Sustainability of Supply Chain Networks

Supply chain networks have emerged as the backbones of economic activities in the modern world. In their most fundamental realization, supply chains consist of suppliers and manufacturers, distributors, retailers, and consumers at the demand markets. Today, supply chains may span thousands of miles, involve numerous interacting decision-makers, and be underpinned by multimodal transportation and telecommunication networks. Their importance to the timely and efficient delivery of products as varied as food, energy, including electric power, pharmaceuticals, clothing, computer hardware, and even toys, etc., has fueled an immense interest in their analysis on the part of both researchers and practitioners. When supply chain disruptions occur, whether due to natural disasters, human error, attacks, or even market failure, the ramifications can propagate and impact the health and well-being of the citizenry.

Today's supply chains may be characterized by decentralized decision-making associated with the different economic agents or by centralized decision-making. In some instances the underlying behavior may be that of competition, whereas, in other cases, cooperation is essential. Supply chains are, in fact, Complex Network Systems, and, hence, any formalism that seeks to model supply chains and to provide quantifiable insights and measures must be a system-wide one and network-based. Indeed, such crucial issues as the stability and resiliency of supply chains, as well as their adaptability and responsiveness to events in a global environment of increasing risk and uncertainty, can only be rigorously examined from the view of supply chains as network systems.

Supply chains share many of the same characteristics as other network systems; including a large-scale nature and complexity of network topology; congestion, which leads to nonlinearities; alternative behavior of users of the networks, which may lead to paradoxical phenomena (recall the well-known Braess paradox in which the addition of a new road may increase the travel time for all); possibly conflicting criteria associated with optimization (the minimization of time for delivery, for example, may result in higher emissions); interactions among the underlying networks themselves, such as the Internet with electric power networks, financial networks, and transportation and logistical networks, and the growing recognition of their fragility and vulnerability. Moreover, policies surrounding supply chain networks today may have major impacts not only economically, but also socially, politically, and security-wise.

On the other hand, increases in demand for a product, entirely new demand markets, decreases in transaction costs, new suppliers, and even new modes of transaction, and new engineering technologies may provide new opportunities for profit maximization for manufacturers, distributors, as well as retailers, and new linkages that were not previously possible.

The integration of an environmental perspective into a business context can be traced back to the 1990s, and is linked to the book, Our Common Future, also referred to as the Brundtland Report. Indeed, it has been argued that the critical next step from examinations of operations and the environment is the study of sustainability and supply chains with environmental performance being a source of reputational, competitive, and financial advantage. According to a 2007 survey sponsored by DuPont and Mohawk Industries, despite the weak economy, 65% of consumers are willing to pay an additional 8.3% for products made with renewable resources. A firm's success has been tied, in part, to the strength of its ability to coordinate and integrate activities along the entire supply chain, and to effectively implement multicriteria decision-making tools to aid in their strategic decisions.

Our approach to supply chain network sustainability incorporates several facets from the enhanced operations management of supply chains to their design and redesign. In addition, we have modeled the incorporation of policies ranging from carbon taxes to tradable pollution permits in electric power supply chain networks as well as in transportation networks. Our emphasis is on the development of transparent computable frameworks that enable decision makers and policy makers to investigate how changes in policies, which can include the addition or removal of supply chain nodes and links, and the inclusion of lower-emitting production and storage technologies, will impact the product flows, as well as the product prices, and emissions generated.

Moreover, our perspective on sustainability also captures waste management issues from electronic recycling networks to health care supply chains, such as blood supply chains, medical nuclear supply chains, and even pharmaceutical ones. An essential aspect of our research is the incorporation of economics, behavioral, engineering, and management principles and components in order to capture the complexity and realities of today's supply chains.

Below we highlight three application domains in which our supply chain research has attempted to address major challenges.

1. Electric power is essential to the functioning of our modern economy; however, electricity generation is the dominant industrial source of air pollution emissions in the US today. Fossil fuel-based power plants are responsible for 67% of the nations sulfur dioxide emissions, 23% of the nitrogen oxide emissions, and 40% of man-made carbon dioxide emissions. Electricity worldwide is produced mainly by using coal, which is responsible for 40% of the carbon dioxide pollution (and, hence, global warming). Coal is expected to maintain about 36% share of the electricity generation market through 2020.

In Liu and Nagurney (2009), we developed an electric power supply chain network model with fuel supply markets that captures both the economic network transactions in energy supply markets and the physical network transmission constraints in the electric power network. The model was applied to the New England electric power supply chain, which consists of 6 states, 5 fuel types, 82 power generators, with a total of 573 generating units, and 10 demand market regions. The empirical case study revealed that the regional electric power prices simulated by the model matched the actual electricity prices in New England very closely. We also computed the electric power prices and the spark spread, an important measure of the power plant profitability, when the natural gas and oil price were varied. The empirical examples demonstrated that, in the case of New England, the market/grid-level fuel competition has become the principal factor that affects the influence of the oil price on the natural gas price. We also applied the model to investigate how changes in the demand for electricity influence the electric power and the fuel markets from a regional perspective. The theoretical framework can be applied to other regions and multiple electricity markets under deregulation.

2. In Nagurney and Nagurney (2011), we constructed a model for the design medical nuclear supply chains, which addresses the perishability of the radioisotpes. For example, each day, 41,000 nuclear medical procedures are performed in the United States using Technetium-99m, a radioisotope obtained from the decay of Molybdenum-99. The Molybdenum is produced by irradiating primarily Highly Enriched Uranium targets in research reactors. For over two decades, no irradiation and subsequent Molybdenum processing has occurred in the United States. All of the Molybdenum necessary for our nuclear medical diagnostic procedures, which include diagnostics for two of the greatest killers, cancer and cardiac problems, comes from foreign sources. Since Molybdenum-99 has a half-life of only 66.7 hours, continuous production is needed to provide the supply for the medical procedures. Thus, the US is critically vulnerable to Molybdenum supply chain disruptions that could significantly affect our health care security and is totally dependent on foreign suppliers.
3. Another industry that our research has focused on is the pharmaceutical industry (see Masoumi, Yu, and Nagurney (2011)). Ironically, whereas some drugs may be unsold and unused and/or past their expiration dates, the number of drugs that were reported in short supply in the US in the first half of 2011 has risen almost to an all-time record 0f 211 as compared to only 58 in short supply in 2004. According to the Food and Drug Administration (FDA) and American Hospital Association, all US hospitals have reported shortages of drugs used in a wide range of treatments and procedures including those for cancer, surgery, anesthesia, and intravenous feedings. In the US, 82% of the hospitals have reported delayed care for patients as a consequence of such shortages including the postponement of surgeries and treatments and the use of less effective or costlier substitutes. In addition to increasing generic competition, the lower reimbursements by government health programs have worsened the situation.

Apart from the cost management pressures and challenges, the safety of imported / outsourced products is another major issue for pharmaceutical companies. In fact, the emergence of counterfeit products has resulted in major reforms in the relationships among various tiers in pharmaceutical supply chains. Interestingly, more than 80% of the ingredients of drugs sold in the US are made overseas, mostly in remote facilities located in China and India that are rarely – if not ever – visited by government inspectors. Supply chains of generic drugs, which account for 75% of the prescription medicines sold in the US, are, typically, more susceptible to falsification with the supply chains of some of the over-the-counter products, such as vitamins or aspirins, also vulnerable to adulteration. Similarly, the amount of counterfeit drugs in the European pharmaceutical supply chains has considerably increased.

Another pressure faced by pharmaceutical firms is the environmental impact of their medical waste, which includes the expired or excess medicine by a hospital or pharmacy and the inappropriate disposal on the retailer/consumer end. Abundant amounts of unused or expired drugs have been found in American drinking water supplies due to improper disposal of unused or expired pharmaceuticals in domestic trash or in the waste water.

Our computable pharmaceutical supply chain network model includes both brand differentiation and perishability of pharmaceuticals whether through loss of quality over time, or even pilferage. Ongoing research includes the assessment of the quantification of the impact of product shortages and the resolution of such shortages.

With rigorous operations research models we can enhance decision making and policy making to enable the better utilization of our resources for supply chains now and in the future.

Further Readings

Cruz, J. M., 2008. Dynamics of Supply Chain Networks with Corporate Social Responsibility Through Integrated Environmental Decision-making. European Journal of Operational Research 184: pp 1005-1031.

Executive Office of Energy and Environmental Affairs and the Adaptation Advisory Committee, 2011. Massachusetts Climate Change Adaptation Report.

Ganeshan, R., T. Boone, and V. Jayaraman, 2011. Sustainable Supply Chains: Models, Methods and Policy. Springer, New York, in press.

Liu, Z., and A. Nagurney, 2009. An Integrated Electric Power Supply Chain and Fuel Market Network Framework: Theoretical Modeling with Empirical Analysis for New England. Naval Research Logistics 56: pp 600-624.

Masoumi, A. H., M. Yu, and A. Nagurney, 2011. A Supply Chain Generalized Network Oligopoly Model for Pharmaceuticals Under Brand Differentiation and Perishability.

Nagurney, A., 2006. Supply Chain Network Economics: Dynamics of Prices, Flows, and Profits. Edward Elgar Publishing, Cheltenham, England.

Nagurney, A., and K. K. Dhanda, 2000. Marketable Pollution Permits in Oligopolistic Markets with Transaction Costs. Operations Research 43: pp 424-435.

Nagurney, A., Z. Liu, and T. Woolley, 2006. Optimal Endogenous Carbon Taxes for Electric Power Supply Chains with Power Plants. Mathematical and Computer Modelling 44: pp 899-916.

Nagurney, A., A. H. Masoumi, and M. Yu, 2011. Supply Chain Network Operations Management of a Blood Banking System with Cost and Risk Minimization. Computational Management Science, in press.

Nagurney, A., and L. S. Nagurney, 2010. Sustainable Supply Chain Network Design: A Multicriteria Perspective. International Journal of Sustainable Engineering 3: pp 189-197.

Nagurney, A., and L. S. Nagurney, 2011. Medical Nuclear Supply Chain Design: A Tractable Network Model and Computational Approach.

Nagurney, A., and Q. Qiang, 2009. Fragile Networks: Identifying Vulnerabilities and Synergies in an Uncertain World. John Wiley & Sons, Hoboken, New Jersey.

Nagurney, A., and M. Yu (2011), Sustainable Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation, International Journal of Production Economics, Special Issue on Green Manufacturing and Distribution in the Fashion and Apparel Industries, in press.

Nagurney, A., M. Yu, and Q. Qiang, Supply Chain Network Design for Critical Needs with Outsourcing. Papers in Regional Science 90: (2011) pp 123-142.

Qiang, Q., A. Nagurney, and J. Dong, 2009. Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis. In Managing Supply Chain Risk and Vulnerability: Tools and Methods for Supply Chain Decision Makers, T. Wu and J. Blackhurst, Editors, Springer, Berlin, Germany, pp 91-111.

Sustainability at the SAMSI Workshop

I had a very stimulating and intellectually engaging time at the SAMSI Engineering and Renewable Energy Workshop that took place recently in Research Triangle Park, North Carolina.

The presentations of invited speakers (almost all of them) have now been posted.

The organizer, Dr. Roger Ghanem, requested that I speak on Sustainability: Methodology so I did, but I also added some applications, including electric power supply chains, because, in my opinion, it is the applications that drive the development of new methodologies.

My presentation, in pdf format, can be directly downloaded here.

Each day we also had brainstorming sessions around several preselected themes.

I selected the Sustainability group, which was one of the number of working groups for purposes of discussions, and we had very lively discussions. One issue that we kept on coming back to was the relationship between resiliency and sustainability.

It was also great to see Dr. Miriam Heller and Dr. Priscilla Nelson, again, both of whom had been formerly at NSF, and were in the Sustainability discussion group with Dr. Heller as our leader.

I very much enjoyed the invited talks and even learned about material science and nuclear energy.

Overall, there were 120 registrants at this workshop, with participants even from Europe!

Congrats to ISO Midwest -- The 2011 Edelman Prize Winner!

Yesterday, I gave a seminar at the Management Sciences Department at the University of Waterloo in Canada. My hosts were simply fabulous and I so much appreciate their attention to detail, from hiring a van shuttle to/from Pearson airport in Toronto for me, for the fabulous lunch at the Faculty Club, and the wonderfully scheduled meetings with faculty and with students. I even got a great night's sleep the night before at the Waterloo Inn. I especially thank Dr. Fatma Gzara for making my visit to Waterloo so pleasant.

In my seminar yesterday afternoon, "Supply Chain Networks: Challenges and Opportunities from Analysis and Design," I spoke on our work on supply chains from electric power generation and distribution ones, results for which were published in Naval Research Logistics in 2009 to our more recent work on critical needs supply chains. I also highlighted some of our research on fast fashion supply chains and work that we are doing on perishable supply chains in healthcare. I also brought into the discussions some of our recent results on the Braess paradox.

There are so many universities in the Toronto area and I heard that about one third of the population in Canada lives in this part of Ontario! Some students from Wilfrid Laurier University (we could see it from the seminar window) marched over to my talk (and it took them about 6 minutes).

Last night, at the Pearson airport, prior to my flight back from Toronto to Hartford/Springfield, I met a manager who had just arrived from Shanghai and works for a high tech company in Connecticut which, among its products, manufactures high tech equipment for the apparel and fashion industry. Our 18 seater Beech airplane provided each of the 8 passengers on board with both an aisle and window seat (the solitary steward was almost double-overed standing up in it and there was no drink service). We continued our conversation during the flight which had some turbulence but nothing compared to that in two of my favorite movies: "Planes, Trains, and Automobiles," and "Airplane."

Now, I hear, that on the same day that I was speaking about our research that modeled the New England fuel and electric power market, using ISO New England data, INFORMS announced that the 2011 Edelman Prize Winner is ISO Midwest! Coincidentally, while at Waterloo, I spoke with Professor J. David Fuller who told me about the book that he is writing with Gabriel and Hobbs and others on energy and he will be including a section on variational inequalities in it! Professor Bookbinder and I also had a chance to then discuss the future challenges of global supply chains (obviously, the triple disaster in Japan entered our conversation and also my seminar presentation).

Congratulations to ISO Midwest -- the link to the youtube posting of the award ceremony and the official INFORMS press release can be accessed here. In fact, all of this year's finalists deserve congratulations.

Just think, where would we be without electric power and reflect on the citizens of Japan, who, in addition to their already severely disrupted lives after the earthquake / tsunami / nuclear disaster, are now subjected to rolling power blackouts and even elevated radiation in the food, tap water, etc. Today, the nuclear disaster was elevated to a level 7, the highest level, as was Chernobyl.

Our Road Trip to the Boston INFORMS Chapter Meeting

Yesterday, while many were starting their journeys home for the Thanksgiving holidays via plane, train, bus, or auto, a group of my students (graduate and even an undergraduate one) joined me in traveling to my talk at the Boston INFORMS Chapter meeting.

We hired a van from UMass Transit, which came with a terrific chauffer, named Andrew, who drove us from the Isenberg School via Route 2 to the venue for the meeting, Emptoris, which is in Burlington, MA. We met at 4PM and arrived at our destination, even with a pitstop, in less than 2 hours.

My host, Dr. Les Servi of the MITRE Corporation, greeted everyone with stacks of pizza and refreshments at the reception, which began at 6:30PM, introduced the Boston Chapter and highlighted its upcoming activities. We are very excited that UMass Amherst will be the site for the Regional INFORMS conference, which will take place May 5-6, 2011. Dr. Servi is a program co-chair of the conference and I have agreed to serve on the program committee. My colleague, Dr. Hari Balasubramanian of the Department of Mechanical and Industrial Engineering at UMass Amherst, is the conference chair. The tentative theme of the conference is: From Theory to Practice with the goal being of having 50-50 participation by industry practitioners and academics, which would be fantastic.

Dr. Servi and I go back to Brown University days, since we both received undergrad and Master's degrees in Applied Math there (he then went on to Harvard and I got my PhD at Brown) and we are very active members of the professional society INFORMS (Institute for Operations Research and the Management Sciences).

My presentation was entitled: "Supply Chain Networks: Challenges and Opportunities from Analysis to Design," and it may be downloaded (in pdf format) here. The presentation gave an overview of some of the exciting supply chain projects that we have been involved in with applications ranging from electric power supply chains in New England to healthcare supply chains for critical needs products, from vaccines to medicines, as well as blood supply chains.

It was terrific to mingle with the audience, which included practitioners from many different industries in the Boston area. I enjoyed talking with employees of Oracle, BAE Systems, and Fidelity Investments after my presentation. Time was too short, though, and Andrew, our driver, was waiting for us. We made it back safely to Amherst at 10:30PM.

Happy Thanksgiving!

Hosting a Visiting Scholar from Australia (Who Also Was a Former Doctoral Student)

Dr. Dmytro Matsypura, of the University of Sydney in Australia, who was my former doctoral student, will be a Visiting Scholar at the Isenberg School of Management until mid-May.

Dr. Matsypura received his PhD in 2006 (I was the chair of his dissertation committee) and the title of his dissertation was, Dynamics of Global Supply Chain and Electric Power Networks: Models, Pricing Analysis, and Computations. We co-authored several papers together, including one that was published in a special issue of Transportation Research E on global supply chains.

Dr. Matsypura is on the faculty of Economics and Business at the University of Sydney (one of the top research universities) and teaches in its Operations Management and Econometrics program. He received tenure in 3 years and is now on sabbatical. Needless to say, it is wonderful when a former student achieves tenure in such record time (indeed, there has been much in the news and media lately about the stress of being on the tenure-track). Plus, it is also special when a former student chooses to spend a good part of his sabbatical leave at the university (UMass Amherst) where he pursued his doctoral studies.

Dr. Matsypura will be speaking in our 2010 Spring INFORMS Speaker Series later this month.

Electric Power Supply Chains and Grit

My co-author, Dr. Zugang "Leo" Liu, and I are very pleased that our paper on electric power supply chains and New England is now officially published and is available online in the journal, Naval Research Logistics; see: NRL. This paper required several revisions and even in its original format was a huge amount of work from the conceptualization of the large-scale mathematical model, the collection of the data, the asking of interesting and relevant questions, the coding of the algorithm(s) used to solve the model -- not to mention the actual writing of the paper, the design and drawing of the figures, including the networks! But the reward for the stamina and endurance needed to finish the paper, revise it according to the anonymous reviewers' and editors' suggestions, is to see it in print. In fact, it already is being cited internationally since it is the first general electric power supply chain network model with fuel markets and data for a large region and the methodology that we use for formulation and analysis is very cool, too -- that of variational inequalities. You can always read up on my Network Economics book to get some background. Our NRL paper can be used as the baseline for the investigation of not only tradable pollution permits (a very hot topic now) but also serve as a model on which smart grid issues can be formulated and studied.

Doing this project required true grit, and, just in time, the Boston Globe has a marvelous article on what it takes to be successful -- Grit! I think that you will enjoy reading the article as much as I did and it shows that you just have to stick to what you love and to work very hard at it.

However, when it comes to publishing, some highly original research papers can be and have been rejected. This topic alone we can write numerous blog posts on so I will just leave you with the following. You may have heard of a new journal recently founded called Rejecta Mathematica, which considers submissions of papers previously rejected elsewhere. It was founded by graduate students who decided to take action. Indeed, The Economist recently noted that Paul Lauterbur, the father of magnetic resonance imaging, had his seminal paper rejected when he first submitted it to Nature. He later received the Nobel prize for this work. Peter Higgs, the predictor of physics' missing boson, faced a similar experience with the journal Physics Letters (and he is expected to win the Nobel prize). So, the moral of the story is, hard work pays off and don't give up if you believe in your work!

Chasing Research Ideas, Catching Tornados, and Getting the News Out

In conducting research one tries to both uncover and to solve underlying mysteries. As any researcher and sleuth knows, this requires patience and great stamina. Plus, it is insufficient to just figure out what is happening -- one also needs to document the findings in publications and to get the news out. The 2009 Summer edition of the Isenberg School of Management's glossy publication, Commonwealth, which is edited by the school's Communication Director, Mr. Lou Wigdor, captures the spectrum of recent activities at the Isenberg School, including research activities, along with the excitement of discoveries. The cover above is fantastic and draws you into the volume and the article on forensic accounting. Inside the issue, you will find what this great school has been up to in the past few months. My department, the Finance and Operations Management Department, has been busier than ever and I invite you to read inside about the outstanding activities of my colleagues. In addition, you will find a welcome to our incoming Dean, Dr. Mark Fuller, by Dr. Tony Butterfield, who has served as the Interim Dean for the past two years, and has led the school with his professionalism and wisdom.

We were delighted to see an article in this issue on our electric power supply chain network research at the Virtual Center for Supernetworks, which resulted in a major paper, co-authored with Zugang Liu, a UMass PhD, who is now an Assistant Professor at Penn State University at Hazleton. The study, which models the electric power supply chain for all of New England, is in press in the journal, Naval Research Logistics, and the preprint can be found here.

Chasing research ideas can sometimes feel like chasing tornados and earlier in this blog I wrote about the research team of Professor Frasier at UMass Amherst, since my husband is now on sabbatical at UMass and is working with Professor Frasier as well as with the CASA team, directed by Professor David McLaughlin. Frasier's team was involved in the recent mega project, known as VORTEX2, in which groups of researchers, literally, chased tornados throughout the south and midwest of the United States. The teams spent 6 weeks on the road, sometimes driving hundreds of miles each day, slept in less than ideal conditions, ate what and when they could, all for the goal of gathering data and tracking tornados (which were not appearing at their usual frequencies this past May in the south and midwest). But the project, nevertheless, was a big success and the data is now being analyzed. I salute the students and the researchers who do what it takes to solve those big, challenging problems!