Creating Flexibility in the Supply Chain

Rudi et al. (2001) show that companies can increase their profits if transshipment is allowed between them. Grahovac and Chakravarty (2001) consider a supply chain with a distribution center (DC) suppl5dng expensive parts (such as aircraft components) to n retailers. They establish that by permitting transshipment among retailers, the inventory held at the DC decreases while the inventory held by an individual retailer increases. This is an example of free-rider, as the decrease in DC s inventory is not induced by DC s productivity, per se. 

If firms do not sell identical products, transshipment would not be very useful for creating flexibility. Exchange of capacity between two networked facilities (firm I s product can be manufactured in firm 2 s facility and vice versa) would be another way of providing flexibility. As an example, Renault s plant in Brazil produces two additional Nissan vehicles, while Nissan s plant in South Africa builds two additional Renault vehicles. A total of 11 vehicles are cross-manufactured (Ghosn 2009). Capacity sharing in network services is implemented through capacity swaps and redundancy agreements (Yankee 2001). Another example is the telecommunication tower, which is shared by multiple network operators (Chakravarty and Werner 2011). 

Chakravarty and Zhang (2007) discuss a capacity exchange scenario between two firms and establish how capacity price may be determined, and how a side payment maybe used to coordinate the capacity exchange decisions. They also study a scenario where the firms capacity investment decisions are made individually and exchange decisions are made as in a centralized system. 

Restructuring manufacturing to include programmable equipment for rapid retooling is one of the ways of supporting product variety (mix flexibility). Mix flexibility may require order-specific choices of suppliers (for procurement) from a large set of suppliers. A job shop, where workers are trained in multiple tasks, is an example of flexible manual facility. Facilities can be organized to be market-specific or centralized. 

A flexible manufacturing system, with appropriate processes and equipment, is the key to ensuring product variety. The production processes must be designed to cover a wide range of variations induced by customized demand. Therefore, process design must ensure minimum setup times for product changeover at 

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