferranti 2005). Global outsourcing has become commonplace in today‘s market,
and has allowed for the most productive companies to become even more successful by
completing the most crucial tasks to becoming profitable. Therefore, ―cross-company
outsourcing, companies coming together for scale, is a model that is increasingly being
adopted‖ (Ferranti 2005, p. 2). The strategy of cross-company outsourcing increases the
profitability of the company, because this is the strategy where costs drop dramatically. Many
people adopt outsourcing as a strategy due to the ability to drop costs and increase
productivity, thus becoming more profitable, therefore finding a partner company who can
assist in doing this allows for great relationships to be made from one firm to another.
An innovative strategy that has been created in this area is a combination or hybrid,
called ―best-shoring,‖ where companies look outside traditional outsourcing firms into other
countries or even regional areas to find those who can produce within the in-house workforce
(Ali and Alolayyan 2013; Bhamu, Khandelwal and Sangwan 2013; Fumi, Scarabotti, and
Schiraldi 2013). With this strategy, companies can use their resources and values to identify
those firms, nationally or internationally, who will allow the company to find a benefit in
choosing the firm to help with its production.
DISCUSSION
Outsourcing Benefits
There is no question that many firms have chosen outsourcing as part of their routine
operations or strategy. A major thrust for this widespread adoption is the array of benefits that
can be achieved through outsourcing. One of the main benefits of outsourcing is that it can be
used to solve a number of problems, depending on need. The reasons firms chose to outsource
business functions differ, but the basis of these decisions are to make each firm more agile
and best use the resources available. Some of the specific benefits of outsourcing are
discussed below (Smith 2011; Summers and Scherpereel 2008). Many firms, despite the
identified problems, hope to gain the benefit of lower cost when outsourcing one or more
functions. The idea is that specialized companies which focus on the outsourced business
function can complete the necessary tasks in a more efficient and less expensive manor than
the company choosing to outsource. This is often realized due to economies of scale, learning
curves, and the ability to use resources more efficiently (Busbin, Johnson, and DeConinck
2008). For example, a small firm may not have enough internal need to justify having a
lawyer on staff. Outsourcing legal duties to a law firm can enable the company to have the
legal support required at a lower cost. Obviously, initial costs can be lowered by outsourcing
functions to global areas where the labor costs associated are less expensive than the home
country.
While saving money is a strong benefit, critics may argue that quality and service levels
will fall. Most companies realize that this is not acceptable. Specialized firms will offer
outsourcing opportunities to both decrease expenses and maintain or improve service. The
outsourcing companies are not only able to complete the tasks more efficiently, but better
than the hiring firm. This is due to the fact that many outsourcing companies specialize in the
business function they provide (Hesketh 2008). For a manufacturing company the
administrative accounting functions may be done by a small number of employees. This is
clearly not the core competency of the manufacturing firm. An accounting firm will be more
knowledgeable of the process and will be able to provide more experience and improved
services than the small internal group of people who currently only work for the
manufacturing firm. For the same reasons, outsourcing can provide increased flexibility and
quality.
Outsourcing can enable a firm to have access to the best talent and latest technology for a
specific business function. Specialized firms are able attract and retain market specialists in
their areas better than those companies with only a small department assigned to such
functions (Kremic, Tukel and Rom 2006). If being the specialized firm‘s main focus it is
likely that this firm has invested in both human and technological resources that are out of
reach for other companies.
Outsourcing non-core functions allows the firm to focus on core competencies or mission
critical activities by eliminating distractions in non-core departments (Pearce and Robinson
2009; Smith and Offodile 2007). Essentially all businesses know that resources are scarce,
particularly human and financial resources, and they must properly account, allocate, and
manage those scare resources. By outsourcing selected back-office functions, management
can focus their efforts on core competencies instead of administrative functions that the
company does not specialize in. This is even truer statement if significant savings are realized
through outsourcing efforts than normally expected if such activities stayed within the
internal control of the original hosting firm.
Going along with these low-cost and being more horizontally focused benefits, firms can
strategically leverage outsourcing to get mediate certain ―pain points‖ or trouble areas. This
should be used for non-core competencies, but can be a great benefit (Kremic et al. 2006). If a
particular non-core function is causing problems for a firm attempting to correct problems
internally, such a practice may not be the best use of resources or in the best interests of the
firm. As previously discussed, outsourcing can provide better services at lower costs; hence,
enabling management to eliminate these problems and realize additional benefits.
Outsourcing business functions can provide a firm with better management and
accountability for the outsourced areas. Due to the contractual relationship organizations can
actually retain overall control of outsourced functions (Hesketh 2008). The day-to-day
responsibility and implementation is placed with the third party. The hiring firm can specify
its needs and requirements and not worry about daily management tasks. Being contractually
tied to providing the required services the outsourcing agent is held accountable, sometimes
more so than internal employees.
―Careful selection of outsourcing partners allows the firm to potentially learn and develop
its abilities through ideas and capabilities that emerge from the growing expertise‖ of
outsource partner firm (Pearce and Robinson 2009, p. 359). By working with an outsourced
firm the hiring company can learn how to perform the outsourced functions better based on
the industry knowledge and process the outsourcing partner has already developed. Even
further, if the outsourcing firm adds to its knowledge from another client the hiring firm will
benefit from the increase in knowledge as it is serviced by the same firm.
Possibly one of the biggest benefits of outsourcing is when a company can use it to
develop sustainable competitive advantages. This can be realized by maximizing the
flexibility benefits of outsourcing through a network of partners. Hence, it is important for a
firm to have the ability to create and manage an effective network of outsource partners as
part of its overall sustainable competitive advantage strategy (Kremic et al. 2006). While
some critics may argue that this can be copied and is therefore not strategic, the management
of many value chains is not a simple task that can be copied. Further, managing these
relationships can provide a level of flexibility in the company which results in a competitive
advantage. Companies should review the outsourced partnerships and work with the third
parties to manage these relationships in order to maximize benefits to the firm. All of these
benefits and more can be realized through the proper use of an outsourcing plan, although
companies must realize that not every benefit will be realized with every plan.
Outsourcing Risks
Outsourcing can seem like a very viable solution to a company on the surface, yet pose
significant hurdles when management tries to implement such a strategy. Superficially, it can
reduce costs and workloads and help a company pay more attention to their crucial operating
areas. A company has to be careful; however, to make sure they are aware of all the major
risks that are involved in the entire outsourcing process in developing their contingency plans.
It can be too easy for a company to decide what they can have someone else do, and then not
follow up on the progress of such a decision. Many times companies are too consumed in
deciding what to outsource and what vendor to choose, that they forget about risks that are
involved in the managing of the outsourcing. They can ultimately lead to the failure of not
only the operations that were contracted out, but the entire company as well. An overlooked
risk can hurt both a company‘s finances and reputation to the point of no recovery. It is
important for managers and CEOs to be aware of the most common types of risk that can
happen throughout the outsourcing process.
One of the most common risks that companies is the financial risks involved. The
companies want to know how much the outsourcing process will cost them and if it is even
worth it the consideration. What companies may not realize is that the true risk lies in not
accounting for unexpected costs. Many times companies receive estimated prices from a
vendor that would fit their budget. It is not until much deeper in the negotiation process that
they realize that a vendor charges fees for every exception that is made. Perhaps, one of the
best ways to prepare for this risk is to closely monitor the entire contract writing process. It is
not likely that a company will find a vendor that can do everything they want for one basic
price. Every vendor will have some type of additional charges to customize what the parent
company needs. All of these charges should be clearly established in the contract and both the
managers and CEOs should know what they are getting themselves into. This may seem like
an obvious statement, but many times companies get burned by extra fees. This is because
they did not realize how many times they would require work that would cost extra. All too
often managers take a rough estimate at how many times they may request a special report,
for example, but in reality that report may be needed a lot more often than originally planned.
This can make the contract writing very strenuous and confusing. A complex contract
increases the ―opportunity for misunderstandings between the parties which could result in
(costly) renegotiations and thus non-anticipated cost burdens‖ (Gewald and Gellrich 2007, p.
280). This can be a costly error and if they are not prepared, the entire outsourcing process
can end up costing more than if the company performed the operations themselves.
Another risk that can be encountered is performance risk (Bhamu, et al. 2013; Brown
1990). It is important to find a third-party vendor that is willing to live up to the performance
standards that the parent company demonstrates. A vendor can agree to perform numerous
functions, but the level of service they provide must be discussed before an agreement is
signed. For example, a company that one of the authors was previously employed outsourced
many of administrative human resources functions. Management spent roughly two years in
contract negotiations when they choose the most appropriate vendor before they allowed fully
functional operations to be implemented. The operation functions did very well in terms of
cost reduction; however, the help desk is receiving a lot of negative feedback. Many
employees felt that the vendor‘s service center was not offering the support they needed and
became extremely frustrated. It was the responsibility of the parent company to work with the
vendor to make sure they are living up to the same customer service standards that they would
have used. This can be an overlooked risk because there are many functions, like customer
service, that are taken for granted. In the vendor‘s eyes, the way they are handling situations
may be considered good customer service to them, but it is the parent company that has to
follow up to ensure they and their customers agree with the vendor‘s definition of quality
services. A vendor is probably not going to criticize a parent company that they do not
operate and provide good customer service. It is imperative for the parent company to
consistently monitor the vendors‘ actions both in the final product and all other areas leading
up to it.
An important type of outsourcing risk is security (Cheelu, Babu and Venkatakrishna
2014; Rathnayake, Jing and Wijeratne 2014; Smith 2009). This risk includes confidentiality
of private information i.e., both of the company‘s and their clients), poor hiring practices by
the vendor, and malicious intent by the vendor, to mention a few. As previously mentioned,
often operations that are outsourced are back-office administrative duties that require
processing information and are not considered a core function of the company. The
information that the vendor is processing can contain sensitive or confidential client
information. If this should be mishandled in any way by the vendor, it can reflect poorly on
the parent company. When the issue of security is brought up in outsourcing negotiations,
managers may begin to focus on the security of the technology they are using (i.e., protection
from hackers or viruses). The other areas of security can be overlooked and this is a risk that
the company cannot afford to make.
One such area of security is the hiring practices of the vendor. Desouza (2008) gave the
example of firm that outsourced their security guards to a third-party vendor. This firm did
not verify that the vendor background checks on their employees and some of the security
guards were found stealing supplies from the company. It is often taken for granted that a
vendor would act ethically when handling the parent company‘s resources, but this is not
always the case. A company needs to be proactive with questions about how the vendor
operates. If there is something they do not like about the vendor‘s own security system, then
they need to look for someone who they feel more secure in working with. There is the threat
of a vendor acting maliciously and leaking valuable information about the company. Many
vendors are specialists in a particular operating/administrative area. They normally offer their
services to many different companies in similar industries. There can be the case where a
vendor shares confidential information of one client to another one of their clients to gain
some advantage for themselves. A company needs to be aware of all the other clients a
vendor has and talk with them to see if they had any negative experiences with the vendor.
The company must discuss their privacy regulations with the vendor and stress the
cancellation of the contract if those issues are violated.
An important and equally important outsourcing risk is on that is based in psychosocial
dimensions. This is when a vendor does not perform in the best interest of the parent
company and, thus, causes a negative public image on the parent company. It can be a
common misconception for many companies that once they outsource a function, they are no
longer responsible for it in terms of production and quality. Although to a sense it is true, they
must still monitor the production to make sure the vendor is living up to its end of the deal
and regardless of outcomes, the parent company‘s reputation is dependent on vendors
performing their duties well. Many consumers do not know when a company is using a
vendor or not, so if they have a bad experience, they will blame the parent company.
Ultimately, the parent company‘s reputation is ―the reputation at stake,‖ not the third-party
vendor in management‘s quest to become more lean through outsourcing (Griffin 2008;
Scherrer-Rathje, Boyle and Deflorin 2009; Shah, Chandrasekaran and Linderman 2008). It is
extremely important for companies to make sure the vendor is not doing anything that will
hurt their name. Even if a company makes it known that the error/issue was not done by them,
consumers will still hold that parent company responsible.
It is too easy for a company to outsource and think they can transfer complete
responsibility of the operations in a handoff to the vendor, but this can lead to ultimate failure
if a company does not take the proper precautions to prevent choosing the wrong vendor.
For example, the Federal Deposit and Insurance Incorporation (FDIC) has taken an
interest into what companies outsource. In the case of banks, they have issued a guidance to
help a company through the process of outsourcing. It provides a ―roadmap‖ to the company
to understand the necessary steps and risks involved when choosing a vendor (Griffin 2008).
These steps are similar to those a company uses in house to make sure they are successful, the
only difference is that this guidance reminds companies to apply these same rules to vendors
as well.
The FDIC let companies know that with outsourcing, not only will consumers still hold
the parent company responsible for issue, but they will as well. Regulations that are required
by the FDIC are expected to be upheld by the new vendor, and the parent company will be
held accountable if they are not in compliance.
Although the functions of the company can be outsourced, risk factors cannot, and
companies are still held liable for the actions a third party vendor takes in its name. This is
why it is important for companies to look for these common risk factors when deciding to
outsource a part of their operations. All too often, companies get burned in one of these areas,
and that is when they learn from their mistake and become more proactive the second time
around. This can be a dangerous tactic because any one of the risks mentioned above could be
detrimental to a business and could cause the ultimate failure of the entire company. A
company must be proactive when deciding to outsource. They must weigh the benefits and
the risks that can occur to make sure the investment is worthwhile. They must spend an equal
amount of time on choosing and monitoring a third party vendor. In the end, if a company is
aware of the risks and takes the time to establish the possible consequences with the vendor
then they will be more likely to succeed in their outsourcing efforts.
A MORE STRUCTURED APPROACH TO OUTSOURCING

Traditional Approaches to Outsourcing
Throughout the years, outsourcing has become a popular but controversial concept within
the business world. Outsourcing is simply obtaining work previously done by employees
inside the companies from sources outside the company. This simple definition has led to
many companies outsourcing just about any business activity, from information technology to
human resources, without much regard for strategic analysis. Outsourcing can be further
defined in terms of traditional versus strategic. Outsourcing is considered traditional if a
process not considered ―critical‖ for the organization is outsourced (Franceschini, Galetto,
Pignatelli and Varetto 2003; Scherrer-Rathje et al. 2009; Shah et al. 2008).
Traditional outsourcing decision-making is often characterized by cost analysis (Morton
and Hu 2008; Parthasarathy and Ramachandran 2008; Power, 2009). Strategic outsourcing is
term that may define the conditions when companies outsource everything except those
special activities in which they could achieve a unique competitive edge (i.e., core
competences). Strategic outsourcing decision-making is associated with understanding the
risks and advantages of outsourcing functions. Over the last decade, outsourcing decision-
making has moved from a traditional approach to a more strategic approach. However, many
management scholars claim the move to a more strategic outsourcing process has lacked a
structured model to follow. It‘s the traditional decision making approach and the lack of more
strategic, structured approach that has led to poor outsourcing decisions.
Strategic Approaches to Outsourcing
A strategic approach to outsourcing includes emphasizing the risks and advantages that
can arise from outsourcing and the importance of contract management with the outsourcer.
Strategic outsourcing models can be used in many application fields such as information
technology, supply chain, facilities management, and human resources. One suggested model
of is based on a four step strategic decision-making model. The main steps of this model
include internal benchmarking analysis, external benchmarking analysis, contract negotiation,
and outsourcing management ((Franceschini et al. 2003).
The first step of this strategic model, and may be the most important, is internal
benchmarking analysis. This involves a company monitoring their processes, analyzing their
efficiencies and evaluating what to outsource while considering their core competencies.
Within this step, top management should consider and compare the efficiency of different
company activities through highlighting possible unnecessary internal costs and lack of
employee skills. This step involves identifying and considering a variety of costs including
production costs and transactional costs (e.g., bargaining costs, monitoring costs, market
costs, contractual costs). Outsourcing relationships is another key element to the internal
benchmarking analysis step (Ali and Alolayyan 2013: Brown 1990).
There are at least four basic outsourced-outsourcer relationships that can be entered
(Franceschini, et al. 2003). These relationships to consider include the traditional vendor
relationship, temporary relationship, strategic union, and network organization. The third
element of this step is activities stratification. This process involves the ordering of activities
to be outsourced. This ordering of activities is considered critical to the outsourcing process.
Once a company has strategically identified the processes subject to outsourcing through
evaluating costs and skills, determining an appropriate outsourcing relationship and activities
stratification, the company should begin the external benchmarking analysis step.
The external benchmarking analysis step involves evaluating the outsourcer (Beldona and
Tsatsoulis 2010; Bhamu et al. 2013); hence, the basic goal of this step is successful supplier
selection. Companies may choose between several supplier selection strategies within step.
Three relevant strategies include single vendor, multiple vendors, and integrated suppliers.
The single vendor strategy allows the organizations to work together through the vendor
understanding the clients‘ needs and offers better services. A multiple vendor strategy
involves a significant effort in monitoring and coordinating with more vendors. However, this
strategy does offer better services and lower costs. An integrated supplier strategy involves
less coordination problems on the outsourced company. The outsourcing company only deals
with the main outsourcer. There are several selection criteria that are a part of the supplier
selection process (e.g., market positioning, technical quality, price, ability to manage
outsourcing relationships and previous contracts). After evaluating key selection criteria and
choosing the appropriate outsourcing supplier relationship strategy, companies should begin
the contract negotiation step of this strategic model.
Contract negotiation is another important within this overview of a strategic model to
outsourcing decision-making (Franceschini et al. 2003). This step involves the formalization
of the relationship between a company and its outsourcing provider. Within this step,
companies should seek to formalize a contract that identifies time development, general terms
and conditions of the relationship, expected performance targets, evaluation criteria, and the
process for handling future relationship controversies. Once the outsourced and outsourcer
have reached a favorable agreement to both parties, a company can begin the outsourcing
management step of the strategic outsourcing model.
The successful outsourcing management consists of the realization and monitoring of the
planned outsourcing process. To assist companies in this step, a test-bench approach can be
used. This step-by-step method is used to evaluate the different strategies in managing
outsourcing processes. This tool involves five steps that include the definition of the phase of
the outsourcing process to be implemented, evaluation of all possible information about the
outsourcing process, application of proposed method and study of alternatives, analysis of
results, and the next phase (Franceschini et al. 2003). The failure to properly manage the
outsourcing process will eventually lead to a loss of any advantages that were to be gained
through outsourcing the given process.
Outsourcing often can be advantageous for companies but sometimes it results in lost
critical skills and knowledge when improper outsourcing decisions are made (Smith and
Offodile 2007; Steele 2007; Summers and Scherpereel 2008). Going from the more
traditional cost initiated outsourcing approach to a more strategic approach emphasizing risks
and advantages of outsourcing decision-making, companies most likely will make more
appropriate outsourcing decisions. By applying a more strategic approach to outsourcing
decision-making, such as the suggested model described above, companies can reduce their
risk of losing key skills and knowledge that are critical to a company‘s competitive edge and
success.
POTENTIAL PROSPECTS OF OUTSOURCING

Exploring Business Prespectives
From a business perspective, outsourcing has gained popularity over the last 17 years.
Lau and Hurley (1997) traced the beginnings of outsourcing to 1991, when the advent of
global competition after the 1991 recession required many domestic companies to look for
cost savings by keeping their core activities and outsourcing other functions to external
suppliers. The popularity of outsourcing has accelerated as companies saw outsourcing as a
quick fix for poor company financials, and the rush was on. However the picture of
outsourcing has not been entirely rosy. Consider the following examples provided by
EBStrategy.com (―Offshore outsourcing failure case studies,‖ 2015). Due to a great surge of
complains, Dell stopped using a technical support center in India to handle calls from its
corporate customers. A number of customers complained the Indian technical-support
representatives were difficult to communicate with because of accents and scripted responses.
In another example, Shop Direct, which employs 1,200 people in the U.K., opened a call
center in Bangalore and transferred 250 jobs from U.K. Unfortunately, the service from the
new location has been considered called poor and the call center was closed.
These examples suggested that the outsourcing decision is much more than a simple
consideration of cost. The decision must be focused on improving competitive advantage,
service quality, and include other strategically important aspects of the firm‘s business.
Additional questions about process control, skill requirements, outsourcing time lines, and
legal and sociopolitical considerations must be answered by the outsourcing firm.
Although outsourcing may have a number of negative connotations in some service
sections of the U.S., it should remain as a mainstay in the global economy. Pearce and
Robinson (2009) noted that many outsourcing IT services (e.g., call center services, routine
computer programming services, managing IT systems) have become major industries in their
own right. ―Business process outsourcing is the most rapidly growing segment of the
outsourcing services worldwide, and it is expected to reach more than 200 billion in revenues
in 2008‖ (p. 357). Virtually any department within an organization can potentially be
outsourced. Areas within organizations thought to be immune from outsourcing have now
been added to the mix. The fact that organizations are moving beyond outsourcing IT, help
desk, and/or customer service functions to other business functions underscores the fact that
outsourcing is here to stay, and the importance of grounding the outsourcing decision around
key principles aside from cost.
So what changes can businesses expect in the near future in terms of outsourcing? One
possibility is that firms will approach outsourcing with a ―crawl, walk, run‖ approach. In a
2008 interview, Uttiya Dasgupta described this approach (Raisinghani 2008). Dasgupta
suggested that the firm must build its internal capabilities to support outsourcing in two areas,
those being preparations and governance. In his view, the ―crawl‖ phase tests the proof of
concept and involves piloting outsource of non-critical functions, building the preparation and
governance structure. The ―walk‖ phase is implemented by beginning to add more critical
work and or additional outsource providers. It is during this stage that more detailed control
metrics are established and a true team working across organizations emerges. The final stage
in the approach is the ―run‖ phase in which true strategic partnerships are formed, additional
activities are outsourced, and preparations and governance become seamless and outsourcing
becomes an integral part of the business.
Undoubtedly, current economic conditions in the global economy have added pressures
on firms to look for opportunities to improve supply chain management and other processes,
and to reduce inventories and manage their costs. Naturally, management will continue to
look for areas where outsourcing may provide an advantage. One industry currently receiving
great attention in the media is the U.S. auto industry for its supplier integration and
collaboration efforts. As the auto industry works to restructure and retool with the possible
help of the federal government, the major domestic auto makers will certainly look to
continue the process of outsourcing that has been underway for some time. Primarily the auto
industry outsources through the development of strategic supplier alliances. Japanese auto
manufacturers have long taken advantage of strategic alliances in order to produce quality
products at a low cost and high quality. India and other emerging countries have patterned
these approaches to their industries (Khanna, Vrat, Shankar and Sayay 2002a, 2000b; Sahay,
Cavale, Rajani and Mohan 2003).
While domestic manufacturing firms exerted control over the supply of component parts
in an effort to reap the benefits of economies of scale, Japanese firms were building working
relationships with suppliers. This provided Japanese auto makers with competitive
advantages. Slowly but surely, the U.S. auto industry has recognized the need for these
partnerships. There are an estimated 15,000 parts in a typical automobile, which makes the
automobile industry ripe with outsourcing opportunities. Lau and Hurley (1997) emphasized
the importance of strategic supplier outsourcing when they provide that Chrysler‘s profit
margin is four times as high as GM‘s due to effective outsourcing, and Chrysler plans to
reduce the number of its primary suppliers from 750 to 250. The major domestic auto makers
have to play catch up to equal Toyota‘s reduced base of 168 suppliers.
There are many inherent problems if a firm uses only one supplier, especially if that
vendor cannot supply all the materials needed to create a good, then manufacturers are then
faced to look elsewhere for the materials. A partial solution may be to dual-sourcing, in which
the manufacturer will take the bulk of the standing orders from the first supplier, but
otherwise if they need more material in which they cannot get from the first, they will look
elsewhere for another supplier. This is important and can ultimately help the manufacture. In
this case, as with outsourcing in general, moving around suppliers and vendors may leads to
possibly damage relationships. As with all supplier and vendor relationships, collaboration
and integration are based on forming good relationships based on trust and fully functional
communication links. Other issues were discussed that included that primary manufacturer
risks the quality of the materials by adding more suppliers to the equation. There will always
be the issue of control and reputation in terms of product and service quality. More vendors,
suppliers, and outsourcers will certainly make communication can be much more difficult.
Ultimately, the quality of the good can decline if the materials are different and not a
consistent high quality.
Although manufacturers need to improve and will likely include additional outsourcing in
their equation, they must stave off pressure from both government and unions alike as
difficult decisions and possible job shifts lie ahead. Whatever the industry, businesses will
continue to look to gain strategic competitive advantage with the help of a number of tools
including outsourcing.
ACKNOWLEDGMENTS
The authors wish to thank the reviewers most heartedly for the valuable contributions for
their input into the final paper. Peer reviewing and editing are commonly tedious and
thankless tasks.
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Chapter 8
ROLE OF GREEN SUPPLY CHAIN MANAGEMENT

IN CEMENT MANUFACTURING PROCESS:
AN OVERVIEW ON INDIAN INDUSTRIES
P. Muralidhar and V. Srihari1

NICMAR, NAC Campus, Kothaguda Post, Hyderabad, India
ABSTRACT
The pollutants from the cement industry are the potential sources of environmental
pollution. The Green Supply Chain Management (GSCM) strategies are to be immensely
implemented from raw material stage to finished product of a manufacturing process that
helps to reduce the pollutants into the environment.
Green supply chain strategies are also considered in procurement, customer service,
etc. apart from manufacturing stage. The present chapter discusses the role of green
supply chain management in cement manufacturing process.
INTRODUCTION
Cement industry is the second largest emission pollutants in the manufacturing sector of
India. The carbon emissions produced are very high from the procurement stage to final
transportation stage in the cement industry. Hence, cement sector has decided to reduce the
carbon emission rate to a considerable level to enhance the sustainability. The Green Supply
Chain Management (GSCM) is the process of integrating environmental concepts like eco-
friendly product design, material sourcing, and selection, manufacturing processes, delivery
of the final product to the consumers and end-of-life management of the product after its

Dr. P. Muralidhar: Associate professor, National Institute of Construction Management and Research (NICMAR),
NAC Campus, Kothaguda post, Hyderabad, PIN: 500084, India. E-mail: pmuralidhar17@gmail.com, ph: +91
9441952479.
1
Dr. V. Srihari: Professor, NICMAR, NAC Campus, Hyderabad, PIN 50084, India. E-mail: vsrihari2005@gmail.
com.
142 P. Muralidhar and V. Srihari
useful life. The GSCM is extensively focusing on sustainable management, hence forth it is
also considered as sustainable supply chain management (SSCM). The GSCM principles are
dire essential to cement manufacturing process so that the fly ash (waste from the thermal
power plants) is used in cement manufacturing instead of lime stone reserves.
Therefore, the energy and emissions associated with the limestone procurement and
processing are saved in the in-bound supply chain process (Muralidhar et al., 2012).
Similarly, the fly ash disposal is effectively mitigated and minimises carbon family emissions
will strike the balance between the environment and ecology.
The awareness about green supply chain management made some of the manufacturing
industries to use renewable energy in their operations. During the manufacturing of the
product, their waste is minimized to zero level and helped them to produce sustainable
products. The present study is aimed to propose sustainable strategies for a cement
manufacturing plant. The cement plants are well-known for pollution aspects. This study
describes sustainable strategies for enforcing the balance between effective manufacturing
practices, to reduce pollution and also to save the environment (Muralidhar et al., 2012).
Hence, the whole strategy is designed based on available sub-criteria and best strategies of the
process. This will be evaluated and proposed by using a case study.
The basic raw material, limestone, is obtained from mines through blasting. According to
GSCM the green procurement leads to reduce pollution in mining through effective
supervision on blasting methodologies, air pollution control by dust collectors, adopting
strategic safety measures and also converting fly ash as basic raw material for the production
of fly-ash bricks which leads to green procurement.
During the production of green manufacturing process, the reduction of emissions into
the atmosphere to permissible limits is achieved by adopting additional pollution control or
by Process automation. In the customer service point of view extending the good technical
support, maintaining the quality of the product, reducing the complaints and reducing the
frequency of shortages are copiously concentrated while supplying (Muralidhar et al., 2012).
CEMENT MANUFACTURING PROCESS - CASE STUDY

Cement is an essential material for any construction work. Cement is mainly used in
preparation of concrete and mortar works and it has myriad modern uses in building,
transport, water pipe lines and cement works.
Cement is mainly classified into natural cement and artificial cement. The artificial
cement is the Portland cement made up of mixing lime stone with gypsum. Cement is the
most active component in concrete. During the manufacturing of cement from limestone,
while converting CaO into CaCO3, lot of carbon emissions/foot prints are released into
atmosphere, they are mainly classified as Scope-I emissions. The calcinations stage of cement
manufacturing is mainly contributing to (up to 50%) Scope-I emissions.
This causes damage to the environment by releasing green house gasses. Cement industry
is the second largest producer of Green House Gases (GHG) into the atmosphere. Therefore,
cement industry is copiously contributing towards production of carbon foot prints (CII-GBC,
2010).
Role of Green Supply Chain Management in Cement Manufacturing Process 143
The cement manufacturing process is as follows:
Stage-I (Figure 2.1)
1. Blasting: The raw materials used to manufacture cement (mainly lime stone and clay)
are blasted from the quarry.
2. Transport: The raw materials are collected from the quarry and loaded into a dumper.
3. Crushing and Transportation: The raw materials, after crushing, are transported to the
plant by a conveyor. The plant stores the material before they are homogenized
(Figure 2.1).
Stage-II (Figure 2.2)
4. Raw grinding: The materials are very finely grinded in order to produce raw mix.
5. Burning: The raw mix is pre-heated before it goes into kiln, which is heated by a
flame to the tune of 2000°C. The raw mix burns at 1500°C producing clinker which
when it leaves the kiln. So, the raw mix is burnt to produce clinker.
Stage-III (Figure 2.3)
6. Grinding: The clinker and gypsum are very finely grinded giving a‘ pure cement,‘
other secondary additives and cementitious materials can be added to make blended
cement.
7. Storage, Packing and Dispatch: The cement is stored in silos before being dispatched
either in bulk or in bags to its final destination.
Figure 2.1. Cement manufacturing stage from crushing to transportation.
Figure 2.2. Grinding of raw material and burning.

Figure 2.3. Clinkering stage to final transportation to customers.
Cement industry is one of the major industries releasing appreciable quantity of green
house gases with one of the major sources being the process emissions itself. The present
contribution of GHG emissions from the industry is approximately 8 per cent of the total
national emissions. As per CII‘s (Confederation of Indian Industry) estimate of average
GHG‘s emissions based on the public available data and in depth studies of emissions of
Indian cement industry presents, an average emissions of 697 kg CO2/ton of cement. Indian
cement industry intends to achieve a target of 20 per cent reduction in its GHG emissions
intensively, from the present average of levels of 697 kg CO2/ton of cement to 560 kg
CO2/ ton of cement. This calls for about 137 kg CO2/ton reduction/ton of cement across the
sector.
The Indian cement industry is the second largest in the world. It is regarded as one of the
best in the world in terms of technology, quality, efficiency and productivity measures. The
total installed capacity was about 260 Million MT as on March 2010. The industry added over
40 Million MT to its installed capacity in just one year during April 2009 to march 2010. The
capacity of utilization of cement industry is close to 100 per cent.
India has more than 52 companies involved in cement manufacturing business. The
cement industry comprises of 148 large cement plants and more than 365 mini cement plants.
The large plants account for more than 96 per cent of total production.
The cement industry in India produces cement varieties such as Ordinary Portland
Cement (OPC), Portland Pozzolana Cement (PPC) and Portland slag based Cement (PSC).
India presently stands fourth largest emitter of green house gasses, ranking next to China,
United States of America and Russia. However, per capita emissions of India are far below
world‘s average levels. Moreover, India in recent years has managed an 8 per cent growth
rate only and 3.7 per cent increase in energy consumption. Over the last few years, the
construction industry activities have gone up to the peak level, therefore the production and
consumption of cement has become higher than ever before. So, there is a requirement of
strategies for supporting/enhancing the environmental activities for reduction of carbon foot
prints. Hence, an experiment has been made by proposing the measurement indicators under
green procurement, green manufacturing, customer service and environmental management
as (level-II) indicators under GSCM strategies (level-I) for developing competitive strategies
for green supply chain management for cement manufacturing process, the following criteria
are proposed in the present case study. The first strategy chosen is Green procurement, the
procurement and transportation of raw material used for manufacturing the cement has to
follow environmental compliances. The raw material procurement is done by surface mining,
rock breaking and blasting methods. As part of green procurement, environment friendly
practices are highly encouraged to reduce the dust, smoke and carbon foot prints.
During the production planning of Green manufacturing process, the reduction of
limestone material leads to low carbon emissions within permissible limits into the
atmosphere is achieved by manufacturing low grade cement, i.e., 33 grade cement instead of
43 and 53 grade cements. In the calcinations stage, alternative fuels from hazardous waste
materials like municipal solid waste are used rather than burning coal by adopting additional
pollution control equipment like making complete automation process.
In the Customer service (as per B-3 Indicator) point of view, it is always essential to
extend the good technical support to maintain appropriate grade cement of high quality of the
end product and to reduce the complaints of frequent shortages. According to the indicator B-
4 in Figure 2.4 Environment management, the raw material is fed into pre-heater, the pre-
heating helps to save the energy, resource recovery before the calcinations stage. Cement is
packed into bags by electronic packing method rather than manual packing to reduce dust into
the environment.
In the present chapter aimed at the following aspects:
 Measurement indicators level-I, level-II, level-III (from C1 to C16) are developed

 Methodologies adopted in SCM solutions/problems
Green Procurement (GP)
To develop the sustainable supply chain strategies for any business the first important
criterion will be making the procurement process greener. For this purpose, under the Green
procurement four sub criteria are selected as per the company‘s needs and demands. The sub
criteria are presented in the Figure 2.4.
Figure 2.4. Measurement indicators for green supply chain management.

Green Manufacture (GM)
Under this green manufacturing process, the company should be an ISO: 14001 certified
and they are not permitted to go out of green manufacturing tolerance limits. Under the
emergency requirements, the process must be within the limits of green manufacturing. Under
this criterion, four important parameters are chosen as shown in the Figure 2.4.
Customer Service (CS)
In the customer service process, the parameters are chosen and pair-wise comparisons are
made to serve best to the customers with less time and simultaneously to maintain effective
market share for the product and to respond quickly to market demand at any given point of
time within sustainable supply chain parameters as shown in Figure 2.4.
Environmental Management (EM)
As it is very clear that the company has to obey the environment laws and regulations, so
as per that the basic raw material should be obtained through green channel, recovery of
resources is very much essential to save energy in manufacturing process, the waste obtained
should be able to recycle and also the emissions obtained through this should be within
specified limits. The parameters selected are listed in the Figure 2.4.
APPROACHES IN SSCM/GSCM
The various approaches used in SSCM/GSCM are:
 Reactive approach
 Proactive approach
 Value seeking approach
The reactive approach always suggests to use minimum amount of virginal input
resources during production to commit environmental-friendly initiatives and ‗end of life‘
practices to lower the impact on production (Srivastava, 2005). The proactive approach pre-
empts new environmental laws by initiating all green principles like recycling,
remanufacturing, reuse, etc. This helps in producing better competitive products and
attempting green design activities (Srivastava, 2006).
The value seeking approach adds the value to the product by inducing environmental
principles in the product life cycle like green procurement, green manufacturing, etc. These
strategic initiatives help in contributing to product and environment as part of business
strategy. These new GSCM initiatives by Beamon (1999) are helpful in optimizing the
performance of the supply chain process by gaining the competitive advantage over the
similar products (Beamon, 1999).
Few models are developed by researchers in this area and they are found to be effective
in real life situations. Game theory, dynamic programming and simulation techniques are
extensively used by researchers to propose mapping the GSCM strategies. Green design has
seen very little application in terms of mathematical tools, techniques and methodologies.
Joseph Sarkis (Sarkik, J., 1998, Srivastava, 2005 and Sudheer Gupta, 2011), focused on
reverse logistics models on network design problems and borrow heavily from traditional
location and layout models.
The present research study focuses on life cycle of the cement manufacturing process,
aimed to propose the strategies for following green supply chain practices in the cement
manufacturing, thus reducing the carbon foot prints into atmosphere and contribution towards
green house gasses (Van der Laan et al., 1996 and Van der Laan et al., 1999).
SSCM CONSIDERATIONS IN INDIA

India‘s aggregate GHGs have increased from 1.2 billion tons of CO2 in 1994 to 1.7
billion tons of CO2 in 2007. A compound annual growth rate of 2.9 per cent, earned India 5th
spot in aggregate GHG emissions in the world.
However, the per capita GHG emissions remain low at around 1.7 tons/person in 2007
compared to global average of about 4.3 tons/person and India‘s per capita GHG emissions
are expected to remain between 2.77 and 5.0 tons/person in 2031, though aggregate emissions
are expected to increase between 4.0 and 7.3 billion tons.
However Indian policy makers have been looking at various avenues to curb emissions
through schemes such as renewable energy certificates (REC) and perform –achieve- trade
(PAT). Based on these schemes Indian experts believe that there is ample scope for creating a
new domestic market for emissions mitigation in next few years.
The emerging consensus of policies and incentive mechanisms for promoting market
based approaches are particularly desirable to mobilize Indian business to solve
environmental problems in positive way (Van der Laan et al., 1996 and Ertugtul, I., 2008).
The per capita income is envisioned to triple over next two decades and proportionally,
the Indian consumer market may expect to grow up to 32 per cent. This enhancement
dramatically changes the retail sector. It demands immediate and drastic changes in policies,
addressing production and marketing concerns, product life cycle, end of life cycle, end of
life disposal, and distribution channels adopted by firms.
In this regard, the absence of sustainable supply chains and insufficient government
incentives have been identified as some of the most important issues that the industry is
facing today. With the growing global competition and enhancing emphasis primarily on
environmental concerns, firms are increasing required not only to offer high quality and
innovative products with competitive prices, but also to develop supply chains that are
sustainable in the long run. Emission and waste reduction, climate change mitigation and
energy conservation sectors in India are likely to see significant growth in the future.
REFERENCES
Beamon, B. M. (1999), Designing the green supply chain, Logistics Information
Management, 12, pp. 332-342.
CII-Sohrabji (2010) Green business centre, May 2010, Low carbon road map for Indian
Cement Industry.
Ertugtul, I. and Karakasoglu, N. (2008), Comparison of fuzzy AHP and fuzzy TOPSIS
methods for facility location selection, International Journal Adv. Manufacturing
Technology.
Muralidhar, P., K. Ravidranath and V. Srihari (Nov. 2012), Prioritizing Green Supply Chain
Management Using GRA and TOPSIS – A Case Study, International Conference at
Siksha „O‟ Anusandhan University, Bhubaneswar, India.
Muralidhar, P., Ravindranath, K. and Srihari, V. (2012), ―Application of Fuzzy AHP for
Evaluation of Green supply Chain Management Strategies‖ 2(3), IOSR Journal of
Engineering, pp. 61-467 (ISSN 2250-3021).
Muralidhar, P., Ravindranath, K. and Srihari, V. (2012), ―Green Supply Chain Management
Strategies using AHP and TOPSIS,‖ IOSR Journal of engineering, 2(4), IOSR Journal of
Engineering, pp. 824-830 (ISSN 2250-3021).
Muralidhar, P., Ravindranath, K. and Srihari, V. (2012), ―Green Supply Chain Management
Strategies Using AHP and GRA,‖ Industrial Engineering Journal (2012).
Sarkis, J., (1995), Supply chain management and environmentally conscious design and
Manufacturing, International Journal of Environmentally Conscious Design and
Manufacturing, 4, pp. 43-52.
Sarkis, J. (1998), Evaluating environmentally conscious business practices, European Journal
of Operational Research, 107, pp. 159-174.
Sarkis, J. (1999), A methodological framework for evaluating environmentally conscious
manufacturing programs, Computers and Industrial Engineering, 36, pp. 793-810.
Srivastava, S. K. and Srivastava, R. K. (2005), Profit driven reverse logistics, International
Journal of Business Research, Vol. 4, pp. 53-61.
Srivastava, S. K. and Srivastava, R. K., (2006), Managing product returns for reverse
logistics. International Journal of Physical Distribution and Logistics Management
(Special Issue on 3PL, 4PL and Reverse Logistics), 36, pp. 524-546.
Sudheer Gupta, Omkar, D. and Palsule Desai, (2011), ―Sustainable supply chain
management: Review and Research Opportunities,‖ Journal of IIMB review 23, pp. 234-
245e Science direct.
Van der Laan, E. A. and Salomon, M., (1997), Production planning and inventory control
with remanufacturing and disposal, European Journal of Operational Research, 102, pp.
264-278.
Van der Laan, E. A., Salomon, M., Dekker, R. and Ridder, A., (1996b), An(s, Q) inventory
model with remanufacturing and disposal. International Journal of Production
Economics, pp. 339-350.
Van der Laan, E. A., Salomon, M., Dekker, R. and van Wassenhove, L. N. (1999a), Inventory
control in hybrid systems with remanufacturing, Management Science, 45, pp. 733-743.
Chapter 9
MULTI-CONFLICT MANAGEMENT
IN SUPPLY NETWORKS
Michael Reiss
Institute of Business Administration,
Department of Organizational Design and Behavior
Stuttgart University, Germany
ABSTRACT
In theory and practice, conflict management in supply systems is focused on
managing separate conflicts in terms of handling a pool of coexisting conflicts with the
same party or with different customers, competitors, suppliers or authorities. By contrast,
little attention is given to the management of a ―nexus‖ of interconnected conflicts.
Multi-conflict management copes with interconnected multi-party and/or multi-issue and/
or multi-strategy constellations which are typical of the conflict landscape in supply
systems. These constellations require more than just prioritizing conflict engagements
against the background of limited resources for conflict management. Both intelligence
and intervention activities concentrate on the three drivers of multi-conflict
constellations: embeddedness of actors in supply-related business relationships,
interdependencies between different conflict issues, and spillovers between strategies of
conflict management. Nexus-based strategies of intervention aim at reconfiguring the
supply system as well as modifying the business relationships to enhance the overall
value of the proprietary nexus of conflicts for each individual party.
INTRODUCTION
State-of-the-art approaches to managing conflict focus on the reactive and proactive
management of separate conflicts in supply systems (Lumineau, Eckerd and Handley 2015;
Deutsch 2014). The respective models cover the intraconflict arena with a standard
configuration ―two conflicting parties supported by third-parties in charge of mediation,

email: michael.reiss@bwi.uni-stuttgart.de.
150 Michael Reiss
arbitration, and/ or litigation.‖ In contrast, real-world conflict-loaded supply processes take

place in a complex environment of networked business relationships between diverse actors.
This complex context requires management models which also cover the interconflict arena
(multi-conflict management) as well as the extraconflict arena (managing the conflict-
cooperation interface).
Multi-conflict constellations are not just a compilation of several coexisting separate
conflicts. In fact they also take account of the interconnectedness (Ritter 2000) of conflicts,
i.e., the connections between conflicts. Consequently, there are major differences between
standard conflict management approaches and multi-conflict management approaches, both
with respect to the problems addressed and the practices applied:
Vertical propagation along the supply chain: The propagation of defects downstream the
supply chain (as well as along the intracorporate value chains of the companies involved) is
normally accompanied by a propagation of conflicts, e.g., an inversely directed chain of
regress claims. They occur both between adjacent tiers (short distance-conflicts), e.g.,
supplier-supplier, supplier-OEM, OEM-distributors, distributors-customers (e.g., in the case
of product recalls) and amongst distant tiers, i.e., long distance- conflicts (e.g., OEM and
component or raw materials suppliers over non-compliance to fair trade-standards).
Vertical propagation along the chain of control: In addition, quality, compliance and
coordination initiatives create a chain of control in supply systems to assure the ―control of
controllers‖ or the ―supervision of supervisors‖ (e.g., the supervision of credit rating
agencies). So, third parties (e.g., certification agencies, mediators, public supervisory
authorities, clearing houses, label providers) are in turn evaluated by ―fourth‖ parties to
safeguard their expertise or impartiality. Similarly, in 4PL-systems a 4th party is in charge of
coordinating the contract suppliers. In the case of misleading evaluations or services, a chain
of conflicts (e.g., regress claims) is triggered.
Complementor directed horizontal dissemination: Conflicts due to the non-fulfillment of
contracts along the supply chain may trigger conflicts with complementors, i.e., providers of
accessories (e.g., hardware peripherals, software) and services (e.g., logistics, recycling,
knowledge-intensive business services). So, manufacturers of accessories may try to get some
kind of compensation from the manufacturer of appliances for the reduction of their revenues
caused by the delayed availability of the primary product for the customers. Unlike the
predominantly unidirectional propagation of conflicts along the supply chain (based upon
input-output relations), complementor relationships are bidirectional: they may also imply a
conflict triggered by delayed market launches of complementary products such as games for
video game consoles as primary platform products.
Competitor directed horizontal dissemination: Channel conflicts, e.g., between brick
channel and click channel, may trigger conflicts between the respective channel managers and
corporate management dealing with unfairness issues, e.g., in the wake of showrooming. In
addition to emergent competition various forms of organized competition such as tendering,
auctions, elections, or tournaments (e.g., quality awards; Connelly, Tihanyi, Crook and
Gangloff 2014) are embedded in supply systems. These species of controlled conflict often
trigger uncontrolled conflicts if bidders violate regulations, e.g., by practicing pseudo
competition. Moreover, unfair practices such as violations of non-discrimination rules will
most likely cause conflicts. For instance, last call/ last offer-options are rifely considered as
inconsistent with the rules of fair competition.
Multi-Conflict Management in Supply Networks 151
Conflicts triggering productive conflicts: Owing to its risk management focus, standard
conflict management neglects the positive effects of conflicts. Whenever a reference conflict
induces so called functional or productive conflicts, the resolution of the reference conflict,
i.e., the optimal strategy of managing separate conflicts in the intraconflict arena, proves to be
a suboptimal strategy. Take for example intense duopolistic competition (e.g., in the aircraft
industry) which may lead both competitors to switch to strategies of organized competitive
sourcing such as tendering which stimulates a productive competition between suppliers.
Conflicts as tools to control other conflicts: In standard conflict management-approaches
conflicts have no (positive) instrumental value. Actually, conflicts represent useful tools to
control collateral conflicts: Strike-induced conflicts with customers (from customer
complaints to impending customer loss) for example are frequently used as a lever to exert
pressure in the primary labor relations conflict.
Connections between intra- and inter-supply chain conflicts: In addition to conflicts
within a supply chain (e.g., rail logistics) the entire chain is competing with other chains (e.g.,
truck logistics). ―External‖ and ―internal‖ conflicts are interconnected: Internal conflicts may
de-escalate inter-chain competition (e.g., because of supplier membership in several rivaling
supply chains). External conflicts often mitigate intra-chain conflicts (via enhancing
solidarity).
Connections between intra- and inter-network conflicts: Not all participants in a supply
chain are members of the same industry association, cluster, standards consortium, market, or
other networks. Every network has its proprietary infrastructure, e.g., governance systems like
laws against dumping or abuse of market power, regulations, charters, and codes of conduct.
The diversity of network affiliations beyond the membership in a referent supply chain is
accompanied by the risk of inter-network conflicts, e.g., between two competing standards
consortia (―standards wars‖) that cause or aggravate intra-supply chain conflicts between
supply chain actors.
THE CONFLICT-SUPPLY INTERFACE

Conflict management constitutes a standard building block of supply chain management.
As a rule, conflict management is located in supply chain risk management. Concise
characterizations of the two management domains are useful for assessing and understanding
their communalities and intersections.
Conflict Management
Social conflicts are specified by two building blocks: the configuration in terms of the
scope of involved parties and the association, capturing interactions such as escalation,
negotiating, communicating, withdrawal, or threatening. As for involved actors or
―stakeholders‖ (in terms of ―any group or individual who is affected by or can affect the
achievement of objectives‖), multi-conflict management is based on an extended scope of
relevant roles beyond the two- or three-party standard configurations of the intraconflict
arena: The primary parties are the conflicting parties of a reference conflict (e.g., OEM and
152 Michael Reiss
supplier). Secondary parties encompass actors positively affected by the reference conflict
(―freeriders‖ or ―beneficiaries,‖ e.g., competitors) or negatively affected by the reference
conflict (―victims,‖ e.g., customers) who do not actively intervene. Some secondary parties
are involved as ―hostages‖ of primary parties: this holds for suppliers or complementors such
as certification agencies, reviewers or label companies because their reputation will be
impaired, e.g., if the respective primary party is defeated in a quality related dispute. Tertiary
parties provide a diverse scope of services for conflict management, ranging from lawyers,
insurance companies, intelligence services (e.g., early warning systems) and communication
services to traditional (neutral) third party services of mediation, arbitration, litigation, and
consulting. In addition there are providers of the infrastructure for conflict resolutions, e.g.,
trainers, legislators, and jurisdiction. Some tertiary parties professionally instigate conflicts,
e.g., by arranging organized competition (auctions, tendering, competitive awards, beauty
contests and the like).
Actors not only differ with regard to their roles but also to their extent, a fact which
creates a multilevel configuration. Individual suppliers or customers represent the micro-
actors whereas hubs, joint ventures, or consortia stand for collective actors (macro-entities).
Conflicts between micro-entities often trigger inter-level conflicts between organizational
micro-units and macro-units, e.g., system suppliers and component suppliers over insufficient
performance or violations of rules. Collective actors in turn often have a multilevel
architecture, e.g., national, regional (e.g., European) and global industry associations, which
implies the risk of more inter-level conflicts.
―Non-parties‖ represent actors that are aware of a conflict but (proactively or reactively)
develop strategies to deliberately keep out of the conflict, i.e., to make sure they are not
passively impacted nor that they actively interfere. This holds for public occupational bodies
that preserve their impartiality in strikes which affect not only one primary industry (e.g.,
pharmaceutical) but also supply industries (e.g., logistics, chemical) against the background
of so called ―cold lock outs‖ in related industries. ―Non-players‖ are not aware of the
reference conflict and consequently do not develop any conflict management strategies, i.e.,
they do not have the status of actors. This marginal position may be the result of insufficient
intelligence, possibly due to camouflage or nondisclosure activities of the other actors
involved in the conflict.
The interactions or associations between actors are based on factual interdependencies,
informal agreements or formal contracts. Usually, the level of association is measured on
one-dimensional scales, e.g., in terms of weak or strong ties, market or hierarchy
arrangements or loose versus tight coupling. For the specification of a conflict as a specific
variety of association either the (a) level of dis-integration (i.e., mistrust, disharmony, lack of
shared values and propinquity), (b) the level of interdependence (i.e., exchange, pooling of
tangible assets, Thompson 2003) or (c) an integration-interdependence ratio is employed
(Rahim 2007). The distribution of power between the involved actors, i.e., a symmetrical or
an asymmetrical distribution, represents a complementary third dimension of association.
Supply Management
Modelling supply systems is also accomplished by configuration and association models.

Supply systems are defined by the core association between the involved actors: supply and
value creation (e.g., of a specific car, an ERP-software, a pill, or a web-service). More and
more frequently, associations are handled as business relationships, for instance via customer
relationship management or supplier relationship management. Associations are based upon
input-output relations and materials flows. As a rule, they are controlled by contracts and
business process management, e.g., order fulfilment processes. Additional relationships deal
with the required infrastructure, both for production (e.g., technical standards, resources) and
for the coordination of involved actors, e.g., push-pull-systems, committees, SCM-software,
codes of conduct, and performance measures.
As for configuration, traditional supply chain or value chain models are inadequate since
they do not cover the entire range of involved stakeholders. More appropriate are supply
network models such as business eco-systems or value nets (Nalebuff and Brandenburger
1996). The vertical dimension of the supply network is covered by SCM. Horizontal business
relationships refer to competitors (e.g., concerning the development of standards) and
complementors (Reiss 2011; Noonan and Wallace 2004). The relevance of complementors
derives from the fact that ―supply‖ does - more and more often - not relate to single products
but to bundles, hardware-software systems, solutions, product service systems, full service
business models, and aftermarket services. On the supply side this trend is intensified by
technological convergence, e.g., digital convergence. Unlike upstream suppliers that get a
fixed remuneration for their inputs, complementors often act as co-entrepreneurs.
Complementors are members of the supply network, however, as a rule, they are not part of
the OEM‘s supply chain.
Altogether, the scope of actors contributing to supply processes (figure 1) contains
customers (as co-producers, produsers, prosumers and co-creators), suppliers, competitors (as
benchmarks, good competitors, strategic allies), complementors (e.g., providers of
accessories, especially in the case of platform products addressing multisided markets).
Compared to (―strong‖) contractual relationships along the supply chain, complementor
relationships are in fact ―weak‖: frequently, they do not rely on formal contracting nor do
they necessarily imply transactions. The value net-architecture is also capable of capturing
―diagonal‖ disseminations of conflicts in supply systems, e.g., third party damage liability: if
a complementing certification agency certifies faulty products, consumer protection agencies
will probably not only sue the manufacturer but also the certification agency.
In addition to the individual companies that operate as suppliers, supply networks also
encompass actors who manage the network as a whole or at least the activities of several
companies. Their role is determined by supply chain governance models that establish a
multilevel configuration of macro-actors and individual actors, primarily via determining the
role of an organizational entity in charge of coordinating the supply network (Bitran,
Gurumurthi and Sam 2007). In addition to brokers, 4PL-logistics providers, system suppliers,
hubs or focal companies (e.g., OEMs) temporary units such as committees, round tables,
project teams, or task forces are established for this job, underpinned by complementary tools
of network infrastructure, e.g., supply chain control towers, web 2.0-tools or codes of
conduct. Supply chains operate on fragmented infrastructures since they cross various
frontiers, not only between companies, but also between industries, strategic groups, and
nations. Consequently, coordination infrastructures, i.e., technical standards, codes, rules, and
norms (homologation), are mostly rather patchworks out of several fragments than unified
and harmonized global standards (such as ISO standards) or agencies for international instead
154 Michael Reiss
of merely national arbitration. This diversity provokes the risk of conflicts between the
multiple protagonists of the respective local infrastructures, e.g., in product piracy disputes.
Vertical and horizontal extrapolations of the value net generate a multi-tier architecture
(e.g., wholesale retail, tier 1 2, 3, n-suppliers). Interpolation takes account of the multitude of
diverse intermediaries ranging from retailers, value added resellers, system integrators, and
cybermediaries to providers of production infrastructure and coordination infrastructure such
as billing or logistics services. Intrapolation specifies the micro-structure of the different
categories of involved actors, i.e., of suppliers, customers, competitors, and complementors:
as a rule, not an entire company (e.g., an automotive OEM), but some business unit (e.g.,
product division such as the power train division), plant, subsidiary, or captive supplier
operate as nodes in the supply network.
CUSTOMERS
UPGRADED DOWNGRADED
COOPERATION COOPERATION
CONTRACT BASED
PROPAGATION
MORE INTENSE CONTRACT BASED

COMPETITORS OEM COMPLEMENTORS
COMPETITION PROPAGATION
BREACH OF
CONTRACT
UPGRADED DOWNGRADED
COOPERATION COOPERATION
SUPPLIERS
cooperation conflict
Figure 1. Value net based syndrome of supply network conflicts.
Figure 1 visualizes the conflict-supply interface by outlining a conflict-focused

representation of a supply network containing a (1) value net configuration and an (2)
overlaying conflict network. The figure comprises the five clusters of actors involved in the
interorganizational supply management: The OEM plays the role of a referential
organizational unit. Together with suppliers and customers the OEM is part of the (vertical)
supply chain. Complementors furnish complementary services and products to the customers.
Competitors evidently represent conflicting parties with respect to market shares and scarce
resources. In addition to the interorganizational value network figure 1 also contains a
―conflict map‖ in the shape of an overlaying interconflict network with conflicts as nodes and
connections between the conflicts as edges. The outlined nexus of conflicts represents a
typical conflict syndrome covering four conflicts (interconflict arena) and four (positive or
negative) conflict externalities on cooperative relationships (extraconflict arena). The strength
of connections is visualized by the respective widths of the arrows. The ―root‖ conflict
derives from an upstream OEM-supplier dispute over quality (non-conformity) or service

level. This conflict is propagated downstream into an OEM-customer conflict as well as
horizontally into an OEM-complementor conflict. Moreover, the intensity of competition is
raised since the OEM must develop competitive strategies to make up for a relatively weaker
position on procurement and sales markets.
Figure 1 also takes into account that secondary parties, e.g., victims or beneficiaries of
primary conflicts, are possibly capable of influencing the intensity of the primary conflict.
Along these lines, actors in downgraded cooperations will attempt to mitigate the root conflict
whereas parties profiting from upgraded cooperations will invest in fueling it. Moreover,
figure 1 signals that any actor within the supply system can play any role in conflict
management: a tier 1-supplier for instance may act as a primary party, benefiary (of inter
supply chain conflicts between OEMs), victim (of strikes) or third party in the case of tier 2-
disputes. Tertiary parties in conflict management act as intermediaries in supply management.
This signals that conflict management activities such as negotiating and communicating
generate value and enrich the supply process.
COMPLEXITY OF MULTI-CONFLICT CONSTELLATIONS

Complexity constitutes the apparent challenge of the outlined multi-conflict
constellations. Numerosity, i.e., the ―multi‖-feature, stands for multi-party and/ or multi-issue
and/ or multi-strategy. Yet, numerosity represents only the ostensible facet of complexity. It
triggers three additional facets of a holistic approach to conflict management in supply
networks:
Diversity primarily captures the links between the opposite worlds of cooperation and of
conflict (e.g., competition). This extraconflict arena stretches beyond the domain of conflict
management, making clear that the conflict-conflict connections in the interconflict arena do
not exhaust the entire scope of business relationships that are relevant for a holistic approach
to conflict management: The built-in flexibility of configurations in supply networks,
accomplished for instance by so called second or dual sourcing arrangements, often implies a
―conflict provokes cooperation‖-logic: Whenever the business relationship between one OEM
and one supplier is impaired by conflicts (e.g., over prices, service levels, allegations of
corruption), the cooperation with a third party that replaces the original source will be
intensified. Owing to this flexibility the relevance of the primary conflict is less significant
than assumed. Similarly collusion, i.e., a species of cooperation in terms of a reduction of the
intensity of conflict between competitors, provokes various conflicts, i.e., with anti-trust
authorities, with competitors that are not members of the cartel, and with (negatively) affected
customers. Existing alliances represent another source of collateral conflicts: allies of
conflicting parties will have to engage in conflict strategies with an external aggressor due to
explicit alliance case-clauses or to informal notions of balanced relations in triads according
to a principle of transitivity, such as ―The enemies of my allies are my enemies‖ (Phillips,
Liu, and Costello 1998).
Ambiguity constitutes the third dimension of complexity innate in multi-conflict
constellations. From a supply management perspective ambiguity is concerned with
oymorons like ―good competitors‖ or with hybrid concepts like ―coopetition‖ (Gast, Filser,
156 Michael Reiss
Gundolf, and Kraus 2014; Wilhelm 2011; Walley 2007): Some interactions in supply systems
are hybrid in terms of both cooperative and competitive (instead of either cooperative or
competitive). They cannot be unambiguously assigned to either the intraconflict or the
extraconflict arena: a planned transition characterizes the hybrid models of pre-competitive
cooperation where cooperation (in the development cycle) is followed by competition (in the
market cycle) as well as post-competitive cooperation (e.g., cooperation between the ―best‖
and the ―second-best‖ supplier after competitive bidding).
Instability of configurations and associations of supply networks, the fourth dimension of
complexity, measures their rate of change on the time line. This volatility is reflected in the
emergent dynamics of roles and relationships: the involvement of neutral third parties (e.g.,
mediators, arbiters, courts, ombudsman services, escrows) by the conflicting parties may
trigger conflicts between the respective principals and the mediators, especially if agreements
suggested by the mediating agencies are not accepted or impartiality is called into question.
Likewise, the contract-based involvement of assisting third parties, for example agents,
lawyers, law firms, legal insurance, directors-and-officers-insurance, errors and omissions
insurance) by a conflicting party into a conflict provokes the risk of conflicts between the
principal and the agent in question, e.g., concerning remuneration of agent‘s services or
divergent preferences with respect to the (de-)escalation in conflict handling. In these
instances, a cooperative interaction mutates into a conflicting interaction. The involvement of
complementors such as certification agencies, reviewers, trustees, and notaries basically
provides complementary services and infrastructures for preventing or resolving conflicts
between producers and customers. However, if their service is considered deficient (e.g.,
misleading certificates, faulty advice) by either of the two primary parties, the complementor
turns into a conflicting party in a conflict handling process between one of the primary
conflicting parties and the contract complementor. The relationships to infomediaries, i.e.,
intermediary information brokers, the media, and communication services (e.g., web
services), is also instable. On the one hand they cooperatively provide communication
services (e.g., litigation public relations for lawsuits). On the other hand, their access to data
about ongoing conflicts (i.e., strategies, outcomes) may be tempting to make a business out of
these data by selling them to competitors of the primary parties. This violation of non-
disclosure agreements, codes of professional discretion or insider information-laws may
cause a collateral conflict with the principal.
EMERGENCE OF MULTI-CONFLICT CONSTELLATIONS

A complex multi-conflict landscape is caused by three drivers (figure 2):
Embeddedness of involved actors in relationship networks: The interconnected business
relationships in a supply network (figure 1) do not cover the totality of relevant relationships.
Network embeddedness encompasses affiliations to several networks: suppliers for instance
are also members of standards consortia, industry associations, knowledge communities,
clusters, and strategic groups (Easley and Kleinberg 2010).
Interdependencies between conflict issues: The input-output-interdependencies between
the nodes of a supply network (e.g., downstream propagation of defects) together with the
pooling of tangible and intangible resources, arranged in contractual governance models like
quasi-firms, vendor managed inventory, joint ventures, tier 0.5 suppliers (in the automotive
supply chain) establish a high level of interdependency between conflict issues. The long list
of binary interdependencies contains prices and risk handling, prices and contract duration,
prices and co-ownership of patents as well as prices and distribution of brand value.
Embeddedness in Interdependencies
relationship networks between conflict issues
price reduction
COLLATERAL
CONFLICTS
Spillovers between
strategies
Figure 2. Mind map of multi-conflict emergence.
Spillovers between conflict handling strategies: As a rule, the inadequate handling of a

reference conflict instigates follow-up conflicts. For instance, the incompetent handling of a
complaint of one customer may trigger an escalation by the same customer (e.g., in the wake
of making the problem public via social media or going to court) or identical complaints from
other customers. Discriminatory treatment in terms of handling two more or less identical
conflicts (e.g., complaints) differently will most likely instigate follow-up conflicts focused
on discrimination issues, significantly pushing the overall costs of the pool of interconnected
conflicts. Likewise, aggressive competitive strategies induce retaliation from competitors,
either in the same business or in other businesses: the factual severity of the primary conflict
turns out to be higher than assumed if and when the evaluation is based on the entire nexus of
prompted conflicts. According to this tit-for-tat-logic, compromising in one conflict will
inversely decrease the likelihood of aggressive strategies applied by the same opposite party
in another conflict. Moreover, the specific strategies deployed in and the results of the
management of one conflict (e.g., patent dispute) may prevent similar conflicts: they possibly
deter other actors (competitors, etc.) from starting a dispute of their own because of high
expected management costs or pessimistic prospects of success. At the least, aggressive
strategies may absorb major resources of the opponent thus impairing his capacities to engage
158 Michael Reiss
in other conflicts. The thereby avoided costs represent a benefit in terms of an interconflict
“peace dividend” of the primary conflict. Finally, some strategic concepts, such as
agreements or court decisions, serve as test cases, best practices, benchmarks, and standards
for the handling of other conflicts.
MULTI-CONFLICT MANAGEMENT:
PARADIGMS, PATTERNS AND PARAMETERS
The building blocks of multi-conflict management originate from different management
levels. A three level approach (with a paradigm, a pattern, and a parameter level) - in analogy
to the strategic, tactical, and operational levels of planning systems - seems to be useful.
Multilevel approaches balance extent (reach) and specification on each level: paradigms (e.g.,
the resilient supply chain) have an ample extent combined with a poor specification whereas
parameters (e.g., processes, tools) have a narrow extension coupled with high specification. In
between, patterns (e.g., principles) have a medium range of application as well as a mean
precision. Paradigms and patterns serve as frameworks for the application of parameters. As
for numerosity, a multilevel management-architecture contains only few principles
(sometimes stated in a manifesto, a charter or a doctrine), but a plethora of tools. The balance
within a multi-level architecture model is warranted by a two-way integration of the
respective levels: a top-down design supports orientation (embeddedness in frameworks),
while a bottom-up design fosters feasibility. By a two-way down-up procedure both
orientation and feasibility are obtained.
Paradigms: They originate from two utterly different frameworks for management in
general: one being the rationalistic world of plans, rules, and procedures that design conflict
handling the way it ought to be in order to reach performance goals and meet requirements.
The other being a comprehension of the emergent structures that actually underlie conflict
processes in reality such as the evolutionary escalation of a conflict, conflict externalities, or
processes of the viral dissemination of conflicts via rumours, leaks, imitation or contagion
(Gelfand, Shteynberg, Lee, Lun, Lyons, Bell, Chiao, Bruss, Al Dabbagh, Aycan, Abdel-Latif,
Daghe, Khashan, and Soomro 2012; Jehn, Rispens, Jonsen, and Greer 2013). Since neither of
the two visions has proved superior, mixed visions that combine rationalistic construction and
realistic reconstruction such as guided emergence, guided evolution, guided self-organization,
organized anarchy, or logical incrementalism seem more appropriate (Reiss 2012; Lovas and
Goshal 2000). They blend emergent lifecycles of a conflict on the one hand with the
performance-oriented optimization of a conflict on the other hand. According to these mixed
paradigms multi-conflict management is not primarily about finding optimal solutions but
rather about heuristics and mechanisms of facilitation or inhibition.
Patterns: Embedded in blended paradigms like guided emergence, this level operates on
behavioral patterns that outline a combined ―emergence and design‖ of collateral conflicts.
Such a pattern is captured in the AIDA-formula (Attention-Interest-Desire-Action), a
modified version of the original formula for buying behavior. Attention is established by the
perception of a conflict issue as opposed to non-perception due to denial or distraction.
Interest in a conflict is the result of scrutinizing the factual impact of a primary conflict.
Hence, ―interest‖ has a different meaning for a conflicting party, a victim, a beneficiary or a
provider of conflict management services. Attention and interest are determined by conflict
attitudes, e.g., conflict tolerance. Desire denotes aspirations to obtain a better position in the
conflict network, e.g., to switch the state of a passive victim into an active plaintiff in the
collateral conflict. Action means the way an actor reacts to the primary conflict in the arena of
a collateral conflict, e.g., by employing strategies of joint problem solving, escalation, formal
litigation, or withdrawal based on the competencies of the actor in conflict management.
AIDA relies on a funnel model: only a fraction of perceived conflict signals (attention) leads
to factual action.
Parameters: This management level contains the processes and the toolbox for dealing
with multi-conflict constellations. A tool-supported management improves cost efficiency
since conflicts are handled by means of routines and standardized tools. The degree of
standardization varies however: among the tools to visualize the interconnectedness of
conflicts for instance, maps (e.g., mind-maps, roadmaps, heatmaps) are less standardized than
charts (e.g., matrices, arborescent structures). Moreover, standardized tools enable an
intersubjective handling which is mandatory whenever several actors in the supply network
have to find consensual ways of dealing with interconnected conflicts.
PERFORMANCE OF MULTI-CONFLICT MANAGEMENT

The scope of standard performance indicators encompasses the effectiveness and the
efficiency of the handling of multi-conflict constellations (Hamann, Schiemann, Bellora, and
Guenther 2013; Kim, Kumar and Kumar 2010): whereas effectiveness specifies the overall
benefits (payoffs, utility) of a balanced handling of functional conflicts and dysfunctional
conflicts, efficiency captures the costs of and time required for multi-conflict management
activities. The overall costs comprise the emergent follow-up costs and the costs of
intervention.
Performance management treats conflicts as a specific category of intangible assets
normally called relational assets or social capital (Dyer and Singh 1998; Robison and Ritchie
2010). ―Good‖ conflicts – partly synonymous with ―functional‖ conflicts – have a positive
asset value since they represent a source of income, a tool for change management, and a
lever for stimulating productivity and creativity. ―Bad‖ conflicts have a negative value, owing
to the lack of instrumentality combined with dysfunctional consequences such as risks. Good
conflicts are taken care of by opportunity management. Bad conflicts are dealt with by risk
management activities attempting to minimize the negative impact of a conflict. Without
doubt, many a conflict has a negative value since it represents a damage or threat (Everett and
Borgatti 2014). Conflicts share this feature with other assets such as contaminated physical
resources. On the other hand, some conflicts serve as facilitators of change or sources of
innovation. Moreover, for providers of conflict management services, the value of a conflict
stands for the cash flow of a business opportunity. Likewise for factually affected secondary
parties, a positive value captures the fact that they are ―windfall-profiting‖ from the conflict
in question.
Particularly since multi-conflict constellations not only cover manifest but also
anticipated or latent conflicts, costs and benefits signify expected data. The conflict value is
consequently calculated as ―extent of impact (benefits/ emergent costs)‖ times ―probability of
160 Michael Reiss
impact.‖ Yet, the information content of the expected value-concept is impaired by netting
out effects: First, high benefits may be veiled in case of high costs. Second, low costs indicate
either minor damage or unlikely damage (or both). Since netting out-operations have a
levelling effect, very many conflicts will get a similar value although they differ significantly
with respect to their benefits and costs or their damage and its likelihood – differences that
would trigger extremely diverse ways of appropriately handling these conflicts. Hence, for
many purposes it is more appropriate to rely on primary performance criteria than to
aggregate them.
With respect to a single conflict the benefits subtracted by the costs assess its net value in
terms of its negative or positive contribution to the overall added value of the respective
supply system. Contrary to this, the multi-conflict management approach relies on the
aggregated value of a nexus of primary, follow-up or corollary conflicts, capturing something
equivalent to the ―total value of ownership of a conflict.‖ The examples outlined in the
introductory section signal that the segregate value and the integrated value may differ
considerably. Moreover, both the composition and the value of the respective nexus differ
significantly for primary, secondary, and tertiary parties.
The benefits and costs obtained by managing conflicts in supply networks are normally
measured at two organizational levels: at the micro-organizational level as benefits for an
individual party in the supply network (e.g., a product division) and at the macro-
organizational level as benefits for the overall configuration of all involved parties, e.g., an
entire supply chain. Sometimes it makes sense to interpolate a meso-organizational level of
tier 1-suppliers, joint ventures, or quasi firms (spanning two tiers), which corresponds to an
additional interpolated level in the performance measurement system. The benefit of an
individual actor in a typical supply network-conflict is measured by the share of the pooled
resources, market or value added he obtains. This is normally referred to as the pieces-level.
There are as many ―pieces‖ as there are parties involved – not just the pieces for the two
primary conflicting parties. Hence, in addition to the primary conflicting parties also
secondary parties (positively or negatively affected) and contract third parties calculate
conflict values. As for the proportions of pieces amongst the various participants in a supply
network, many different (e.g., triadic) constellations of win-win-lose or lose-win-lose or win-
win-win may occurr. They reflect the perceptions (expectations), the power and the conflict
competencies of the involved actors.
The total benefit for all involved parties is usually referred to as the pie-level in terms of
the aggregated value added of the supply network. This value is increased by productive
conflicts that ―make the pie bigger‖ thereby enabling win-win-win situations. These value
adding-effects of functional conflicts comprise productivity gains (e.g., from organized
competition), an improved knowledge base (owing to dialectic approaches and learning from
contradictions) as well as facilitating change (via destabilizing, ―rocking the boat,‖ or
unfreezing; Schaller-Demers 2008). In the interconflict arena, the escalation of one conflict
may be deployed to de-escalate another conflict.
The level of performance (as opposed to the organizational level) in multi-conflict
management ranges from excellent success (e.g., conflict transformation, Kriesberg 2011) to
severe failure (e.g., in the shape of downward spirals or vicious circles). Whereas the risk of
an escalation ending up in some intractability is quite common in single conflict-management
(Vallacher, Coleman, Nowak, Bui-Wrzosinska, Liebovitch, Kugler, and Bartoli 2013), even
despite of the intervention of mediators or the deployment of other conflict resolution
strategies, the multi-conflict paradigm operates on antagonistic forces of ―escalation versus

de-escalation‖ as well as ―dissemination versus containment‖ in a nexus of conflicts. The
impact of these polar forces can inhibit extreme failure: conflict externalities that trigger the
intervention of secondary parties (victims) who are negatively affected by primary (high
intensity) conflicts, may prevent a negative spiral, the same way deterance effects or Chinese
walls serve as ―conflict-disabling‖ forces in a multi-conflict context. Force field analysis
serves as a suitable tool for modeling the interaction of these antagonistic forces of
aggravation and mitigation.
FUNCTIONS OF MULTI-CONFLICT MANAGEMENT

Multi-conflict management follows the generic management cycle. The core activities are
intelligence (an umbrella term for the assessment, screening, diagnosis, detection, and
monitoring of conflicts) and intervention (e.g., strategies of coupling or decoupling conflicts).
Intelligence activities are supported by tools such as complaint systems, simulation, failure
mode and effect-analysis (FMEA), force field analysis, Pareto analysis, ABC analysis, cross-
impact analysis as well as business intelligence tools, e.g., pattern recognition (via data and
text mining or cluster analysis). Intervention in multi-conflict constellations aims at
optimizing the value of a pool of interconnected conflicts for any of the primary, secondary or
tertiary parties involved. Some tool support comes from multi-project management (e.g.,
prioritizing conflicts according to their expected values) and portfolio management (e.g.,
cross-subsidizing between different investments in conflict handling).
INTELLIGENCE
According to the generic paradigm of proactive management, intelligence operations are
supposed to serve as early recognition systems by identifying weak signals of latent conflicts,
which is especially useful for conflict prevention since undiscovered conflicts have an innate
tendency to escalate. The basic relevance of intelligence activities derives from the fact that
only perceived conflicts can be dealt with by strategies. From tools like FMEA we know that
the performance of intelligence systems can be operationalized by probabilities of detection
(corresponding to the attention-step in the AIDA-model). With respect to conflicts this may
turn out to be a challenging job against the background of countervailing activities that
intensify the information asymmetry amongst the involved actors by means of distraction,
camouflage, subterfuges, and misleading signaling.
Intelligence must cover the four functions outlined in figure 3. The system is based on a
funnel model: all signals of conflicts with negligible impact or probability are eliminated, the
remaining signals are structured to make sure that only relevant conflicts are dealt with by
activities of intervention. Finding and filtering serve as a conflict radar dealing with separate
signals (e.g., a complaint, a controversial issue), more or less like the steps of attention and
interest in the AIDA-model. Formatting and focusing operations deal with multi-conflict
constellations, both clusters (e.g., a certain category of complaints) and complexes of
anticipated conflicts (e.g., conflict propagation and other conflict syndromes, figure 1).
162 Michael Reiss
FUNCTIONALITY PROCESSES AND TOOLS

DIAGNOSEFUNKTION ERLÄUTERUNG
ERLÄUTERUNG
Discovering signals of conflicts

FINDING
FINDEN customer feedbacks,Entdecken
Entdecken
complaint von
systems, Gestaltungsbedarfen
von Gestaltungsbedarfen
simulation, role playing, what if-reasoning, …
Elimating unlikely and irrelevant conflicts

Eliminieren
Eliminieren vonvonunwahrscheinlichen undund
unwahrscheinlichen
FILTERING
FILTER
FILTERN ABC-analysis, probability assessment, FMEA, impact evaluations, risk assessment, …
unwesentlichen
unwesentlichen
unwahrscheinlichenGestaltungsbedarfen
Gestaltungsbedarfen
und
N unwesentlichen
Gestaltungsbedarfen
Composing or decomposing
Zerlegen conflicts
Zerlegen bzw. Zusammenfassen
bzw. Zusammenfassenvonvon
FORMATTING
FORMATIER
FORMATIEREN configuration analysis, cluster analysis, data mining, …
Gestaltungsbedarfen
Zusammenfassen von
Gestaltungsbedarfen
EN Gestaltungsbedarfen
FOCUSING Ermitteln
Ermitteln
Identifying eteological der
and typical ursächlichen
der bzw.
ursächlichen
conflicts bzw.
FOKUSSIEREN cross-impact analysis, cause-effect
typischen
typischen diagrams, influence diagrams, pareto analysis, …
Gestaltungsbedarfe
Gestaltungsbedarfe
Figure 3. Functions of conflict intelligence.
Finding activities screen parties and their associations. The radar is capable of
discovering manifest conflicts (e.g., by means of surveys and questionnaires) as well as
anticipated conflicts (via what-if-reasoning or simulation models). Filtering aims at
eliminating irrelevant signals of conflict. Adopting the rationale of risk management, i.e.,
assessing risks via combinations (expected values) of impact and probability, it operates on
two filters: one filter accomplishes the elimination of ―peanut‖ conflicts (e.g., complaints of
C-customers). Another filter eliminates signals with a very low probability of generating a
conflict.
The processes of formatting structure the pool of remaining conflicts. This is
accomplished by clustering similar conflicts or forming complexes (i.e., syndromes and
patterns). Additionally, some global signals (e.g., an unsatisfactory service level) have to be
decomposed because each of them stands for several conflict issues. In the case of a one-way
dissemination of conflicts, focusing operations make sure that strategies of multi-conflict
management do not concentrate on the symptoms but on the roots (causes) of a complex of
conflicts. Both formatting and focusing require an analysis of interconnectedness, i.e.,
interconflict connections. In general, tools for assessing the connections between conflicts are
expected to deliver information on three features of cross impacts: extent (―strength‖),
probability (―validity,‖ e.g., coefficient of determination), and direction (in terms of
increasing or decreasing parameters of the target conflict, e.g., escalation or de-escalation).
Cross-impacting constellations require this information for both ways of influence.
INTERVENTION
The particular challenges for intervention derive from the complexity of
interconnectedness. Frequently, interdependencies between conflicts do not follow a
unidirectional tree-structure. In fact, several feedback mechanisms provoke bi- or

multidirectional interdependencies (mutual cross impacts) that require network models.
Consequently, the underlying interactions between the multiple actors go far beyond familiar
escalation mechanisms such as tit-for-tat-patterns between strategies deployed (e.g.,
retaliation).
The intensity of intervention into multi-conflict constellations follows rather diverse
frameworks or paradigms: they range from incremental intervention to radical intervention.
Incremental intervention is restricted to rearranging conflicts without changing their features
nor their connections. This is accomplished by the ranking framework and the portfolio
framework which directly operate on intelligence data. Contrary to this, radical intervention
relies on reshaping the nexus of interconnected conflicts via changing the configurations and
associations in the underlying supply network. Optimizing configuration and association
constitute the core activities in the nexus framework.
THE RANKING FRAMEWORK

In order to obtain the optimal performance of handling multi-conflict-constellations,
managers should focus on the conflicts that are most relevant for performance. Consequently,
intervention in the interconflict-arena is centered on prioritizing. Rankings are capable of
directing multi-conflict-management by prioritizing the handling of conflicts. This approach
is familiar from multi-project management. The required information for prioritizing conflicts
is delivered by finding and filtering data (figure 3). All indicators of significance rely on the
segregate evaluation of the respective conflicts.
However, owing to the generic complexity of performance measurement, there is no ―one
best‖ indicator nor one superior ranking scale that would deliver unambiguous, non-
controversial priorities for intervention. Especially, effectiveness orientation and efficiency
orientation end up in different rankings. Against this background, the performance of
intervention may be obtained by rankings according to a wide scope of ―second best‖
indicators:
Incidence of a conflict: The most frequently occurring conflicts, e.g., complaints or
contract breaches, are considered the most relevant conflicts. However, the underlying
counting operations ignore the value of the conflicts, hence ―peanuts‖ may become top
priorities.
Intensity of a conflict: The most exacerbated (―warlike‖) and intractable conflicts
(Vallacher , Coleman, Nowak, and Bui-Wrzosinska 2010) will rank highest and will be
tackled first. Unfortunately intensities are ambiguous indicators since they may go along with
either functional or dysfunctional consequences.
Benefits of a conflict: Conflicts with the highest positive performance impact are focused.
This opportunity-based ranking ignores the costs of handling the respective conflicts.
Emergent costs of a conflict: Conflicts with the highest negative performance impact are
considered top priority. Yet, this risk-focused ranking ignores the benefits of the conflicts in
question.
Efficiency: With respect to an efficient allocation of scarce resources and time, priority
rules provide guidelines for a schedule according to which a pool of conflicts (―jobs‖) should
164 Michael Reiss
be processed. A ranking based on the shortest processing time of an intervention (SPT-rule)

addresses routine conflicts first, whereas protracted conflicts are dealt with last. Inversely, the
longest processing time-rule (LPT) prioritizes the challenging conflicts with respect to
processing time and resource consumption.
To cover the various facets of performance simultaneously, multidimensional scoring
models such as value benefit analysis are an option, provided there is consensus about the
weighting of the respective performance indicators.
Prioritizing, at first glance a most convincing and unsophisticated way of handling
multiple conflicts, is compatible with the salient paradigm of managing conflicts separately.
However, it provides misleading evaluations since the interconflict-connections are ignored
by managers who rely on segregate values: as a consequence they will possibly confuse ―big
nuts‖ and ―peanuts.‖
THE PORTFOLIO FRAMEWORK

Portfolio management in general aims at obtaining the optimal value of a pool of assets
by mixing these assets. Unlike the assets in investment portfolios, product portfolios or
alliance portfolios, many constituents of a conflict portfolio are normally neither deliberately
created nor selected: they rather stand for ―windfall‖ involvements. Every conflict portfolio
contains the entire scope of different conflict involvements of the respective actor in the
supply network. Just the proportions of involvements as primary, as secondary or as tertiary
parties normally vary from party to party: for contract third parties (e.g., lawyers, insurance
companies, arbiters, organizers of tournaments) most assets stand for businesses in a business
portfolio. For primary and secondary parties, conflict portfolios primarily represent specific
relationship portfolios (Hoffmann 2007; Wassmer 2010).
The common denominator of all portfolio approaches is their two-dimensional
architecture. Figure 4 visualizes the transfer of this archetypical architecture to conflict
management with relevance and competence serving as the external and the internal critical
success factor respectively.
Portfolio mixing relies on an as-well-as-approach, hence strategies of eliminating assets
or handling them in a serial ranking-based mode are prohibited. Conflicts are positioned with
their segregate values, mostly as ―bubbles‖ in portfolio diagrams. Some of the values are
negative, just like negative cash flows of poor dogs in familiar business portfolios. Mixing is
often accomplished on a macro-level in terms of mixing clusters of assets. Clustering relies
on formatting-data (figure 3). Mixing aims at a twofold balance of the four clusters of
conflicts in figure 4: vertically a balance of highly attractive and less attractive conflicts is
intended, horizontally a balance of the competently mastered conflicts and the challenging
conflicts. This parallel balancing enables a diagonal balance of challenges (―question marks,‖
in the case of providers of mediation services for instance ―new businesses‖ such as deal
mediation or online-mediation) and chores (routine conflicts). The logic of mixing allows
high intensity conflicts as long as their negative performance impacts, primarily their high
costs, are compensated by low intensity conflicts or functional conflicts. Typical examples of
such a ―good conflicts/bad conflicts‖-balance in a supply network are more intensive conflicts
with competitors compensated by less intensive conflicts upstream the supply chain or
intensified conflicts with competitors being compensated by more cooperation in industrial

relations.
RELEVANCE
CHALLENGES ATTRACTIONS
high major impacts/ major impacts/
major intervention costs minor intervention costs
BAD RISKS CHORES

low
minor benefits/ minor impacts/
major intervention costs minor intervention costs
COMPETENCE
low high
Figure 4. Architecture of a conflict portfolio.
Although the pervasiveness of portfolio management as a standard management tool

facilitates its implementation in multi-conflict management, the implicit reliance on segregate
values of conflicts considerably impairs the usefulness of this framework: investing resources
into the resolution of challenging conflicts may (paradoxically) diminish the overall value of
the portfolio value whenever these conflicts turn out to be ―good‖ conflicts, either because
they trigger functional conflicts or because unresolved conflicts serve as a lever for managing
collateral conflicts. However, this interconnectedness of portfolio constitutents remains
undiscovered when standard portfolio tools are deployed.
THE NEXUS FRAMEWORK

This framework is not focused on simply rearranging or balancing several conflicts.
Instead, the network of conflicts - with conflicts as nodes and connections as edges - is the
subject of major modifications. Against the backround of an ambivalent mix of ―good‖ and
―bad‖ conflicts, these modifications require a subtle selective strategy relying on a blend of
risk management and opportunity management activities: connections triggering bad conflicts
should be blocked whereas connections to good conflicts should be smoothed. The optimal
nexus is eventually obtained by a radical intervention into the underlying supply network, i.e.,
the networks of relationships and issues. For intervention purposes, the three drivers of multi-
conflict constellations (embeddedness in relationship networks, interdependencies of conflict
166 Michael Reiss
issues, spillovers between strategies, figure 2) serve as parameters for managing the
relationship nexus, the issue nexus, and the strategy nexus.
Multi-conflict managers must keep in mind that the nexus of conflicts is not restricted to
unidirectional chain- or tree-shaped connections (dissemination, propagation, dependencies),
but also contains two-way connections (interdependencies): in the case of a simultaneous
handling of primary and anticipated derivative conflicts, primary conflicts will be intensified
if aggressive strategies of conflict management are employed in collateral conflicts. Impacts
on the strategies employed in primary conflicts also occur, whenever the configuration of
parties in the collateral conflict changes, e.g., in the wake of the involvement of allies that
strengthen the position of one conflicting party or by additional providers of expertise and
other conflict management services.
Managing the relationship nexus: Modifications of business relationships between the
involved actors are accomplished by changing the configuration of and/ or the associations in
the supply network.
Configuration management offers one potent option of decreasing the risk of conflict: the
reduction of the number of parties involved in the supply processes. This intervention reduces
a specific category of negative network externalities (diseconomies of network) related to the
number of involved parties: The larger the configuration, the higher the risk of conflict. One
way of eliminating actors is disintermediation. Contracting with intermediaries such as
wholesale, retail, or brokers increases the risk of conflicts over nonfulfillment. The bypassing
of intermediaries is accomplished by insourcing these activities which is facilitated by e-
business infrastructures. Integration efforts also diminish the number of immediately involved
actors: activities like establishing one international standard consortium instead of several
national or regional standards consortia, the tiering of the upstream supply chain, coalition
building, mergers and equity joint ventures create collective actors who replace the numerous
individual actors. Inversely, integration efforts are also supposed to prevent a fragmentation
of the supply network, e.g., into different standards consortia (e.g., rivaling operating systems
for mobile phones).
However, not all elimination strategies do automatically decimate the number of conflict
arenas. Instead they merely result in a translocation of conflict arenas. This holds for tiering,
4PL-systems or insourcing: these interventions primarily replace inter-corporate by intra-
corporate conflicts, e.g., between the product divisions and captive suppliers. However, since
intra-corporate units are more integrated, these models factually reduce the intensity of the
conflicts and thereby the costs of intervention.
In contrast, from an opportunity management point of view, an increase of the number of
involved actors is advocated. As for intermediaries, this holds for insurance companies or
neutral third parties. Likewise, a shift from single sourcing to dual or multiple sourcing
mitigates the risk of lock-ins by offering a fallback option. Moreover, competitive dual
sourcing stimulates productivity and creativity of suppliers.
In addition to the mere number of involved actors, reconfiguration also implies a
modification of the roles that actors play in the multi-conflict context since role switching
may help increase the overall benefits or reduce costs. Typical examples of planned role
dynamics are encouraging secondary parties to turn into primary parties (e.g., victims allying
with one of the conflicting parties) or latent non-actors to turn into active stakeholders.
Inversely, overall performance can be increased by downgrading the involvement of some
actors, e.g., by the withdrawal from a supply network to avoid excessive costs of membership
(e.g., costs of certification and coordination).
Besides reconfiguration, association management constitutes the second focus of
intervention. The levels of integration, interdependency, and symmetry between two or more
than two actors in the supply network serve as the base for managing the connections between
conflicts.
The derogation of dysfunctional connections constitutes the essence of the risk
management-approach. This strategy is usually termed containment or percolation, a
decoupling strategy that treats conflicts the same way as viruses (Newman 2013).
Containment is primarily accomplished by preventing the dissemination of a conflict from a
source conflict to target conflicts. They serve as the two toeholds for intervention:
Quarantine-strategies cover all activities that inhibit dysfunctional connections by isolating
the source conflict. Chambre séparée- or Chinese wall-strategies represent a prevalent
example for such barriers preventing outgoing impulses. They aim at protecting (two or more)
dyadic cooperations against the risk of turning into conflicts (Brandes, Brege, Brehmer, and
Lilliecreutz 2007): Whenever a supplier (of components or services) is cooperating with two
(or more) OEMs that are competitors to each other the risk of leaks is battled by activities of
demarcating the two accounts in the organization of the supplier, e.g., by separating
responsibilities or by non-disclosure regulations.
Buffers in the flow of materials help decouple actors and thus at least help decelerate the
propagation of conflicts. Likewise, the control of information flows (e.g., word-of-mouth-
dissemination) by help of complaint systems or non-disclosure agreements inhibits the
uncontrolled dissemination of the primary conflict. Firewalls prevent the access of
unauthorized actors to conflict-related data.
The immunization-strategy protects (potential) target conflicts from being infected by
incoming stimuli. This is mainly accomplished by fostering a sufficient high level of conflict
tolerance (e.g., of victims). If preventive immunisation should fail, compensatory measures
for the negatively impaired secondary parties (e.g., complementors) are useful to cover the
collateral damage.
Yet, multi-conflict managers should be aware of the lessons learned from so called small
world-models in social network analysis (Easley and Kleinberg 2010): They signal that it is
not feasible to radically disconnect actors. So, containment will not eliminate connections but
just make the paths longer and thereby more costly. In case preventive quarantine strategies
do not work, some palliative measures (e.g., insurance) can be deployed.
The opportunity management approach in the nexus framework focuses on ―good‖
conflicts. The corresponding strategy of solidification of functional connections is
accomplished by leaning the supply processes (i.e., by eliminating slack) and by creating
transparency via implementing gateways. The information asymmetry with regard to
secondary parties can be reduced via dismantling barriers (―walls,‖ ―shields‖) in the flow of
information, via investing in conflict communication or deliberately inserting ―leaks‖ into the
information system.
Managing the issue nexus: In addition to managing relationships, interventions in the
nexus framework also deal with the interconnected conflict issues in a supply network. This
list of typical supply-related issues contains prices, quality, conformity, target dates,
interoperability, compliance, corruption, hidden information, and hidden agendas.
Effectiveness of conflict management can be reached by merging two different issues
168 Michael Reiss
concerning the same conflicting parties in order to find one solution for two conflicts
simultaneously. This bundling is applied to interdependent issues, preferably issues with a
high elasticity of substitution (e.g., price and quality, service level and 24/7 availability).
Although paradoxical at first glance the one step-procedure enlarges the scope of
compromises obtained via collaborative problem solving.
Managing the strategy nexus: As outlined above, the interconflict strategy-nexus is
primarily characterized by tit-for-tat mechanisms. Moreover, primary and tertiary parties
develop a specific reputation or profile through abiding by the same conflict management
style in different conflicts. Last but not least, a strategy nexus is the result of adopting
strategies of benchmarks. The adoption process either follows a learning approach (e.g., good
practices, imitating role models) or a complying approach when strategies adopt prior
decisions of courts or agreements of arbiters in similar cases.
CONCLUSION
Neglecting the interconflict-arena (because of focusing on the intraconflict-arena) impairs
the practical relevance of strategies for conflict management as well as the rigor of academic
models. The results of a multi-conflict management-approach may significantly differ from
the conclusions drawn by managing conflicts separately, quite often they are even
contradictory: whereas segregate conflict management may advocate a resolution of a conflict
(i.e., the reduction of the intensity of a conflict), a holistic approach may obtain a better
performance by escalating the respectice conflict (e.g., between several supply networks) in
order to de-escalate a collateral conflict (within the respective supply network).
Multi-conflict management affords a reframing of mindsets together with a new
architecture of management models. The scenarios for the future development of conflict
management imply either a moderate or a radical change. In analogy to the scenarios of
obtaining progress in budgeting, the moderate reorientation can be characterized as ―better
conflict management‖ whereas a radical change ends up in a ―beyond conflict management‖
paradigm.
Better conflict management considers conflict management as a specific domain of
management comparable to domains like international management or change management.
A progress in this domain is achieved by integrating new strategies into the scope of
strategies for the intraconflict arena (e.g., methods of alternative dispute resolution, early
recognition systems, differentiated models of conflict behavior of individual versus collective
actors, integrating the risk and the opportunity management approach) as well as for the
interconflict arena (e.g., conflict portfolios, multistage interdependencies between conflicts).
Moreover, the interconnectedness of different species should be investigated more
thoroughly, for instance social conflicts causing intrapersonal conflicts (of interest) or the
interface between knowledge conflicts (e.g., controversies about the overall costs of
outsourcing or the risks of cloud computing) and economic conflicts (e.g., about transfer
pricing of outsourced services).
Beyond conflict management constitutes a lesson learned from the interconnectedness of
conflict and non-conflict interactions, e.g., from the blurring boundaries between cooperation
and competition against the background of coopetition. When the conflict arenas and the
extraconflict arena are merged (Malhotra and Lumineau 2011), conflict management loses its
character as a separate management function and competence. Instead, relevant management
activities deal with generic processes, skills, and tools such as communicating, negotiating,
coordinating, empathy, tolerance, participation, round tables, and stakeholder conferences.
Whereas the better conflict management-approach interprets communication as a device for
conflict management (e.g., trust building), the beyond conflict management–approach rather
uses conflict management as a device for communication (e.g., via compromising on
communication infrastructure, channels, media, and language). Eventually, conflict
management is completely incorporated into relationship management. This embeddedness
takes account of the fact that every social interaction (―association,‖ ―transaction,‖ ―relation‖
or ―relationship‖) implies a certain level of intensity of conflict. In neoinstitutional economics
for instance potential conflict between contracting parties roots in opportunistic behavior,
cheating, shirking, hidden characteristics, hidden action, and hidden intention (Williamson
1979; Miller 2008). The performance of relationship management is viewed as coordination
performance (e.g., synergetic linking). In other words ―conflict‖ and ―non-conflict‖ are two
domains of coordination that can only be differentiated by an artificial dichotomization of an
intensity of conflict-scale separating low from high intensities of conflict (Jehn 1995).
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Chapter 10
SUPPLY CHAIN MANAGEMENT USED IN INDUSTRIAL

SALES AND BEST BUSINESS PRACTICES
Terry Damron1,*, Amye Melton1 and Alan D. Smith2

1
Austin Peay State University, Clarksville, Tennessee, US
2
ABSTRACT
Using The Fastenal Company has achieved through revolutionizing the way they sell
to their customers, providing supply chain measures not available from the competition.
Embracing global measures, GSCM, purchasing management for the company and
customers, and the use of IT within stores and distribution centers, Fastenal has grown at
an unprecedented rate for the last 40 years, becoming one of the largest industrial supply
companies in North America and a global competitor.
Keywords: distribution centers, IT, global measures, GSCM, purchasing management,

supplier collaboration, supplier integration, supply chain
INTRODUCTION
Supply chain management is a comprehensive and ever-changing side to any business,
making it important for companies to use up-to-date techniques and principles in order to stay
competitive.
*
Corresponding Author address: Department of Marketing, Austin Peay State University, Clarksville, TN 37044,
Email: DamronT@apsu.edu.
Supply Chain Collaboration and Integration
Mentzer, Stank, Esper, (2008) suggested that supply chain management (SCM) includes
concepts typically related to marketing, logistics, production, and operations management.
Therefore, SCM can be referenced for decisions in essentially all operations management
decisions, with an emphasis on quality management, process and capacity design, location,
inventory, material requirements planning, JIT, and scheduling (Wolfgang and Koch 2010;
Zhang, Joglekar and Verma 2012). Collaboration and SCM are synonymous in many ways as
both include communication and teamwork to reach an end goal. A firm‘s external and
internal collaborations often improve quality and business practices, fueling growth (Jing and
Felix 2011; More and Babu 2012). Information sharing is a critical part of SCM-related
activities for organizations prioritizing accuracy in order size, specifications of design, and
even production aspects among employees (Maxwell 2008; Melnyk, Lummus, Vokurka,
Burns and Sandor 2008; Meyr 2004). Such sharing and data/information capturing plays a
critical role in collaboration, as the transfer of information from one party to another allows
partners to correctly make decisions and fulfill requests from one another.
There are at least three aspects of information sharing, including operations, marketing,
and information systems (Carvalho, Cruz-Machado and Tavares 2012; Kohli and Jensen
2010). The operations aspect allows for the buying department to collaborate with a supplier
based on their priority systems and required metrics in order to maintain efficient, timely
production. Marketing collaboration involves new product development and promotional
planning, as well as consumer pattern recognition and marketing research activities. With
increasing levels of technology, progressive development of supplier collaboration allows for
almost instantaneous sharing of information for proper strategic planning. Information-
intensive systems (e.g., expert, ERP, MRP) allow for a significant degree of automation and
promote communication and collaboration with suppliers. Information systems bring a
number of benefits to SCM, including purchase order creation, low quantity alerts, and
determination of demand forecasts for reduced inventories.
Joint planning is another important aspect of SCM, as it aids in the direct conversation
between buyer and supplier about future actions and forecasts. Commonly practiced types of
collaboration activities include operational and sales/business planning, which often coincide
with one another (Kayas, McLean, Hines and Wright 2008; Kim, Youn and Roh 2011;
Koplin, Seuring and Mesterharm 2006; Kumar, Shankar and Yadav 2011). Once the sales
department has sold a number of units, the production department must fulfill the order in an
efficient and timely manner. This information is then shared with the various suppliers and
planned out over the course of the lead time. Such sharing typically allows for goal
congruence among all involved and allows for a firm to execute a strategic plan. Kohli and
Jensen (2010) empirically studied the effectiveness of collaborative efforts within a supply
chain as compared to companies‘ demographics, current collaborations, and independent
variables related to operational techniques. As Kohli and Jensen suggested, goal congruence
allows organizations to form specific joint performance measures, IT standardization,
defining roles and responsibilities of each partner, formalizing information shared, alignment
of schedules, and development and implementation plans among the various collaborative
partners. Hence, once supply partners are communicating in a very standardized way,
understanding specific needs and goal expectations, it is reasonable to expect a smooth
transition into completing tasks and obtaining objectives.
Supply Chain Management Used in Industrial Sales and Best Business Practices 175
The shared understanding of goals and expectations would most likely not occur without
personal interaction and relationship building (Dasci and Laporte 2005; Ghemawat 2001;
Greenhut, Greenhut and Li 1980; Hameed and Amjah 2009; Kohli and Jensen 2010).
Personal interaction is the social quality individuals and groups use to communicate face-to-
face. This direct communication, greatly enhanced by technology, helps create a personal
nature to business. Because they are comfortable with one another, parties often can solve
problems more quickly. Through such personal communication, long-term relationships built
on mutual trust and commitment to achieving joint goals can be built. Supplier collaboration
and integration are built on trust in properly managing supply chains. It is important all
partners establish a history of fulfilling their contractual obligations and information sharing.
Undoubtedly, if strong trust is built, manufacturers and retail buyers are far less likely to
change suppliers, even if competitive bids are lower. Through planning, goal congruence, and
interaction, partners can build a trustworthy relationship that positively influences the inner
workings of the supply chain (Pettersson and Segerstedt 2011; Rodriguez and Ghosh 1999;
Smith and Offodile 2007; 2008a; 2008b).
Collaborative Forecasting and Complexity
A number of researchers (Mathirajan, Manoj and Ramachandran 2011; Pradhananga

Hanaoka and Sattayaprasert 2011; Parthasarathy and Ramachandran 2008; Pettersson and
Segerstedt 2011) are convinced that, along with sharing resources and collaborative process
operation, collaborative process improvement plays a crucial role in gaining sustainable
competitive advantage in logistics and production. This is especially true for successful
internal collaborative forecasting and planning activities (Smith and Offodile 2007).
Management needs to pay increased attention to collaborative process improvement in their
strategic planning activities.
Nakano (2009) presented empirical evidence of a strong, positive correlation between
internal and external collaborative forecasting and planning. Nakano examined collaborative
forecasting and planning in both internal and external supply chain on performance.
Collaborative forecasting and planning with main suppliers and collaborative forecasting and
planning with the main customer are strongly and positively correlated, as well. The author
found a statistically significant causal relationship between internal collaborative forecasting
and planning and logistics and productions performance. Only internal collaborative
forecasting and planning had a significant effect on logistics and production performance.
The correlation between internal collaborative forecasting and planning with main suppliers
was greater than one between internal collaborative forecasting and planning and
collaborative forecasting and planning with main customers. The correlation with upstream
firms was stronger than with downstream firms, but this could be dependent on the
manufacturer‘s position in an external relationship.
There are many important issues in supply chain forecasting (Kroes and Ghosh 2010;
Smith and Offodile 2007), but few are as critical as complexity in the supply chain; de Leeuw
and van Goor (2013) addressed the problem of increasing complexity issues within the
modern supply chain from a modeling approach. First, the authors defined the drivers of
supply chain complexity and then proposed a method by which to measure that complexity.
They decided upon eight drivers of supply chain complexity: uncertainty (i.e., related to
supply and demand unknowns), diversity (i.e., related to the number of suppliers/customers
and the number of products and services), size (i.e., volume of the firm‘s operations),
variability (i.e., changes in requirements over time), structure (i.e., the various systems and
processes throughout the organization); speed (i.e., how quickly the firm is required to
respond to changes), lack of information synchronization (i.e., the degree to which
information is coordinated throughout the organization), and the lack of cooperation (i.e., ―the
degree of closeness in relations between partners in the supply chain‖ (p. 967).
de Leeuw and van Goor (2013) believed firms can better position themselves to cope
with the complexity in their supply chains through implementation of certain measures;
however, business managers must be aware of the tradeoffs between implementing a coping
mechanism and its costs. For example, keeping inventory may decrease uncertainty
concerning supplies, but doing so typically impacts cost. Thus, operations managers must
weigh the benefits of reduced uncertainty and added inventory costs. The authors concluded
firms may cope with areas of high complexity within their supply chains through maintenance
of suitable levels of inventory (i.e., in order to cope with uncertainty of supplies), flexibility
of resources (e.g., flexible work schedules for employees that better matches peak activity
times), increasing the exchange and communication of information (i.e., to aid the
identification and the fixing of problems across the various units), rationalization, outsourcing
(i.e., to reduce problems encountered and associated costs), and isolation (i.e., creating a
separate unit to solely solve complexity issues). Management‘s identification and
measurement of drivers of supply chain complexity allows firms to identify major areas of
their supply chain and determine the complexity of those drivers. In doing so, firms can see
what they are doing well and improve upon the areas in which they struggle. Undoubtedly,
supply chain complexity heavily influences supply chain forecasting. Management‘s ability to
increase awareness concerning the impact of supply chain complexity on a firm‘s operations
may prove the most critical link to improving responses and probabilities of success.
Purpose of Present Study
The purpose of this research is to explore the importance of SCM and collaborative
processes within Fastenal Company, a global leader in the distribution of fastenings, fixings,
and associated products. The study showcases operations management concepts, particularly
the managerial effect of operational and social capital on the buyer-supplier relationship.
Decisions regarding the supply chain can influence operations managers‘ other decisions. As
firms attempt to compete via cost or customization, quality, cost reductions, and a product‘s
speed to market, more emphasis is placed on the supply chain. Effective SCM typically
centers on the formation of partnerships with suppliers, pursuing the firm‘s strategy to satisfy
the end customer.
The available literature on SCM is quite extensive, especially with respect to the value-
added of collaborative buyer–supplier relationships. The vast majority of these studies
support the importance of establishing trusting collaborative supplier relationships. In many
cases, shared vision and trust enables management to reduce the likelihood of conflicts and
promote cooperative behavior. To this point, many SCM-related studies and literature have
focused on the positive side of social capital (Hall 2010; Hameed and Amjah 2009; Jing and
Felix 2011; Kohli and Jensen 2010).
These results contribute to the argument that a model integrated with both qualitative and
quantitative factors may be needed because using the cost-based approach results only may
result in a lower-quality location with similar costs associated with higher quality location
determined by a more integrated model.
METHODS
Qualitative Business Case Study
The qualitative case study approach to research uses a variety of data sources to explore a
topic of interest within its context. This ensures the issue is not explored through one lens, but
rather through a variety of many possible viewpoints to help to reveal and understand the
concepts associated with the study. According to Baxter and Jack (2008), one of the common
problems associated with a case study is the tendency for researchers to attempt to answer
questions that are too broad or approach topics with too many objectives.
To avoid this problem, Yin (2003) and Stake (1995) suggested placing boundaries on a
case. This case is bound by time, place, definition, and context; namely, it focuses on SCM
integration/collaboration for one company during the 2014 fiscal period.
Sample Selection
Personal interviews of upper-to-middle management along with comments from

convenient samples of employees were used to gather perceptions concerning the accuracy of
the firm‘s strategic management processes within a customer service focus. Most of the
information contained in this case study was obtained from management and/or the firm‘s
website.
CASE: FASTENAL COMPANY

Corporate Overview
Founded in 1967 in Winona, Minnesota with an initial investment of US$30,000, the

Fastenal Company currently grosses more than US$3 billion per year.
The company‘s success stems from exceeding customers‘ expectations concerning
delivery lead times, product knowledge, and variety of fasteners and industrial products not
available via typical retailers. An outside sales company, Fastenal goes directly to the
manufacturer, service provider, or end-user in order to drive sales in a regionally specific
marketplace. What began with a single 1,000 sq. ft. store has grown to a corporation of more
than 2,600 stores and 15,000-plus employees.
The firm achieved this growth because they activity invested in customers service and
were involved in continuously improvement of multidimensional service network that
includes a full-service manufacturing center, a strict quality management system, regional
distribution centers, and locations in South America, Europe, and Asia. During this study, a
number of employees mentioned seeing first-hand the benefits and capabilities of the firm‘s
complex and efficient supply chain system.
Fastenal must not only obtain the product and provide a fair price, but also must ensure
fasteners and industry-specific supplies meet stringent standards required for performance in
critical applications.
These standards demand that any supplier use strict ISO 9000 qualifications and even
upwards of AS 9100 certification for the aerospace industry. Fastenal has either met or can
use a direct supplier that allows for any of these certifications to be met in order to be RoHS
compliant.
Basically, the driving force behind RoHS directives is restricting certain dangerous
substances commonly found in electronic-related equipment. Being greener in its approaches
allows for more socially- and environmentally-conscious strategic planning initiatives (Park
and Min 2013; Rajapakshe, Dawande and Sriskandarajah 2013).
Such initiatives enhance corporate reputation and enable the company to either have,
make, or outsource any industrial product a particular customer needs almost anywhere in the
world, regardless of environmentally sensitive legislation and/or restrictions. Such robust
certifications may differentiate the firm from its competition, as many in the industry do not
supply a primary sourcing option.
A full-service industrial supplier, Fastenal uses its supply chain network to its utmost
potential in order to meet the company goal of excellence through customer service.
Global Impact
Because the fastener industry is relatively large and global in nature, it is important for
suppliers to use their supply chains to serve customers in a collaborative and integrative
fashion.
Recognizing intensive supplier partnering as a growing trend, Fastenal responded with
the creation of FASTCO, an overseas subsidiary in Asia.
The firm sells products to Asian companies and distributes their own products in mass
quantities. They ship products to their regional distribution centers in the U.S., States,
Canada, and a number of other countries.
This creates better margin on imported products and allows the firm to make custom
manufactured parts overseas. Supplier integration is driven by a need for firms that are trying
to make their intra-firm business processes and inter-firm supply chains more efficient and/or
more responsive by ―outsourcing and offshoring many manufacturing and RandD activities,
sourcing in low-cost countries, reducing inventories, or collaborating more intensively with
other supply chain actors‖ (Wagner 2008, p. 307). Such activities allow Fastenal to partner
with their various stakeholders in the manufacturing arena, offering options for customers
who prefer domestic production and price-conscious customers who wish to outsource to
overseas companies.
Because of these supply chain options, Fastenal is extremely competitive in the global
industrial market and could expand their stores, distribution centers, and manufacturing
outlets into other countries.
Green Supply Chain Management (GSCM)
With an eye toward environmental issues and efficiency, Fastenal has embraced many
green initiatives. Such green operational practices are generally aimed at reducing waste,
pollution, and the consumption of energy and material resources (Kim, et al. 2011; Kinnear,
Taylor and Ahmed 1974; Koplin, et al. 2006; Laroche, Bergeron and Barbaro-Forleo 2001;
Mainieri and Barnett 1997). As Toke (2012) noted, such activities are ―obviously good for the
environment, and are the best for the supply chain because they cut operational cost‖ (p. 373).
Fastenal‘s initiatives include green electronic processes, retrofit lighting projects, and
recycling programs for specific reusable goods from the stores or customers.
Green-based electronic communication processes impact carbon footprints, costs, and
speed. Large data warehouses and data analytics create significant competitive advantages.
Fastenal embraces the use of electronic fax, e-mail, and mobile communications-based orders.
For example, many of the vendors within Fastenal‘s buyers guide are equipped to receive
orders only through EDI. This feature provides assurance of order receipt and tracking via a
distribution center or UPS.
Fastenal drives sales and assists companies in their green efforts via retrofitting lighting
projects, which entails replacing T12 lights for the now-standard and more efficient T8 bulbs
and ballasts. A federal tax credit was recently created for any consumer in a business setting
that would undergo this change. Although it has a relatively high initial start-up cost, doing a
retro-fit within an entire business is a significant short-term investment, but has equally
significant long-term benefits in decreasing total energy usage. Fastenal‘s management
estimated the average time for the payback period is approximately two years.
Another major green initiative for Fastenal is recycling and/or trade up programs for used
or damaged goods. Management created and promotes these programs as part of its green
supply chain management (GSCM) initiatives. Typically, GSCM includes reverse logistics
systems (i.e., recovering system of used materials and products) and recovery networks (i.e.,
which creates a market of used products for eventual resell by properly repairing or
remanufacturing such items), based on the demand for these products in the reuse market.
Fastenal established many of their recycling programs with large suppliers, including
Milwaukee and DeWalt, in order to provide a gateway for new business and, through
recycling, minimize environmental impact. For example, Fastenal lowers costs when various
outlets reuse the corrugated boxes in which goods are received for store projects or the
packaging of customer orders.
Purchasing Management
A key feature of Fastenal‘s current supply chain model is the proper use of purchasing
management to ensure margin and adequate supply. Purchasing is an important component of
any supply chain system, as it dictates the amount of material that can either be sold or
manufactured for a company. Internal and marketplace success result from Fastenal‘s three
forms of purchasing: corporate level, store level via distribution centers, and store level via
special stock.
At the corporate level, an organization needs a sustainable approach to SCM. This may
be achieved through contingency planning activities and supplier integration initiatives
throughout the entire supply chain. Ultimately, management of the value chain leverages each
partner‘s purchasing power and their influence to promote positive changes that lead to
enhanced customer value. Sound SCM should lead to social and environmental performances
of the supply chain, promoting a win-win situation for all stakeholders (Mateen and More
2013; Park and Min 2013; Smith and Offodile 2007). To help assure these goals within their
various regional distribution centers, Fastenal employs purchasing agents and uses automated
systems to ensure orders that are beginning to get low by setting a min/max on every item.
This approach allows for great distributor-supplier relationships since it creates continuous
orders for distribution and contact between Fastenal and its many suppliers.
At the store level, the use of purchasing and sourcing can make or break the profitability
of a branch. Operational margin and sales figures are two of the most carefully scrutinized
aspects within Fastenal. Since purchasing has the most profound effect on these figures,
Fastenal places an emphasis on exploring all options and resources in order maximize profits.
Branch managers use a supplier book of business which includes a large detailed list of
suppliers, what they supply, and their contact information. This information helps ensure the
salesforce has the ability to make contact with brand representatives, source-out products,
develop quotes for customers, and then purchase. The firm typically uses a purchase order
system that allows for tracking and accountability for the suppliers and the branch, and
enables the accounting department to quickly pay invoices.
One of the most interesting and important components of the Fastenal purchasing system,
is the store managers‘ ability to purchase special stock items. In essence, this means each
store can purchase items directly from any supplier and create an individual part number for
each item. This option allows the salesforce to outsource any product, price it, and create a
part number for referencing. This supply chain process creates a competitive advantage for
Fastenal, as the salesforce – not restricted to the firm‘s catalogue – has access to a diverse
supply base that enables them to meet or exceed the expectations of their customers.
IT Practices
The use of IT practices within Fastenal, as within any customer-service based company,
is vital because of its customer-valued implications with efficiency, lead time, and inventory
availability. A primary goal of any successful supply chain software is integration throughout
all sections of a company‘s business. These systems are used to integrate the various product
stages with their modules through the supply chain. In general, SCM systems and their
analytics are critical for effective production planning, problem solving, and strategic
planning activities (Elysee 2015; Latha and Suganthi 2015). Undoubtedly, the complexity of
global supply chains will only increase and empowered customers will continue to demand
more sophisticated productions and services, reduced response times, higher inherent value,
and reduced transactional costs. To meet the need for enhanced supply chain capabilities, IT
services and architecture must become equally sophisticated. Fastenal attempts to tie all of
these different modules together in their POS system, through which distribution centers and
stores are completely connected and can share information instantly via e-mail or mobile
notifications. For example, if a delivery truck is running late, an e-mail is sent to the stores on
the truck‘s route. If an inventory clain or return needs to take place for an overstocked part, a
notification is sent through the POS system from corporate headquarters to the affected store.
The POS system, which supports both the distribution centers and its branches, is a
simplified form of Oracle. Relatively user friendly, the platform does not typically require
additional training, thereby reducing time distractions from production. Training for this
system is completed primarily online via interactive e-learning lessons. Such instructional
technology allows users to experience POS software, practicing the submission of purchase
orders. Internally dubbed the ―Fastenal School of Business,‖ this training is a staple for the
firm. For many employees, the experience serves not only as training to use the company‘s
technology, but also an opportunity to learn new business practices. This use of IT allows for
a hands off approach to production activities for Fastenal to train their employees, while
maintaining their productivity throughout the day.
DISCUSSION
Progressive companies like Fastenal try to employ a continuous improvement business
model in order to more quickly adapt to their rapidly growing business. Although annual sales
have surpassed US$3 billion dollars, the firm is still fairly small compared to competitors
such as Grainger, MSC, and McMaster Carr. In order to eventually close the gap,
management understands they need to focus on the areas of logistics, expansion, and reducing
or changing their supply base in order to become a more profitable organization.
Improvements in these areas should allow Fastenal to become more efficient, innovative, and
appealing to potential and current clientele.
In terms of logistics, Fastenal is becoming more innovative in some areas, but lacks in
others. For example, competitors MSC and Grainger can deliver product to a business
location within a few hours of order placement; Fastenal offers no such option. The addition
of same day shipping through a localized distribution center would improve competitive
position. Fastenal‘s distribution centers are regionally based and staggered throughout
domestic and global locations. Each facility services hundreds of stores. The closest
distribution center for an Akron, Ohio store is located nearly an hour away. Same day pick-up
is possible, but the loss of time can lower the overall profitability of an item. Perhaps the key
to improving customer satisfaction rests in the development of a decentralizing strategy
whereby smaller distribution centers would serve each state, cutting lead times from one or
two days to same day. This change would allow Fastenal to compete more aggressively in the
marketplace while inviting new business and eventually growing in sales.
Domestic sales growth is obviously very important for any business, but global expansion
allows for a larger supplier and customer base that can more rapidly increase sales and
strengthen the overall supply chain. Although Fastenal has invested in some international
expansion, the firm is a relatively unknown brand. With proper infrastructure and supply
chain networks, the company could enter markets and gain business on every continent.
Perhaps the firm could build and maintain stores and distribution centers near very large
industrial cities such as Rio, London, and Dubai. Before acting on such global expansion
plans, Fastenal would require proper needs and feasibility studies. Further, the success of such
ventures would depend upon the firm‘s ability to compete in local international markets, a
goal attained via the development of a supply base to include suppliers in that particular part
of the world. Perhaps a global mindset will enable Fastenal to compete with (and eventually
outgrow) competitors focused solely on domestic growth.
As Fastenal and its competitors continue to grow and develop their niches, they are
becoming more and more ―big book‖ distributors that literally carry any and every product
that you can think of. Whether they actually sell those products or not, it is important for
distributors to give customers the option of purchasing a particular product at any time. This
option creates a very large supply base and does not always lead to the best pricing. By
focusing on key aspects of their business that have high inventory turnover ratios and with
high profit margins, Fastenal could extensively lower their supply base and focus their efforts
in a few arenas in order to find their niche markets which obviously include fasteners. This
switch could seriously raise profits and allow for Fastenal to target markets and gain business
instead of chasing any and every industrial account and smaller and more local ―mom-and-
pop‖ repair shops. Promoting and retaining customers are based on superior product lines and
customer support.
CONCLUSION
The use of collaboration and integration activities in SCM are some of the most important
aspects to operational success since it directly correlates to all aspects of any firm‘s supply
chain. Without collaborations, companies would have to internally invest in significant
financial resources to plan, design for manufacture, specify, and manufacture every aspect of
their own products. Such internal activities would create a large increase in the cost of goods
sold and puts all of the responsibility of the manufacturing on the parent company, instead of
disbursing some of the responsibilities to a supplier, and place the firm in an uncompetitive
position in the marketplace. With good communication and collaboration among buyers and
suppliers, firms can build lasting relationships and provide the utmost amount of service to
their customers, which in turn can create sustainable growth.
Training within an organization is a critical part to the success of the employees and the
company as a whole. Fastenal endorses an online, hands-off approach for the basis of their
initial training. A number of the employees have suggested they would like to experience
more hands-on training and allow the general managers to physically train new employees on
the ideologies and supply chain methods Fastenal uses on a routine basis. Hands-on
experience has a number of proven training advantages and it should be a good investment for
the company, especially with the increasing complexities of supplier collaboration and
integration activities the firm currently promotes.
Management at Fastenal, especially in terms of supply chain, has traditionally leveraged
the use of technology. Mobile and more innovative communication technologies that enhance
supplier collaboration and integration, especially in terms of industrial sales, can significantly
differentiate suppliers and allow for the measureable gains in customer satisfaction (Dharni
2014; Gupta and Naqvi 2014; Alderete and Gutiérrez 2014). Better integration of mobile
technologies, such as iPads or other tablet forms, is essential for the salesforce in order to
enhance the ordering process on sites with Wi-Fi capabilities. Such technological
improvements should lower the lag time between visiting a customer and physically placing
the order, which in turn makes the overall supply chain more efficient as a whole. Adding
such options would be a great selling feature for customers that would like to see orders get
placed correctly and it would allow for POs to be confirmed instantly and direct customer
interactions about orders.
ACKNOWLEDGMENTS
The authors wish to thank most heartedly for the valuable contributions by the reviewers
for their input into the final paper. Peer reviewing and editing are commonly tedious and
thankless tasks.
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Chapter 11
DEVELOPMENT OF SPREADSHEET-BASED
SIMULATION PACKAGE FOR SUPPLY CHAIN
INVENTORY POLICY ANALYSIS
Joby George* and V. Madhusudanan Pillai

National Institute of Technology Calicut, Kerala, India
ABSTRACT
The selection of right inventory policy in supply chain stages is often quoted as an
effective means to achieve better supply chain coordination and to alleviate overall
supply chain cost. Plenty of mathematical models are being developed to solve inventory
problems, which are harder to understand, and the complexity is often high, as the
number of parameters affecting the problem increases. In the busy working environment,
the managers may not have ample time to study these models and implement it to get the
solution. Spreadsheet-based simulation models are a remedy for this problem as these
models are easier and simpler to use. In this chapter, we are discussing the development
of a spreadsheet-based simulation package to analyze the impact of various periodic
review inventory policies on the performance of a serial supply chain having four stages
such as retailer, wholesaler, distributor and factory. The simulation package is developed
using Microsoft Excel with Visual Basic for Application for scripting. The inventory
policies considered are order-up-to level policy; modified order-up-to level policy; (r, S)
policy where, r is reorder point and S is maximum inventory level; demand flow strategy;
and average demand strategy. The performance measures considered are supply chain fill
rate, supply chain backorder rate, supply chain risk of shortage, bullwhip effect and total
cost of supply chain. Using the proposed spreadsheet simulation package, we have
designed eight experimental scenarios and the best performing inventory control policy
for each scenario is found using Grey relational analysis. The analysis shows that the best
performing inventory policy depends on the supply chain scenario, and the proposed
package is a suitable tool for simulating inventory distribution problem in a four-stage
serial supply chain.
*
Corresponding author: Email: jobycg2005@gmail.com.
188 Joby George and V. Madhusudanan Pillai
Keywords: supply chain, inventory policy, spreadsheet simulation, performance measures,

grey relational analysis
NOTATIONS
t time period index
i stage indices, (i = 1(retailer), i = 2 (wholesaler),
i = 3 (distributor) and i = 4 (factory))
S maximum inventory level
r reorder point
c can-order level
Q fixed order size
order placed by stage i at time period t
inventory position of stage i at time period t
expected demand during review period of stage i at time period t
1. INTRODUCTION
The supply chain, in which a company operates, is responsible for the success or failure
of a company and hence, now-a-days, the competition is among supply chains rather than the
members of a chain (Chwif et al., 2002). The success of members of a supply chain and better
performance of the entire supply chain can be ensured by the high degree of coordination
among supply chain members. Lack of coordination among members may lead to the poor
performance of the entire supply chain. Coordination is achieved by sharing information
about customer demand, lead time, inventory levels, inventory policies, inventory shortage
management techniques, and cost structure. One of the challenging roles of a company
manager is to keep inventory cost as low as possible by choosing an appropriate inventory
policy in consideration with inventory policies chosen by other members of the same supply
chain (De Sensi et al., 2008). Inventory policy refers to the rule used by a supply chain
member to make decisions on when and how much to order (Chopra et al., 2006). The
selection of right inventory policies is often quoted as an effective means to achieve better
supply chain coordination and alleviate overall supply chain cost. In the literature, there are
several models and methods available to solve supply chain inventory problems. In common,
these methods can be divided into two categories: analytical approach and simulation
approach. The analytical approach involves mathematical optimization techniques that give
an exact solution to the inventory management problem. The shortcomings associated with
the analytical approach are applicability for small size problem, cumbersome modelling
process, difficulty in understanding, and very high complexity (Hung et al., 2006). The
advantages of simulation approach with the analytical approaches are performance evaluation
prior to implementation, powerful what-if analyzes and comparison of various inventory
policy settings with complex supply chain structures (Chang & Makatsoris, 2001; Lau et al.,
2004). Supply chain simulators can be categorised as (i) programming language-based (ii)
simulation software package-based and (iii) spreadsheet-based (Othman et al., 2012). The
Development of Spreadsheet-Based Simulation Package for Supply Chain … 189
discouraging factors related to the first two categories are a high cost to purchase the
software, lack of user friendliness, highly perplexing output, lengthy learning time and
difficulty in understanding the logic of programming languages. These discouraging factors
forces the managers to think about a 'quick' and 'easy' spreadsheet-based simulation
methodology for solving inventory control problems (Sezen & Kitapci, 2007).
The objective of this chapter is to discuss the development of a spreadsheet-based
simulation package to analyze the impact of various periodic review inventory policies such
as (i) order-up-to level (OUL), (ii) modified order-up-to level (MOUL), (iii) (r, S) (iv)
demand flow strategy (DFS) and (v) average demand strategy (ADS) on the performance of a
serial supply chain. Figure 1 depicts the structure, order flow and shipment flow of supply
chain. The supply chain has four stages: retailer, wholesaler, distributor and factory.
Performance measures considered are supply chain fill rate (SCFR), supply chain backorder
rate (SCBR), supply chain risk of shortage (SCRS), bullwhip effect (BWE) and total cost of
supply chain (TCSC). A spreadsheet-based simulation package is developed using which
eight experimental scenarios are designed. The best-performing inventory control policy for
each scenario is found through Grey relational analysis (GRA) by considering the inventory
policies as alternatives and the performance measures as attributes. This chapter answers the
following questions:
(1) How to develop a spreadsheet-based simulation methodology for inventory policy

analysis in a serial supply chain?
(2) How to perform an experimental study by using the developed software package?
(3) How to select the best performing inventory policy using Grey relational analysis?
The outline of this chapter is as follows: Section 2 reviews the relevant literature and
Section 3 explains the features of the proposed spreadsheet-based simulation package. Section
4 describes different experimental scenarios and also the Grey relational analysis of
simulation results. Finally, Section 5 gives the concluding remarks.
2. LITERATURE REVIEW
The amplification of order variance as moving from lower to the upper stage in a supply
chain is known as bullwhip effect (Lee et al., 1997). For a serial two-stage supply chain,
under periodic review OUL policy, Chen et al. (2000) developed an analytical model for
quantifying the bullwhip effect. The researchers identified the reasons for bullwhip effect as
the following: demand forecasting, supply shortages, lead times, batch ordering and price
variations. For a divergent supply chain, the increase in order variability under (r, S) ordering
policy was analyzed by Kelle & Milne (1999). The policy would increase order variance and
frequent small orders can reduce this increase. Hassanzadeh et al. (2013) analyzed the causes
of bullwhip effect in a serial supply chain under (r, S) ordering policy. In a decentralised (no
sharing of information) supply chain, the lead time, and in a centralised supply chain, the
order batching, could reduce the bullwhip effect.
Figure 1. Order and shipment flows in a supply chain.
The nature of customer demand and configuration of the supply chain can influence the
performance of a supply chain. Monthatipkul & Yenradee (2008) proposed a mixed integer
linear programming model of periodic review policy for a divergent two-stage supply chain.
This supply chain faces stationary and non-stationary uncertain demand and the objective is
to minimize the total expected cost. The simulation approach of De Sensi et al. (2008)
compared the performance of a real divergent supply chain with other two supply chain
configurations having pessimistic and optimistic scenarios. The factors considered in the
scenarios are customers demand intensity, customers demand variability and lead times, and
these factors are taken up under different inventory policies. Dominguez et al. (2014)
compared the bullwhip effects of four-stage serial and divergent supply chains under
stationary and non-stationary customer demand situation in terms of order rate variance ratio
and bullwhip slope. The results showed that, for non-stationary customer demand, the
difference in bullwhip effects of both supply chain structures are significant.
The replenishment parameters such as lead time, review period, information sharing,
forecasting and safety factor can affect the performance of a supply chain (Kelepouris et al.,
2008). Shorter lead time and information sharing help for the efficient operation of the entire
supply chain. Heydari et al. (2009) analyzed the impact of lead time variability in the order
variance through a simulation approach for a serial four-stage supply chain with simple
ordering strategies. Samvedi & Jain (2011) developed a simulation model to study the impact
of periodic review replenishment policy parameters in a four-stage supply chain under
disruptions in the manufacturing stage. The results show that the cost of players in the chain
increases with increase in maximum inventory level and decreases with increase in the review
period. Information sharing mitigates bullwhip effect and helps to improve supply chain
performance. Cachon & Fisher (2000) studied the impact of information sharing in a supply
chain where the members follow (r, Q) policy, and the results show that the full information
sharing reduce the total cost. Reddy & Rajendran (2005) proposed a mathematical model to
determine dynamic OUL for the members in a serial five-stage supply chain as a function of
forecasted demand, forecasted replenishment lead time and safety factor.
Lee & Wu (2006) compared the performance of a serial supply chain under two
traditional policies with statistical process control based inventory policy. The result shows
the dominating nature of statistical process control based policy over the traditional policies.
Liang & Huang (2006) considered a serial four-stage supply chain where retailer uses (c, S),
distributor uses OUL, manufacturer uses (r, Q) and supplier uses OUL. Lau et al. (2008)
studied the impact of four policies: (i) economic order quantity, (ii) periodic order quantity,
(iii) Silver-Meal approach and (iv) part period balancing method. These policies are tested
under information sharing and early order commitment. Economic order quantity policy
provided the lowest cost for the entire supply chain. Also, it is found that information sharing
and early order commitment would help to reduce cost and improve service level. Wadhwa et
al. (2009) investigated the impact of number of simultaneous demand impulses on the
performance of each member as well as in the entire chain of a serial four-stage supply chain
under periodic review inventory policies such as fixed order quantity, OUL, (r, Q), (r, S),
DFS and ADS. A policy that is most efficient for one particular member necessarily not
efficient for the entire chain and fixed order quantity policy is found to be outperforming
compared to other policies under impulse demand. Setamanit (2010) developed an ARENA
based simulation model to study the effect of periodic review (r, S) policy in the performance
of a two-stage serial supply chain. The researcher examined the impact of uncertainties in
demand, lead time and review period in terms of average total cost per period and fill rate.
Pillai et al. (2013) analyzed the performance of a four-stage serial supply chain under various
periodic system-based replenishment policies such as DFS, fixed order quantity, OUL, (r, Q),
(r, S) and ADS in terms of bullwhip effect, supply chain fill rate and total cost of supply
chain. Fixed order quantity policy is found to be the best in most of the experimental
scenarios.
There are many contributions regarding the use of spreadsheet-based simulation
methodology for inventory problem analysis. Through an inventory model, Seila (2004) put
forward the steps of a spreadsheet simulation setup which contains the modules: (i) inputs to
the model, (ii) intermediate computations and (iii) outputs from the model. Sezen & Kitapci
(2007) developed a simple spreadsheet simulation model for illustrating the procedure for
generating a simulation tool for a divergent three-stage supply chain inventory allocation
problem with economic order quantity policy in all stages. Mahamani et al. (2008) developed
a spreadsheet-based simulation model for performance evaluation of a single-stage supply
chain of a manufacturing company that compares reorder point policy with the existing
ordering policy. Boute & Lambrecht (2009) quantified bullwhip effect under demand
forecasting when OUL policy is used in a serial two-stage supply chain, and spreadsheet-
based method is used for this purpose.
From the literature review, we found that, for inventory management problem and
inventory policy analysis in various structures of supply chain, simulation approaches play an
important role. Most of the existing spreadsheet-based models can incorporate dynamic
behaviour of one or two parameters and in general, the simulation background is supported by
Excel functions only. The contribution of this chapter is to develop a supply chain inventory
policy simulator, which helps to predict the dynamic behaviour of a serial supply chain under
various settings of different input factors (inventory policy, lead time, information sharing,
and customer demand nature). We have adopted a structured approach to the development of
spreadsheet-based package and it consists of an input, intermediate and output modules. User-
friendly spreadsheet interface is incorporated in the package for inputting policy parameters
and simulations parameters. The output of the simulation is displayed in spreadsheet and
graph forms. The period of simulation and replications are suitably incorporated in the
package. The back end of the package is supported by visual basic for application (VBA)
program that automates the simulation process. The package can replicate the simulation
based on simulation parameters, and it can display the average performance over replications.
3. FEATURES OF PROPOSED SPREADSHEET-BASED

SIMULATION PACKAGE
The simulation package is developed in the Microsoft Excel platform and for scripting
VBA is used. Several macros are developed in VBA and are used along with macros and
functions available in Excel. A macro is a sequence of instructions used to automate a
repeatedly performing task. The proposed spreadsheet simulation package has three modules:
an input module, an intermediate module, and an output module. Figure 2 shows the overall
framework of the package. The input module has a single spreadsheet for selection of
inventory policy and its parameters for each stage of the supply chain and inputting
simulation parameters. In the intermediate module, there is a spreadsheet for every stage in
the supply chain. Output module has a single spreadsheet that shows performance measures
of the supply chain and these modules are integrated into an Excel workbook.
Figure 2. Overall framework of the spreadsheet-based simulation package.

3.1. Input Module
The user can set the specifications of various details required for the simulation through
the input module ('Input' sheet). There are nine details, which include customer demand
distribution, inventory policy details, lead time, review period, initial inventory, forecast
parameters, cost structure, simulation parameters and evaluation period. Drop down menu is
available for selection of customer demand, inventory policy, and forecast related features &
parameters. For all other input details, only the keyboard entry option is available. Depending
on the supply chain inventory distribution problem for analysis, the user selects/enters the
necessary details and press the 'Submit' button. The simulation starts with submission. A
'Clear contents' button is provided in the input sheet for clearing the contents in each sheet of
the intermediate module. Pressing this button before the next analysis is recommended. The
description of each input details is as follows:
(1) Customer demand distribution

 Normal (parameters: mean and standard deviation)
 Uniform (parameters: lower limit and upper limit)
(2) Inventory policy
 Type: Five periodic review policies (Three inventory position-based and two
non-inventory position-based policies are available in the package.)
 Periodic nature: Week (user can assume any duration for a period)
 Environment: Lostsales or Backorder
(3) Lead time
 Order lead time: Time was taken to reach an order from a lower stage to the next
upper stage. This integer value can range from 1 to (simulation length minus 1).
 Delivery lead time: Time was taken to reach the replenishment quantity from an
upper stage to the next lower stage. This integer value can range from 1 to
(simulation length minus 1).
(4) Review period: Any integer value from 1 to (simulation length minus 1).
(5) Initial inventory: Initial inventory at each stage is set so that it satisfies the demand
expected till it receives the first replenishment order from its next upper stage
(6) Forecast
 Known: In this case, mean customer demand information is shared among stages
(no need of forecast). When this option is selected, no need of entering forecast
related parameters. The package assumes appropriate mean demand based on the
customer demand distribution parameters.
 Unknown: In this case, mean customer demand is not shared among stages
(moving average forecast method be used)
 Period of moving average: Enter the period of moving average
 First period demand forecast: Enter an estimate of the demand of the first
period
(7) Cost
 Order cost (per order): Cost incurred for placing an order
 Transportation cost (per shipment): Cost incurred for transporting goods from
upper stage to lower stage (from the production area to the factory, it is assumed
as zero)
 Holding cost (per unit per period): Cost incurred for holding goods at the end of
the period.
 Shortage cost (per unit per period): Cost arises while shortage occurs (either
lostsales cost or backorder cost)
(8) Simulation parameters
 Simulation length: Number of periods considered for simulation
 Replication: Number of times simulation is carried out for the simulation length
(maximum number of replications possible is 499)
(9) Evaluation period: Specifies the beginning period and end period for performance
evaluation. The average performance measures of all the replications are calculated
between the beginning and ending periods. The end period value must be lower than
or equal to the simulation length.
Figure 3 shows the screen shot of spreadsheet simulation 'Input' module when OUL
policy is used for analysis. In 'Policy details' cell, the user can choose the desired inventory
policy from the drop-down menu of each supply chain stage. All the inventory policies are
periodically monitored, and the orders are placed once in each period. Each inventory policy
places new orders in a review period if some conditions are satisfied. The ordering decision
for some of the inventory policies is based on the inventory position. Inventory position is the
net inventory at a period. That is, inventory position = (on-hand inventory) + (on-order
inventory) – backorders. The policies OUL, MOUL and (r, S) are inventory position-based
policies. DFS and ADS are non-inventory position-based policies. The review is performed
for all policies at the beginning of a period. The conditions for ordering decision and order
quantity determination for policies incorporated in the package are given below:
Figure 3. Screenshot of spreadsheet simulation 'Input' module when OUL policy is used.
 Order-up-to level (OUL): A maximum inventory level (S) is determined first. At the
review point, if the inventory position falls below this maximum inventory level (or
order-up-to level), an order is placed so that the available inventory and ordered
quantity together become equal to OUL. The order quantity is determined as follows:

0, if ( IPi  S i )
t t
Oit   (1)

( S i  IPi ), if ( IPi  Si )
t t t t
 Modified order-up-to level (MOUL): This policy is a variant of OUL policy. In this
policy, an order is placed at review period t, if the inventory position is less than the
maximum inventory level (S). If the difference between S and inventory position is
greater than the expected demand during the review period then the order size is
equal to the difference of OUL and inventory position, otherwise the order size is
equal to the expected demand during the review period. In this policy, the order size
is decided based on the condition given below:
0, if ( IPi t  S it )


Oit  ( S it  IPi t ), if ( IPi t  S it ) & ( S it  IPi t )  EDRit (2)

EDRi , if ( IPi  S i ) & ( S i  IPi )  EDRi
t t t t t t

 (r, S): The first parameter ‗r‘ is called reorder point. When the inventory position
falls below the reorder point at a review point, an order is placed so that the sum of
on-hand inventory and the ordered quantity become equal to the maximum inventory
level (S).

0, if ( IPi  ri )
t t
Oit  (3)

( Si  IPi ), if ( IPi  ri )
t t t t
 Demand flow strategy (DFS): Transfer the actual customer demand from one stage to
another without transforming it. The demand only gets delayed by the time equal to
the order lead time.
 Average demand strategy (ADS): The order quantity is equal to the average demand
of previous ‗n‘ periods.
3.2. Intermediate Module
Figure 4 depicts the inventory distribution activities associated with each stage of the
supply chain in the intermediate module. The simulation methodology is developed based on
the following assumptions: (i) Each stage receives replenishment quantity at the beginning of
a period, if there is a replenishment, (ii) Purchase order is placed at the beginning of a period,
(iii) Initial inventory at the start of simulation at each stage will be fixed, (iv) Inventory
holding cost are incurred at the end of the period, (v) Customer order arises at retailer only,
(vi) There are no capacity constraints and storage space constraints at each stage, and (vii)
The factory has infinite production capacity and enough raw materials for production.
The intermediate module comprises of four sheets, which are named as ‗Retailer,‘
‗Wholesaler,‘ ‗Distributor‘ and ‗Factory.‘ Figure 5 shows a typical screen shot of inventory
updation related operations in the retailer sheet when OUL policy is used under no sharing of
information scenario and for the input details given in Figure 3. The generated demand
appears on the ‗Retailer sheet‘ as customer order (CO, column ‗E‘). The column namely
‗WEEK‘ shows the periods of the simulation and it goes up to the length of simulation period
(WEEK, column ‗A‘) specified. Retailer receives replenishment quantity (RQ, column ‗B‘)
from the Wholesaler at the start of a period and beginning inventory (BI, ‗C‘ column) is
calculated, which is the sum of previous period ending inventory (EI, column ‗G‘) and RQ in
the current period. Then, the inventory position (IP, column ‗D‘) is calculated which is equal
to (on-hand + on-order) for lostsales environment and is equal to (on-hand + on-order –
backorder) for backorder environment. Based on the inventory policy (here OUL) chosen,
Retailer places order to the Wholesaler (OPW, column ‗J‘). As mean customer demand is
unknown to the retailer, the order-up-to level (OUL, column ‗I‘) is calculated by multiplying
moving average forecast (FORECAST, column ‗H‘) with the sum of length of review period
and total lead time of a stage. AQ (column ‗F‘) is the allocated quantity to the customer from
the on-hand inventory of the retailer and then, end period inventory is calculated. If sufficient
inventory is not available to meet the customer demand, the unmet quantity is reflected as
lostsales or backorder (LOSTSALES, column ‗K‘), based on the business environment. In
each replication, the output of inventory distribution activities of previous replication will be
replaced by the current replication output. Each replication output information is used to
calculate the performance measures shown in the output module. This process will continue
for a total number of replications, and final output of inventory distribution activities
corresponding to the last replication will be displayed on the sheet. So the data shown in
Figure 5 corresponds to the output of the inventory distribution activities of last replication.
Similar worksheets are prepared for the Wholesaler, Distributor, and Factory.
3.3. Output Module
In each replication, the output of the inventory distribution activities of each stage will
load onto the corresponding sheets and the performance measures are calculated for the
evaluation period. At the end of experimentation, for each stage, the average of each
performance measure, for the entire replications is calculated and displayed on the
'Performance' sheet of the output module. Figure 6 shows the screen shot of 'Performance'
sheet when OUL policy is used under no sharing of information scenario. The performance
measures comprise of fill rate (in lostsales environment), backorder rate (in backorder
environment), risk of shortage, bullwhip effect and total cost of supply chain. Each of the
performance measures is defined as follows:
Figure 4. Inventory distribution logic at each stage of the supply chain in the intermediate module of the
proposed package.
Figure 5. Screenshot of 'Retailer' sheet when OUL policy is used in lostsales environment.
 Supply chain fill rate (SCFR): The fill rate is defined as the fraction of demand met
from the shelf in a timely manner. The fill rate of the retailer is considered as supply
chain fill rate.
 Supply chain backorder rate (SCBR): The backorder rate is calculated as the ratio of
unmet demand to the demand arose. The backorder rate of the retailer is considered
as supply chain backorder rate.
 Supply chain risk of shortage (SCRS): It can be found by counting the number of
shortage periods and dividing it by the total number of periods for which demand
arose. The risk of shortage of retailer is considered as supply chain risk of shortage.
 Bullwhip effect (BWE): In this study, it is measured as the ratio of the variance of
orders placed by the factory to the variance of customer orders.
 Total cost of supply chain (TCSC): Total cost of a stage is the sum of all costs
incurred in the cost computation periods. Various costs considered are ordering cost,
transportation cost, holding cost and shortage cost. The total cost of supply chain is
the sum of the costs of all stages.
4. EXPERIMENTAL STUDY
We have designed eight experimental scenarios using the spreadsheet-based simulation
package. The experimental scenario classifications are based on different levels of three input
factors that are business environment (two levels: lostsales and backorder), customer demand
distribution (two levels: normal and uniform) and status of mean customer demand
information sharing (two levels: known and unknown). First four scenarios are in lostsales
environment, and next four scenarios are in backorder environment.
Figure 6. Screenshot of 'Performance' sheet when OUL policy is used in lostsales environment.
Table 1. Different experimental scenarios in lostsales

and backorder environments
Customer demand Demand

Environment Scenario
distribution information
1 Normal Unknown
Lostsales
2 Uniform Unknown
3 Normal Known
4 Uniform Known
5 Normal Unknown
Backorder
6 Uniform Unknown
7 Normal Known
8 Uniform Known
The experimental scenarios are given in Table 1. The input details for each scenario and
costs are given in Tables 2 and 3, respectively. Simulations are performed for the
experimental scenarios and the best-performing inventory control policy in each scenario is
found through Grey relational analysis by considering the inventory policies as alternatives
and the performance measures as attributes. For a particular scenario, all the members of the
supply chain use the same inventory policy (i.e., if the retailer uses OUL policy then all other
stages use OUL policy). Length of simulation is taken as 2 years, that is, 104 periods (weeks),
in which first 52 periods are considered as the warm-up period. The performance measures of
the supply chain are calculated under each inventory policy considering the data for periods
from 53 to 104. For each scenario, simulation is performed under five inventory policies for
simulation length, and the average of each performance is measured. The required number of
replication is calculated by the method suggested by Banks et al. (2005), which involves the
calculation of the number of replication based on the initial number of replications, specified
level of error and significance level. For this experimental study, value for these parameters
are as follows: initial number of replications = 10, the level of significance = 0.05, specified
error = 5% of the mean value of the performance measure. A pilot study is conducted for all
experimental situations. Based on the pilot study and calculations, the maximum number of
replication is obtained for the MOUL with uniform distribution and unknown case (no
sharing of mean customer demand information), which is equal to 382 and is set at 420. The
average value of each performance measure for 420 replications of each scenario is recorded
and is used for establishing the inferences of the study.
4.1. Results and Discussion
The performance of the supply chain against each alternative (inventory policy) in terms
of various performance measures (attributes) under lostsales environment and backorder
environment are given in Figures 7 and 8 respectively.
Supply chain fill rate under each inventory policy for the scenarios 1 to 4 is shown in
Figure 7 (a). It is seen that the policies ADS and DFS performed well in all scenarios
compared to other policies. The least fill rate is observed for (r, S) policy. The performance
measure, supply chain risk of shortage is given in Figure 7 (b). It is the least for ADS policy
and the highest for (r, S) policy. It is also observed that under information sharing the supply
chain risk of shortage is improved for inventory position-based policies. The BWE for each
supply chain scenario under each inventory policy is given in Figure 7 (c). It is observed that
the highest bullwhip is generated for (r, S) policy and is the least for ADS policy. The
performance of inventory position-based policies is improved very well in scenarios 3 and 4
(both information sharing) compared to non-inventory position-based policies. The TCSC
performance is shown in Figure 7 (d), and it is found that TCSC is best under DFS policy for
both scenarios 1 and 2. For scenarios 3 and 4 the TCSC is least under MOUL policy. The
performance of inventory position-based policies is improved under the information sharing
scenarios 3 and 4.
Table 2. Various input details required for each of the experimental scenarios
Details
Initial inventory in units (for all stages)
Review period in week (for all stages)
Period of Moving average in week

Lead time in week for all stages)
First period value for forecast
Simulation length in weeks
Number of replications
Customer demand
Evaluation period
Environment
Scenario
1 Normal Order to reach 1 40 4 20 units 104 420

(20,5) upper stage - 1,
Beginning period– 53, Ending period- 104
2 Uniform Delivery to reach 4 20 units

Lostsales
(11,29) lower stage - 1

3 Normal - -
(20,5)
4 Uniform - -
(11,29)
5 Normal 4 20 units
(20,5)
6 Uniform 4 20 units
Backorder
(11,29)
7 Normal - -
(20,5)
8 Uniform - -
(11,29)
Table 3. Inventory related cost for all experimental scenarios
Order cost Transportation cost Holding cost (per Shortage cost (per
Member
(per order) (per shipment) unit per period) unit per period)
Retailer 200 50 20 60
Wholesaler 150 40 18 50
Distributor 100 30 16 45
Factory 50 0* 12 40
*Assumes sufficient raw material inventory at production floor. So transportation cost is assumed as
zero.
Figure 7. Performance measures for various scenarios in lostsales environment.
Supply chain backorder rate under each inventory policy for the scenarios 5 to 8 are
shown in Figure 8 (a). It is observed that MOUL has the least backorder rate, and ADS has
the highest backorder rate in all scenarios. The performance measure, supply chain risk of
shortage under backorder environment is shown in Figure 8 (b). It is observed that MOUL
shows the least risk of shortage and DFS shows the highest shortage for all scenarios. Figure
8 (c) shows the BWE generated by the policies under various scenarios. BWE is the least
under ADS policy and the highest when (r, S) is used. Under information sharing (scenarios 7
and 8), the BWE generated by inventory position-based policies got reduced. The TCSC
performance under backorder environment is shown in Figure 8 (d) and is found that TCSC is
the best for all scenarios under DFS and is worst under (r, S). The performance of inventory
position-based policies is improved in information sharing scenarios 7 and 8.
Figure 8. Performance measures for various scenarios in backorder environment.
From Figures 7 and 8, it is found that no policy is performing better with respect to all
performance measures considered. Hence, Grey relational analysis is used to determine the
best inventory policy.
4.2. Grey Relational Analysis
Grey relational analysis (GRA) is used to solve multi-attribute decision-making problems

(Fung, 2003; Kuo et al., 2008; Nagpal et al., 2012; Talari, 2014). The procedure of GRA is as
follows: Initially, the performance of each alternative is translated into a comparability
sequence in GRA. According to the comparability sequences, a reference sequence called an
ideal target sequence is defined. In the next step, a grey relational coefficient between the
reference sequence and the comparability sequence of every alternative is calculated. Finally,
a grey relational grade, between the reference sequence and every comparability sequence is
calculated based on the grey relational coefficients. The comparability sequence that has the
highest grey relational grade between the reference sequence and itself is the best choice, and
the alternative of that comparability sequence is the best alternative. GRA can be used to
identify the best performing inventory policy in each experimental scenario. In this
experimental study, for each scenario, GRA is conducted by considering the inventory
policies as alternatives and the performance measures as attributes. So in each scenario we
have five alternatives and four attributes. Out of all performance measures, supply chain fill
rate belongs to the category of the-larger-the-better and all the remaining performance
measures belong to a the-smaller-the-better category.
Table 4. Grey relational coefficients, grey relational grade and

rank in lostsales environment
Grey relational coefficient Grey

Scenario Policy relational Rank
SCFR SCRS BWE TCSC grade
1 OUL 0.3840 0.4569 0.4003 0.5023 0.4359 4
MOUL 0.4566 0.6873 0.6322 0.7285 0.6261 3
(r, S) 0.3333 0.3333 0.3333 0.3333 0.3333 5
ADS 0.7506 1.0000 0.9586 0.9447 0.9135 2
DFS 1.0000 0.9612 1.0000 1.0000 0.9903 1
2 OUL 0.3496 0.4324 0.3864 0.4849 0.4133 4
MOUL 0.3817 0.5572 0.5666 0.6705 0.5440 3
(r, S) 0.3333 0.3333 0.3333 0.3333 0.3333 5
ADS 0.5378 1.0000 1.0000 1.0000 0.8845 2
DFS 1.0000 0.9413 0.9189 0.9841 0.9611 1
3 OUL 0.8384 0.5452 0.4351 0.7023 0.6303 4
MOUL 1.0000 1.0000 0.8122 1.0000 0.9530 1
(r, S) 0.5488 0.3333 0.3333 0.3333 0.3872 5
ADS 0.3333 0.9848 1.0000 0.9682 0.8216 2
DFS 0.4937 0.4071 0.7929 0.9699 0.6659 3
4 OUL 0.9239 0.5060 0.3903 0.6610 0.6203 4
MOUL 1.0000 1.0000 0.8176 0.9616 0.9448 1
(r, S) 0.5918 0.3333 0.3333 0.3333 0.3980 5
ADS 0.3333 0.9706 1.0000 1.0000 0.8260 2
DFS 0.5241 0.3720 0.8060 0.9378 0.6600 3
Table 5. Grey relational coefficients, grey relational grade and

rank in backorder environment

SCBR SCRS BWE TCSC grade
5 OUL 0.4168 0.4184 0.5931 0.7928 0.5553 4
MOUL 0.4824 0.6065 1.0000 1.0000 0.7722 1
(r, S) 0.3333 0.3333 0.4873 0.6477 0.4504 5
ADS 0.8190 1.0000 0.5811 0.3333 0.6834 3
DFS 1.0000 0.9995 0.3333 0.6790 0.7530 2
6 OUL 0.3439 0.3611 0.6120 0.8259 0.5357 4
MOUL 0.5423 0.6921 1.0000 1.0000 0.8086 1
(r, S) 0.3333 0.3333 0.4621 0.6897 0.4546 5
ADS 0.8393 1.0000 0.3862 0.3333 0.6397 3
DFS 1.0000 0.9995 0.3333 0.7289 0.7654 2
Table 5. (Continued)

SCBR SCRS BWE TCSC grade
7 OUL 0.3997 0.3868 0.4877 0.6515 0.4814 4
MOUL 0.6504 0.6301 1.0000 1.0000 0.8201 1
(r, S) 0.3333 0.3333 0.3923 0.4330 0.3730 5
ADS 0.7095 1.0000 0.5686 0.3333 0.6529 3
DFS 1.0000 0.9828 0.3333 0.4406 0.6892 2
8 OUL 0.4662 0.5246 0.5110 0.8998 0.6004 3
MOUL 0.5162 0.5342 1.0000 1.0000 0.7626 1
(r, S) 0.3333 0.3333 0.4170 0.6927 0.4441 5
ADS 0.5112 1.0000 0.4007 0.3333 0.5613 4
DFS 1.0000 0.9881 0.3333 0.6732 0.7487 2
The grey relational coefficients, grey relational grade and assigned rank for various
experimental scenarios are given in Tables 4 and 5. In lostsales environment, a non-inventory
position based policy (i.e., DFS) is ranked first under no sharing of information and an
inventory position based policy (i.e., MOUL) is ranked first under sharing of information
irrespective of the demand distribution. The rank of a policy in scenarios 1 and 2 is the same
and similar is the case in scenarios 3 and 4. In backorder environment, for all scenarios,
MOUL is ranked first irrespective of the information sharing and nature of demand
distribution. Also, GRA based comparison indicates that MOUL is the best for scenarios 3 to
8 compared to other policies.
CONCLUSION
In a busy working environment, the operational managers are looking for a ‗handy‘ tool
to manage inventory. Compared to other simulation software packages, spread spreadsheet-
based simulation package is superior in terms of the cost of the program, installation
procedure, learning time and suitability for a particular need. This chapter discussed the
development of a spreadsheet-based simulation package that supports the analysis of various
periodic review policies in a serial supply chain. The simulation package is developed in the
Excel platform using VBA. It consists of three modules such as input module, intermediate
module and an output module. An experimental study is conducted under various supply
chain scenarios to describe how to use the simulation package for inventory policy analysis.
The performance measures are tabulated for lostsales and backorder environments. The
analysis has shown that the proposed package is a suitable tool for simulating inventory
distribution problem in a four-stage serial supply chain. As a part of the analysis, the selection
of a right inventory policy for supply chain management considering several performance
measures is also discussed. Grey relational analysis is the tool used for this purpose. MOUL
is identified as the best inventory policy for most of the supply chain scenarios.
This package can be used only for the analysis of a four-stage serial supply chain. It can
be further developed to analyze supply chain inventory policies under different supply chain
structures.
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INDEX
A B
ABA, 139 backlash, 61

abuse, 151 bacteria, 11
access, 1, 5, 15, 23, 33, 67, 68, 69, 129, 130, 156, banking, 183
167, 180 bankruptcy, 64
accountability, 24, 131, 180 banks, 62, 95, 133
accounting, 4, 13, 17, 60, 130, 132, 180 bargaining costs, 135
acquisitions, 64, 67 barriers, 33, 38, 73, 84, 85, 86, 87, 90, 167, 185
adaptability, 33 base, 28, 36, 38, 60, 66, 79, 84, 137, 160, 167, 180,
aerospace, 178 181, 182
Africa, 65 batteries, 96, 100, 113, 115, 117
age, 4, 39, 61, 62, 129 behaviors, 14
agencies, 150, 152, 153, 156 benchmarking, 38, 79, 135
agility, 18, 76, 77, 81 benchmarks, 153, 158, 168
agriculture, 6 beneficiaries, 152, 155
air temperature, 105, 108, 111 benefits, 1, 8, 9, 12, 15, 21, 23, 27, 31, 37, 38, 53,
algorithm, 17, 103, 125 57, 69, 75, 81, 127, 128, 129, 130, 131, 134, 137,
amalgam, 75 139, 159, 160, 163, 166, 174, 176, 178, 179
ambidexterity, 77, 79 bias, 80, 82
ambivalence, 87 blame, 133
antifragility, 77 blends, 77
arbitration, 150, 152, 154 blind spot, 84
arithmetic, 106 boat, 160
artificial intelligence, 94 bottom-up, 158
Asia, 25, 62, 65, 178 Brazil, 64, 65, 67
aspiration, 79, 81 brothers, 66
assessment, 77, 79, 84, 87, 88, 89, 91, 125, 126, 161, building blocks, 79, 80, 151, 158
170 bureaucracy, 86
assessment tools, 85 business cycle, 14
assets, 33, 78, 79, 152, 159, 164 business environment, 41, 67, 196, 198
asymmetry, 161, 167 business function, 129, 130, 131, 137
AT&T, 36 business model, 5, 10, 12, 66, 69, 83, 87, 153, 181
attitudes, 60, 83, 159 business processes, 29, 33, 129, 178
authorities, 149, 150, 155 business strategy, x, 5, 60, 127
automate, 192 businesses, 3, 9, 10, 12, 59, 64, 77, 87, 129, 130,
automation, 37, 78, 174, 185 137, 138, 157, 164
autonomy, 128 buyer(s), 5, 37, 138, 174, 175, 176, 179, 182
awareness, 79, 176
210 Index
community(s), 10, 60, 156

C comparative analysis, 140, 205
compensation, 80, 82, 150
call centers, 21, 22, 23, 36
competition, 25, 30, 31, 33, 75, 77, 83, 89, 136, 147,
candidates, 86
150, 151, 152, 155, 156, 160, 168, 169, 170, 173,
carbon, 94, 179
178, 188
cartel, 155
competitive advantage, x, 2, 30, 63, 67, 69, 131, 136,
case study(s), 1, 8, 11, 18, 59, 62, 63, 70, 90, 136,
137, 138, 175, 179, 180
138, 139, 140, 177, 183, 184, 185, 206
competitiveness, 28, 37, 89
cash flow, 74, 159, 164
competitors, 61, 69, 83, 149, 151, 152, 153, 154,
causal relationship, 139, 175
155, 156, 157, 164, 167, 181, 182
causation, 89
compilation, 150
CEI Data, 114, 115, 117, 118
complement, 65, 83
cell phones, 36
complementarity, 42
cement manufacturing, x, 141, 142, 143, 144, 147
complementary products, 150
Centennial Energy Institute (CEI), 93, 96, 103, 104,
complexity, 39, 79, 94, 155, 156, 162, 163, 175, 176,
105, 108, 109, 110, 111, 114, 115, 117, 118, 120,
180, 183, 187, 188
123, 124
compliance, 42, 84, 86, 134, 150, 167
certification, 34, 150, 152, 153, 156, 167, 178
complications, 10
chain mobility, 87
composites, 205
challenges, ix, 17, 23, 38, 74, 162, 164, 170, 184
composition, 160
changing environment, 89
comprehension, 158
chaos, 80
computation, 41, 42, 198
cheese, 11
computer, 93, 136
chemical, 28, 89, 152
computer simulations, 93
chemical industry, 89
computing, 74, 87, 168
children, 61
concise, 151
China, 23, 28, 29, 38, 185
concurrent engineering, 74
cities, 181
conditioning, 103
clarity, ix
conduction, 102
classification, 97
conference, 205
clean energy, 94
confidentiality, 132
clients, 132, 133, 135
configuration, 26, 37, 75, 95, 115, 116, 149, 151,
climate(s), 60, 96, 97, 106, 108, 111, 113, 124, 126
152, 153, 154, 160, 163, 166, 190
cluster analysis, 161
conflict, x, 79, 80, 83, 149, 150, 151, 152, 154, 155,
clustering, 61, 162
156, 157, 158, 159, 160, 161, 162, 163, 164, 165,
clusters, 66, 74, 79, 80, 88, 154, 156, 161, 164
166, 167, 168, 169, 170
coal, 94
Conflict Management, 149, 151, 158, 159, 161, 170
codes of conduct, 151, 153
conflict prevention, 161
cognitive system, 16
conflict resolution, 152, 160
collaboration, 1, 3, 4, 5, 9, 15, 16, 29, 33, 59, 63, 64,
conformity, 155, 167
66, 68, 69, 70, 74, 127, 137, 138, 170, 173, 174,
congruence, 5, 11, 174, 175, 184
175, 177, 182, 184
consensus, 13, 164
collateral, 151, 155, 156, 158, 165, 166, 167, 168
constituents, 74, 75, 164
collateral damage, 167
construction, 34, 60, 80, 94, 95, 158
college students, 66
consulting, 152
colleges, 68
consumer protection, 153
collusion, 155
consumers, 6, 8, 11, 13, 60, 61, 65, 66, 68, 133, 184
commercial, 95
consumption, 13, 14, 111, 164, 179
commodity, 8, 25, 68
containers, 78
commodity markets, 25
contingency, 85, 131, 139, 179
communication, 6, 23, 30, 36, 65, 85, 138, 152, 156,
controversial, 82, 134, 161, 163
167, 169, 174, 176, 179, 182, 183
controversies, 135, 168
communication technologies, 182, 183
Index 211
convergence, 87, 153 distribution, x, 6, 11, 18, 34, 43, 46, 51, 57, 64, 65,
cooling, 11 67, 71, 110, 111, 139, 152, 157, 173, 176, 178,
cooperation, x, 33, 75, 150, 155, 156, 165, 168, 170, 179, 180, 181, 184, 187, 193, 195, 196, 197, 198,
176 199, 204, 206
coordination, 30, 74, 77, 78, 81, 83, 86, 135, 150, diversification, 85
153, 154, 167, 169, 187, 188 diversity, 151, 154, 176
copper, 103 dominance, 76
co-producers, 83, 153 double helix, 99
correlation, 110, 175 dumping, 151
corruption, 77, 155, 167
cost benefit analysis, 25
cost benefits, 23 E
cost effectiveness, 4
early warning, 152
cost minimization, 61
Eastern Europe, 23
cost saving, 4, 24, 26, 128, 136
e-commerce, 82
costs of production, 69
economic performance, 184
covering, 81, 97, 154
economic problem, 64
creativity, 60, 159, 166
economics, 24, 169
credit rating, 150
economies of scale, 88, 130, 137
crises, 77
education, 60
crystalline, 97, 98, 102
effectiveness, 3, 4, 22, 56, 73, 74, 77, 80, 84, 129,
cultural differences, 23, 29
159, 163, 174, 184
culture, 28, 29, 68, 69, 128, 184
efficiency, 2, 3, 5, 6, 7, 26, 35, 44, 67, 73, 74, 76, 77,
customer loyalty, 13
80, 84, 94, 97, 129, 135, 144, 159, 163, 179, 180
customer relations, 140, 153
e-learning, 181
customer service, 12, 23, 38, 63, 132, 137, 177, 178
election, 62
customers, x, 2, 7, 8, 9, 10, 21, 22, 26, 28, 32, 33, 36,
electricity, 93, 94, 99
41, 42, 59, 61, 63, 66, 67, 68, 69, 76, 78, 83, 84,
e-mail, 179, 180
132, 136, 149, 150, 151, 152, 153, 154, 155, 156,
emergency, 57, 58
157, 162, 173, 175, 176, 177, 178, 179, 180, 182,
emission, 77
183, 190
empathy, 28, 169
cyber-attack, 77
employees, 7, 22, 60, 63, 64, 127, 130, 131, 132,
133, 134, 174, 176, 177, 178, 181, 182, 183
D employment, 23
enemies, 155
dairy industry, 2, 6, 11 energy, ix, 60, 64, 78, 82, 87, 93, 94, 95, 96, 99, 101,
data set, 102 106, 124, 125, 126, 179
decentralization, 74 energy efficiency, 94
decision-making process, 51 energy sources, ix, 93, 94
decomposition, 86 energy supply, 87
decoupling, 78, 83, 84, 85, 161, 167 enforcement, 34
defects, 22, 26, 76, 150, 156 engineering, 24, 76, 91, 139, 185
denial, 158 England, 38
depreciation, 60, 111 entrepreneurs, 153
depth, 37 environment(s), 1, 10, 33, 59, 98, 127, 150, 179, 187,
detection, 161 196, 197, 198, 199, 201, 202, 203, 204
determinants of performance, 74, 87 environmental impact, 179
developing countries, 25 environmental issues, 94, 179
directives, 178 environmental sustainability, 80
directors, 4, 156 equilibrium, 25
disaster, 85 equipment, 6, 11, 24, 26, 28, 34, 67, 85, 103, 128,
disclosure, 156, 167 178
discrimination, 150, 157 equity, 166
212 Index
Europe, 64, 65, 178

evidence, 16, 17, 175, 184
G
evolution, 29, 99, 138, 158, 170
genes, 75
exchange rate, 60
geography, 16
execution, 30, 37
Germany, 89, 90, 170, 171
expertise, 37, 41, 131, 150, 166
GIS, 62
exploitation, 74, 77, 83
global competition, 136
exposure, 107
global economy, 60, 136, 137
external relations, 175
global scale, 64, 65
externalities, 154, 158, 161, 166
global warming, ix, 93
extraconflict arena, 150, 154, 155, 156, 169
globalization, 39, 64, 74, 87
goods and services, 2
F governance, 74, 83, 86, 90, 137, 151, 153, 156, 169
governments, 59
facilitators, 90, 159 graph, 103, 117, 191
factories, 61 grounding, 103, 137
family members, x, xi growth, 5, 36, 64, 67, 68, 94, 174, 177, 181
farmers, 6, 7, 10, 11 growth rate, 94
farms, 6, 8, 10, 13, 16, 18 GSCM applications, x
FDIC, 133 guidance, xi, 9, 133
fear, 128 guidelines, 12, 80, 163
federal government, 137
federal law, 61
fiber, 205
H
filters, 162
handoff, 133, 138
financial, ix, 3, 4, 5, 9, 15, 18, 31, 32, 68, 128, 130,
hazards, 22, 28
131, 182
health, 28, 32, 61
financial performance, 4, 5, 18
hedging, 77
financial resources, 130, 182
height, 2, 93, 107, 115, 116, 121, 122, 123, 124
firm size, 5
high winds, 99
flexibility, 5, 18, 37, 63, 71, 76, 80, 81, 91, 130, 131,
highways, 66, 68, 69
139, 155, 176, 185
hiring, 128, 130, 131, 132, 133
fluctuations, 13, 94
histogram, 110, 111
food, 7, 9, 10, 11, 13, 17, 28, 62, 66, 68, 70
history, 70, 71, 175
Food and Drug Administration (FDA), 7, 10, 11
HOMER, ix, 93, 94, 95, 103, 110, 113, 124, 126
food chain, 62
homes, 23
food industry, 10, 70
Hong Kong, 125
food products, 7
host, 45
force, 73, 84, 86, 161, 178
hub, 16, 70, 74, 93, 115, 116, 118, 119, 120, 121,
force field analysis, 73, 84, 86, 161
122, 123, 124, 140
forecasting, 12, 13, 14, 15, 16, 17, 18, 65, 140, 175,
human, 33, 39, 60, 61, 63, 78, 130, 132, 134, 135
176, 185, 189, 190, 191
human capital, 39
forecasting model, 12
human resources, 63, 132, 134, 135
foreign firms, 67
Hungary, 16, 70
formation, ix, 68, 176
hybrid, ix, 17, 70, 75, 80, 93, 94, 95, 96, 100, 102,
formula, 55, 158
119, 120, 124, 125, 126, 129, 155
fragility, 88
hypothesis, 74
fragments, 153
fraud, 77
freezing, 85 I
friction, 24
ideal, 15, 100, 202
identification, 62, 176
Index 213
IMA, 16 issues, ix, 14, 21, 22, 23, 24, 36, 42, 83, 128, 129,
image(s), 13, 39, 61, 133, 170 133, 138, 149, 150, 156, 157, 162, 165, 167, 175,
imitation, 158 176, 185
immunization, 167
imported products, 178
imports, 103 J
improvements, 62, 81, 182
joint ventures, 64, 152, 157, 160, 166
impulses, 167, 191
jurisdiction, 152
incidence, 62
income, x, 62, 159
incompatibility, 83, 85 K
independent variable, 174
India, x, 23, 29, 36, 38, 62, 136, 137, 184, 187, 207 kill, 136
individuals, 175
industrial location, 60, 62
industrial processing, 13 L
industrial relations, 165
industrialization, 82 labeling, 11, 84
industry(s), 5, 9, 11, 12, 18, 24, 28, 37, 60, 64, 65, labor relations, 151
69, 71, 87, 90, 129, 131, 133, 136, 137, 138, 140, lack of control, 29
151, 152, 153, 156, 178, 184, 185 landscape, 149, 156
inertia, 86 laptop, 62
inferences, 199 laws, 81, 151, 156
information sharing, 5, 34, 127, 174, 175, 190, 191, lawyers, 152, 156, 164
198, 200, 201, 204, 205, 206, 207 leagility, 77
information technology, x, 62, 71, 134, 135 leaks, 158, 167
infrastructure, 65, 86, 151, 152, 153, 154, 169, 181 lean management, 76
inhibition, 158 lean production, 16
inhibitor, 74 Lean Six Sigma, 77, 82, 89, 90
innovator, 79 learning, 17, 33, 74, 77, 82, 86, 130, 160, 168, 189,
inspections, 11, 25, 61 204
inspectors, 25 learning process, 86
integration, 2, 12, 15, 24, 28, 29, 31, 33, 37, 59, 63, LED, 94, 102, 111, 125
64, 66, 68, 69, 70, 86, 90, 127, 128, 137, 138, legality, 17
152, 158, 166, 167, 173, 175, 177, 178, 179, 180, legislation, 4, 61, 178
182, 185 lens, 63, 177
integrators, 33, 154 life cycle, 77
integrity, 61 lifetime, 74, 94, 113
intelligence, x, 12, 149, 152, 161, 162, 163 light, 94, 102, 111
interconflict arena, 150, 154, 155, 160, 168 linear function, 49, 50
interconnectedness, x, 150, 159, 162, 165, 168 linear programming, 71, 95, 139, 190
interdependence, 152 litigation, 150, 152, 156, 159
interface, 83, 150, 154, 168, 191 location strategy(s), ix, 59, 60, 62, 64, 65, 66, 67, 68,
intermediaries, 28, 154, 155, 166 69, 70, 185
interoperability, 167 logistics, ix, 2, 16, 32, 41, 42, 70, 76, 77, 89, 140,
intervention, 32, 74, 86, 149, 159, 160, 161, 162, 150, 151, 152, 153, 154, 174, 175, 179, 181, 184,
163, 164, 165, 166, 167 185
intraconflict arena, 149, 151, 168 lumen, 111
investment(s), 4, 5, 8, 29, 34, 86, 87, 97, 128, 134,
161, 164, 177, 179, 182
M
Ireland, 71, 88
isolation, 94, 176 majority, 24, 36, 66, 176
Malaysia, x, xi
214 Index
manpower, 28, 62, 79, 128, 129

manufactured goods, 22
N
manufacturing, x, 2, 9, 11, 13, 16, 17, 18, 19, 21, 22,
National Renewable Energy Laboratory (NREL),
23, 25, 34, 38, 59, 60, 61, 64, 66, 67, 68, 76, 78,
126
88, 89, 130, 137, 138, 140, 177, 178, 182, 183,
natural disaster, 63
184, 190, 191
natural resources, 61
manufacturing companies, 67
negative experiences, 133
mapping, 17, 70, 74, 183
neglect, 56
market position, 135
negotiating, 33, 74, 151, 155, 169
market share, 6, 64, 74, 154
negotiation, 132, 135
marketing, 8, 174, 184
networking, 31, 138
marketplace, 3, 8, 90, 177, 179, 181, 182
neutral, 152, 156, 166
Marshall, John, 93
next generation, 138
mass, 44, 45, 46, 51, 75, 76, 78, 83, 178
niche market, 182
mass customization, 75
nodes, 42, 154, 156, 165
material resources, 179
North America, 65, 173
materials, 2, 3, 34, 35, 61, 64, 65, 68, 85, 127, 137,
NPC, 115, 116, 117, 123, 125
153, 167, 179
mathematical methods, 95
mathematics, 45 O
matrix, 71
matter, x, 9, 128 obstacles, 26, 79, 107
measurement(s), 4, 18, 22, 38, 62, 71, 85, 88, 106, offshoring, ix, 22, 26, 39, 61, 129, 178
108, 140, 176, 185 oil, 25
media, 61, 94, 137, 156, 157, 169 operating system, 166
median, 79 operations, 1, 2, 3, 8, 12, 17, 18, 22, 24, 26, 36, 38,
mediation, 149, 152, 164 42, 44, 56, 59, 64, 67, 76, 89, 91, 129, 131, 132,
membership, 151, 167 133, 134, 140, 160, 161, 162, 163, 174, 176, 184,
mergers, 166 185, 196
meter, 103, 106 opportunities, 9, 13, 15, 77, 80, 81, 82, 88, 89, 128,
methodology, 38, 70, 73, 84, 89, 95, 125, 183, 189, 130, 137, 170
191, 195 optimal performance, 163
Mexico, 8, 64, 65, 67 optimization, 17, 29, 42, 74, 76, 94, 95, 125, 158,
Microsoft, 187, 192 188, 205
migration, 82 optimization method, 95
mission(s), 79, 82, 130 organizational culture, 67
mixing, 75, 78, 80, 164 oscillation, 14
mobile communication, 179 outpacing, 78, 84
mobile phone, 166 outsourcing, ix, x, 2, 21, 22, 23, 24, 25, 26, 28, 29,
modelling, 86, 188, 205 30, 31, 34, 36, 37, 38, 39, 76, 78, 127, 128, 129,
models, 11, 12, 16, 56, 57, 62, 74, 75, 77, 79, 80, 82, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139,
83, 95, 124, 134, 138, 149, 152, 153, 156, 162, 140, 168, 176, 178
163, 164, 166, 167, 168, 187, 188, 191 oversight, 11
modifications, 165 ownership, 3, 9, 77, 157, 160
modules, 97, 180, 191, 192, 204
moral hazard, 77
motivation, 68, 80 P
multidimensional, 164, 177
multinational companies, 129 pain, 85, 130
multinational enterprises, 16 Pakistan, 183
palliative, 167
Panama, 16, 70
parallel, 164
paralysis, 86
Index 215
parents, x profit, 2, 5, 8, 26, 60, 61, 74, 137, 182

Pareto, 161 profit margin, 5, 8, 137, 182
parity, 33 profitability, 67, 70, 129, 180, 181
participants, 151, 160 programming, 22, 102, 136, 188, 189
pasteurization, 11 programming languages, 189
patents, 157 project, 17, 18, 76, 79, 95, 96, 140, 153, 161, 163,
pattern recognition, 161, 174 185
payback period, 179 proliferation, 60
peace, 158 propagation, 76, 88, 150, 156, 161, 166, 167
percolation, 167 proposition, 49
performance dimensions, 73, 79, 81 protection, 64, 79, 99, 133
performance disablers, 84 prototype(s), 95, 96
performance enablers, 84 publishing, xi
performance indicator, 74, 159, 164 purchasing power, 180
performance measurement, 4, 74, 89, 93, 160, 163 Push-pull-systems, 78
personal communication, 175
pharmaceutical, 152
Philippines, 23 Q
pilot study, 199
qualifications, 178
piracy, 154
quality assurance, 18, 28, 140
plants, 11, 64, 67
quality control, 2, 6
platform, 37, 88, 150, 153, 181, 192, 204
quality improvement, 16
polar, 79, 161
quality of life, 61, 63
policy, 18, 42, 43, 57, 71, 184, 187, 188, 189, 190,
quality of service, 23
191, 192, 193, 194, 195, 196, 197, 198, 199, 200,
quality standards, 66, 76
201, 202, 204, 206
quantitative research, 62
pollution, ix, 64, 93, 94, 179
question mark, 164
polybutylene terephthalate, 205
poor performance, 188
population, 62, 68 R
portfolio, x, 17, 78, 161, 163, 164, 165, 170
portfolio management, 78, 161, 165 radar, 161, 162
positive correlation, 175 radiation, 103, 104, 106, 107, 108, 109, 111
positive relationship, 4 radius, 6
power generation, 94 rate of change, 156
precipitation, 106 raw materials, 2, 8, 60, 61, 65, 68, 81, 150, 196
preparation, 137 real estate, 59
primary parties, 151, 156, 166 real time, 31, 62, 124
principles, 3, 14, 74, 80, 137, 158, 173 reality, 132, 158, 183
private information, 132 reasoning, 162
probability, 25, 43, 44, 45, 46, 47, 51, 63, 68, 84, 87, recession, 136
95, 125, 159, 161, 162 recognition, 161, 168
probability distribution, 43 recommendations, 93
problem solving, 4, 159, 168, 180 reconstruction, 158
process control, 136, 190 recovery, 77, 131, 179
process innovation, 78 recruiting, 23
procurement, 140, 155 recycling, 77, 150, 179, 185
procurement systems, 140 redundancy, 82
producers, 7, 83, 153, 156 regional facilities, 65
production costs, 16, 26, 69, 74, 135 regulations, 10, 11, 12, 81, 133, 150, 151, 167
production level, ix, 9 relationship management, 1, 3, 66, 74, 140, 153, 169
production process, ix, 9, 24, 25, 26, 65, 68 relevance, 80, 153, 155, 161, 164, 168
professionals, 66 reliability, 28, 37, 74, 95, 97, 108, 128
216 Index
renewable energy, ix, 93, 94, 100 security guard, 133

repair, 38, 39, 182 self-organization, 158
replication, 196, 199 seller(s), 7, 8, 138
reputation, ix, 3, 9, 68, 128, 131, 133, 138, 152, 168, sensing, 33
178 sensitivity, 93, 115, 116
requirement(s), 22, 23, 26, 29, 33, 34, 35, 63, 73, 81, sensor(s), 102, 103
85, 86, 87, 94, 95, 96, 106, 131, 136, 158, 174, Serbia, 64
176 service firm(s), 61, 140
RES, 94 service organization(s), 60, 61, 66, 67, 68
researchers, ix, x, 26, 33, 62, 63, 70, 94, 175, 177, service provider, 32, 37, 38, 128, 177, 185
183, 189 service quality, 22, 26, 28, 36, 37, 38, 127, 136, 138,
reserves, 65 185
resilience, ix, 17, 70, 73, 74, 76, 77, 79, 82, 84, 88, services, ix, 2, 7, 11, 21, 22, 23, 26, 28, 29, 30, 31,
90, 91, 183 33, 36, 105, 129, 130, 131, 132, 133, 135, 136,
resistance, 100 150, 152, 153, 154, 156, 159, 164, 166, 167, 168,
resolution, 34, 93, 95, 102, 124, 151, 165, 168 176, 180, 181, 183
resources, 1, 2, 4, 5, 7, 13, 17, 57, 61, 62, 63, 64, 65, shade, 107
69, 74, 78, 83, 85, 86, 94, 96, 128, 129, 130, 133, shape, 78, 110, 154, 160
149, 153, 156, 157, 159, 160, 165, 175, 176, 180 shelf life, 13
response, 31, 33, 47, 73, 75, 79, 80, 95, 125, 180, shelter, 108
205 shortage, 67, 93, 115, 116, 117, 118, 119, 120, 121,
response time, 80, 180 124, 187, 188, 189, 194, 196, 198, 200, 201
responsiveness, 2, 5, 37, 61 showing, 3
restaurant chain, ix, 59, 66, 67 side effects, 14
restaurants, 61, 66 signals, 85, 155, 159, 161, 162
restrictions, 178 significance level, 199
retail, 13, 14, 33, 60, 62, 67, 70, 154, 166, 175 signs, 11, 80
retaliation, 157, 163 silicon, 98
revenue, 24, 26, 36, 37, 60, 61, 67, 68, 69 simulation(s), ix, x, 42, 47, 50, 51, 76, 93, 95, 104,
risk factors, 134 124, 125, 161, 162, 187, 188, 189, 190, 191, 192,
risk management, 70, 73, 75, 77, 79, 83, 85, 91, 127, 193, 194, 195, 196, 198, 199, 204, 205, 206
151, 159, 162, 165, 167 Singapore, 90
ROI, 5 single chain, 12
root(s), 32, 154, 155, 162, 169 Six Sigma, 17, 74, 76, 77, 79, 81, 89, 90, 140
routines, 159 skilled workers, 25, 36
Royal Society, 169 slack, 80, 82, 85, 167
rules, 32, 44, 50, 56, 133, 150, 152, 153, 158, 163 slavery, 61
Slovakia, 64
social capital, 159, 176
S social conflicts, 168
social construct, 62
safety, 10, 11, 18, 22, 28, 61, 85, 98, 124, 190
social interaction, 169
Sanyo, 97, 98, 102, 114, 115, 116, 123, 124
social life, 77
SAP, 37, 38
social network, 167
satellite technology, 31
social quality, 175
savings, 23, 25, 130
social responsibility, 61
scarce resources, 154, 163
social standing, 15
school, 83
sodium, 111
science, 170
software, ix, 29, 33, 42, 45, 93, 95, 124, 150, 153,
SCO, 5
180, 181, 184, 189, 204
scope, 69, 73, 82, 86, 151, 153, 155, 159, 163, 164,
solar cells, 98
168
Solar PV panel, 113
Secondary parties, 152
solar system, 94
security, 28, 37, 78, 80, 81, 85, 132, 133
Index 217
solidarity, 151
solidification, 167
T
solution, 15, 29, 30, 31, 33, 42, 43, 50, 55, 62, 82,
talent, 23, 61, 130
131, 137, 168, 187, 188
tangible benefits, 66
South America, 23, 65, 178
tanks, 10
South Korea, 184
target, 3, 68, 69, 162, 167, 182, 202
specialists, 130, 133
tax rates, 59
species, 75, 77, 80, 150, 155, 168
taxes, 60
specifications, 7, 22, 23, 25, 26, 28, 34, 100, 174,
teams, 153, 170
193
technical support, 36, 136
spending, 67
techniques, 2, 6, 12, 13, 15, 17, 18, 62, 94, 173, 174,
spillovers, 149, 166
188
Sri Lanka, 139
technology(s), 11, 29, 30, 31, 33, 37, 38, 62, 76, 78,
stakeholders, 61, 63, 69, 80, 151, 153, 166, 178, 180
79, 81, 83, 85, 94, 97, 125, 126, 129, 130, 133,
standard deviation, 106, 193
174, 175, 181, 182, 184
standardization, 37, 74, 76, 86, 159, 174
temperature, 11, 97, 102, 106, 108, 113, 117
state(s), 10, 49, 59, 61, 66, 80, 117, 124, 159, 181
Temperature Effect, 117, 123
statistics, 15, 79
tensions, 80
steel, ix, 11, 64, 65, 67, 68, 69, 103
Tertiary parties, 152, 155
steel industry, 64, 69
testing, 11, 94, 96
steel production company, ix
text mining, 161
stock, 13, 34, 42, 43, 57, 179, 180
Thailand, 18, 71, 185
storage, 35, 36, 41, 94, 95, 101, 115, 116, 124, 125,
theft, 63
196
third dimension, 152, 155
strategic management, 63, 177
threats, 76, 77, 80, 84, 89
strategic planning, 174, 175, 178, 180
time constraints, 7
stratification, 135
time series, 103
street-lighting, ix, 93, 94, 95
top-down, 158
stress, 133
total costs, 42, 52, 53, 56, 63, 64
structure, 5, 37, 137, 139, 154, 162, 163, 170, 176,
total energy, 179
188, 189, 193
total product, 62
style, 67, 168
total revenue, 60
substitution, 43, 168
Toyota, 33, 137
Suntech, 97, 98, 114, 115, 117, 118, 123, 124
toys, 22, 28
supervision, 150
trade, 50, 53, 74, 81, 82, 150, 179, 185
supervisors, 150
trade-off, 50, 53, 74, 81, 82, 185
Supply Chain Management (SCM), ix, x, xi, 1, 2, 3,
trading partners, 12
4, 6, 7, 9, 11, 12, 15, 18, 29, 30, 63, 64, 65, 76,
traditions, 67
77, 79, 80, 81, 82, 83, 84, 87, 88, 89, 90, 91, 103,
trafficking, 61
139, 140, 141, 145, 148, 153, 170, 173, 174, 176,
training, 29, 181, 182
177, 179, 180, 182, 184
transaction costs, 1, 5
supply chain partnerships, ix
transactions, 33, 153
supply disruption, 206
transfer pricing, 168
supply network, x, 31, 33, 87, 153, 154, 155, 156,
transformation, 33, 79, 160
159, 160, 163, 164, 165, 166, 167, 168
translocation, 166
surplus, 43
transparency, 15, 61, 167
sustainability, 9, 71, 87, 88, 89, 184
transport, 10, 11, 16, 18, 45, 70, 71, 74, 185
sustainable growth, 182
transportation, 8, 24, 25, 34, 42, 59, 60, 61, 62, 63,
Switzerland, 38, 91
65, 66, 67, 68, 184, 198, 201
symmetry, 167
transportation infrastructure, 8, 63
symptoms, 162
transshipment, 42, 57
synchronization, 5, 34, 176
treatment, 157
syndrome, 154
triggers, 155
218 Index
truck drivers, 65 wages, 25, 60, 61

turnover, 4, 182 waste, 26, 76, 77, 80, 82, 86, 98, 142, 145, 146, 147,
179
waste management, 76, 77
U water, 65, 80
waterways, 65, 68, 69
U.S. Department of Commerce, 38, 39
weakness, 80
unemployment rate, 23
wealth, 185
uniform, 66, 198, 199
weather patterns, 25
unions, x, 138
web, 153, 156
United States (USA), 61, 64, 98, 183
web service, 156
universities, 66
websites, 63
unresolved conflict, 165
well-being, 10
updating, 106
Western Europe, 5
wholesale, 57, 154, 166
V wholesaler, ix, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50,
51, 52, 54, 55, 56, 187, 188, 189
value net, 153, 154 Wi-Fi, 182
vapor, 111 wind power, 115, 117, 121, 125
variables, 14, 35, 93, 115, 116 wind speed(s), 99, 101, 104, 107, 109, 110, 111, 124
variations, 12, 97, 106, 189 wind turbines, 93, 94, 98, 99, 101
vegetable oil, 71, 139 wires, 103
vehicles, 77 withdrawal, 151, 159, 167
velocity, 33 work ethic, 60
venture capital, 61 workers, 23, 26, 28, 33, 61
versatility, 10 workflow, 34
vessels, 25 workforce, 129
victims, 152, 155, 161, 166, 167 working class, 39
virtualization, 87 worldwide, 28, 69, 94, 137
viruses, 133, 167 worry, 8, 9, 131
vision(s), 80, 158, 176 writing process, 132
visualization, 31
volatility, 12, 13, 14, 65, 81, 83, 156
Y
Volkswagen, 184
yield, 34, 126
W
wage level, 25

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BUSINESS ECONOMICS IN A RAPIDLY-CHANGING WORLD

SUPPLY CHAIN MANAGEMENT

Additional books in this series can be found on Nova‘s website

Additional e-books in this series can be found on Nova‘s website

SUPPLY CHAIN MANAGEMENT

MD. MAMUN HABIB

NOTICE TO THE READER

Library of Congress Cataloging-in-Publication Data

Names: Habib, Mamun, editor.

Published by Nova Science Publishers, Inc. † New York

Chapter 10 Supply Chain Management Used in Industrial Sales

Dr. Md. Mamun Habib

Dr. Md. Mamun Habib

EXPLORING STRATEGIC PARTNERING

Purpose of Present Chapter

Turner Dairy Farms, will be followed by additional procedures to implement in order to

DYNAMICS OF SUPPLY CHAIN PARTNERING

CASE STUDY IN SCM PARTNERING

Supply Chain Management as a Source of Operating Efficiency

Manifestation of a Typical Dairy Supply Chain

TYPES OF SUPPLY CHAIN MANAGEMENT

Collaborative Planning, Forecasting and Replenishment (CPFR) Model

The Collaborative Planning, Forecasting and Replenishment (CPFR) model is a concept

Contextual Implications of Forecasting on Supply Chain Management

Supply Chain Partners and Forecasting

Practical Application: Turner Dairy Supply Chain

Difficulties of Quantifying Total Supply Chain Variance

Alternative Effects Impacting Supply Chain

Opportunities Elicited from Mitigation of Demand Variances

GENERAL CONCLUSION AND MANAGERIAL IMPLICATIONS

Keywords: global outsourcing, quality enablers, electronic quality management, customer

―Outsourcing‖ refers to the transfer of non-core operations from internal employees to an

2.1. Integrating Outsourcing into the Supply Chain

2.2. Potential Quality Risks to Outsourcing

2.2.1. Reduced Control over Processes

2.2.2. Changes in Global Competitiveness

2.2.3. Transportation Complexities

2.2.4. Design Changes

2.3. Quality Dimensions in Outsourcing

Table 1. Quality Dimensions of Products and Services

Table 2. Quality Dimensions of Global Outsourcing

3. QUALITY ASSURANCE IN GLOBAL OUTSOURCING

3.1. Trends of Technology Use in Outsourcing

Figure 1. Evolution of Supply Chain Management Technologies (Aberdeen Group 2008).

Figure 2. Top Application Investment Areas (Aberdeen Group 2008).

3.2. Technology Enablers

networking, some of the exciting new technologies – 3D visualization, Radio Frequency

Table 3. Technology Enablers of Global Outsourcing

3.2.1. Supply Chain Visibility

Figure 3. Impact of Technology on Global Outsourcing Quality.

Theoretically, it is possible for an order captured by a retailer to be simultaneously

3.2.2. Information Timeliness

3.2.3. Data Integration

3.2.4. Technology Innovation

Figure 4. Quality Monitoring and Controlling Over Multi-layered Global Outsourcing.

3.3. Modeling Cost of Poor Quality

Cost of Poor Quality Model for Supplier

December 1977. Available: http://www.docstoc.com/docs/DownloadDoc.aspx?doc_id=

A COST OPTIMIZATION MODEL FOR

Keywords: intra-shipment, replenishment, inventory control, optimization

where i is the retailer arrival intensity at wholesaler i.

COST MODEL FOR THE WHOLESALER WITH INTRA-SHIPMENT

M = the total number of wholesalers

d i (0) = the initial retailer demand appearing at Wi