Tuesday, October 14, 2014

Which Suppliers Really Matter to Your Supply Chain Performance?

We have certainly experienced a long list of supplier failures, whether from natural disasters, quality shortcomings (with the automotive industry being a notable example, as well as compounding pharmacies),  or even due to the Ebola healthcare and humanitarian logistics crisis, with great demand for the timely delivery of critical needs supplies for both healthcare providers and patients being unmet, not to mention the healthcare providers themselves in the form of human supply chains.

With numerous supply chains, from high tech products, to pharmaceuticals, to even food, being increasingly complex in terms of both the network topology, the number of decision-makers,  as well as the distances involved, it is high time for performance metrics and ranking tools to enable the identification of which suppliers as well as the components that they provide matter not only to the full supply chain but also to your individual firm.

First, one has to realize that this is the Era of the Supply Chain Network Economy and tools that just handle one supplier - one manufacturer are completely out-of-date. One has to be able to capture the interrelationships among suppliers, who are profit-maximizing, as well as the firms that they supply, who in turn, compete with other firms.

In our most recent paper: Supply Chain Performance Assessment and Supplier and Component Importance Identification in a General Competitive Multitiered Supply Chain Network Model, Dong Li and Anna Nagurney, that I co-authored with one of my doctoral students, who has done great work on supply chain network competition and quality, we provide a performance assessment metric for the full supply chain, and for that of an individual firm.  The metric quantifies the efficiency of the supply chain or firm, respectively, and also allows for the identification and ranking of the importance of suppliers as well as the components of suppliers with respect to the full supply chain or individual firm. The firms are differentiated by brands and our general multitiered competitive supply chain network equilibrium model with suppliers and firms includes capacities and constraints to capture the production activities. Firms may have a certain amount of capability to produce components in-house, depending on their capacities.

The supply chain network performance measure is inspired by our work on network performance assessment in a variety of network systems ranging from transportation to the Internet (see Nagurney and Qiang (2009) and the references therein) as well as in supply chains (cf. Qiang, Nagurney, and Dong (2009), and Qiang and Nagurney (2012)) but with the addition of the supplier tier, which is the focus in our paper.

Suppliers in supply chains are even vital to cybersecurity and the above graphic taken from our paper was part of the presentation that I gave last month at the Sloan School at MIT as part of the Advanced Cyber Security Workshop that I co-organized with several Isenberg School colleagues and a College of Engineering one.