A tactical supply chain planning model with multiple flexibility options: an empirical evaluation

Supply chains are facing different types of uncertainty associated with today‘s business environment. Uncertainty in the supply chain may arise from a number of sources such as demand and supply interruptions, production/logistics capacity changes and lead time variability. To cope with this problem and lessen the impacts of such uncertainties, an effective strategy is to incorporate flexibility into supply chain planning. Introducing effective flexibility options into a supply chain can improve the responsiveness of the supply chain in dealing with uncertainties. A three-dimensional framework is established to quantify a number of important flexibility options in supply, manufacturing and distribution. A tactical supply chain planning model incorporating the quantified flexibility options is developed for a three-echelon supply chain environment to fill the gap existing in the current literature. The model aims to minimise the total cost of the supply chain encompassing procurement, production and distribution costs. To solve the proposed model a new approach based on the so-called Cross-Entropy method is used. The model is solved for different scenarios having different number of the identified flexibility options and the impacts of adjusting flexibility on the overall performance of the supply chain are investigated against two performance measures including the total supply chain cost and the customer service level. To validate the proposed model and the solution approach, the model was applied to an industrial case that manufactures a range of flange products. Obtained results reveal that the proposed optimisation model significantly reduces the total cost of the supply chain under every scenario. Interesting managerial insights are achieved through comparing the obtained results for each scenario using the performance measures.