John R. Grout

Safeguarding supply chain relationships

Abstract A framework to explain the variety of trading relationships that exist between firms is presented. Our focus is on the need for buyers and suppliers to insure that specific transactions occur. These transactions are integral to the effective execution of the operations strategy of these firms. The techniques used to insure that these transactions occur as intended are called safeguards. Models of the relationship between buyer and supplier in a supply chain are prescribed using principles of game theory and transaction cost economics. Appropriate approaches to quantitative modeling are suggested for the safeguards required by each firm.

An inventory model of incentives for on-time delivery in just-in-time purchasing contracts

This article formulates an analytic model of just-in-time purchasing contracts and compares the minimum cost solution with the cost attainable through vertical integration. The models use standard inventory theory cost parameters and decision variables. The results quantify the increase in cost of buying an item rather than making it. Optimal incentives are characterized when JIT purchasing contracts are used. When JIT purchasing is implemented, buffer inventories are typically reduced. This inventory reduction makes on-time delivery critical to the buyer; yet timeliness is controlled by the supplier. As an incentive to provide on-time delivery, the buyer offers the supplier a bonus for on-time delivery. The supplier chooses a flow time allowance based upon the bonus offered. First- and second-order conditions are characterized in general, and examples are provided for exponentially and uniformly distributed flow times. The delivery timeliness obtainable in a vertically integrated firm is determined and compared with timeliness obtainable between separate firms. This comparison indicates that buyers who choose to purchase materials from a separate firm are more likely to experience late deliveries. The relationship between the value of the bonus and the proportion of on-time deliveries is also considered. The bonus required to achieve the same probability of on-time delivery as under vertical integration is also determined.

Mistake proofing: changing designs to reduce error

Mistake proofing uses changes in the physical design of processes to reduce human error. It can be used to change designs in ways that prevent errors from occurring, to detect errors after they occur but before harm occurs, to allow processes to fail safely, or to alter the work environment to reduce the chance of errors. Effective mistake proofing design changes should initially be effective in reducing harm, be inexpensive, and easily implemented. Over time these design changes should make life easier and speed up the process. Ideally, the design changes should increase patients’ and visitors’ understanding of the process. These designs should themselves be mistake proofed and follow the good design practices of other disciplines.

A model of incentive contracts for just-in-time delivery

Abstract A mathematical model is used to analyze how to structure on-time delivery incentives in a contract between a buyer and a single supplier of raw materials when early shipments are forbidden. The buyers choice of incentives takes the suppliers cost-minimizing response to incentives into account. The least cost incentive a buyer can select is specified by a probability of on-time delivery and an incentive scheme to achieve that probability. These optimal solutions are characterized without specifying the flow time distribution. A Method of selecting incentives that can help buyers improve on-time delivery performance is provided; however, the limitations of incentives are also considered. Achieving exactly 100% on-time delivery is shown to be non-optimal and only feasible under specific conditions. When management can not specify the shortage cost, their selection of a desired probability of on-time delivery allows for the determination of an imputed shortage cost.

A Model of Supplier Responses to Just-In-Time Delivery Requirements

When buyers provide incentives for suppliers to deliver just-in-time, suppliers can respond by choosing to hold additional inventory, reducing the variance of flow time to facilitate just-in-time production, or both. A model characterizing the suppliers optimal response to incentives for JIT delivery is presented. The model shows a situation where the optimal action of the supplier is to hold more inventory. When incentives for on-time delivery are increased, the supplier responds by decreasing the variance of flow time and by increasing the lead time allowance. However, the lead time allowance increases more quickly than the variance is reduced, resulting. in a net increase in the amount of inventory that must be held by the supplier. The result is that inventory is pushed upstream. This paper does not suggest that inventory is always pushed upstream in JIT purchasing. Rather, it provides a counter-example to those who presume that holding more inventory is always a non-optimal response to buyers requests for JIT delivery.

Mistake-Proofing and Measurement Control Charts

Shigeo Shingo criticizes statistical process control (SPC) and recommends using mistake-proofing (poka-yoke) devices instead for controlling processes. In this article, the authors demonstrate that Shingos process control techniques - self-checks and s..

An Economic Analysis of Inspection Costs for Mistake-Proofing Binomial Attributes

Self-checks (rapid feedback on defects) are shown to be a special case of the np-control chart, not a competing process control method. Existing economic control chart design models are employed to show that managerial actions cannot always make self-c..