Uncertainty supply

Every product has a basic energy cost and the rising consumption of fossil fuels makes it difficult to predict energy costs in the future. Shifting to hydrogen will reduce future cost and supply uncertainties and significantly improve the U.S. balance of trade. 

The word "dilemma derives from two Greek words—"di meaning two and "lemma" meaning assumption, and hence the definition presented earlier with a slight variance—"A choice between unpleasant alternatives." When one considers the alternative to petroleum supply uncertainties and shortfall, and certainly the events that we have seen around in recent days, the expanded use of coal and coal-derived synthetic fuels may not really be an unpleasant alternative, but indeed more one of a logical and necessary challenge. 

Lee (2002) expanded the framework developed by Fisher (1997) and introduced the concept of supply uncertainty. He argues that uncertainties around the supply side of the product are equally important drivers for the right supply chain strategy. 

Fig. 4.32 Examples of products with demand and supply uncertainty (Lee 2002)...

Lee (2002) suggests strategies to reduce demand and supply uncertainties, as detailed below ... 

Supply uncertainty Free exchanges of information - starting with the product development stage and continuing with the mature and end-of-life phases of the product life cycle - have been found to be highly effective in reducing the risks of supplier failure. 

Sharing product rollover plans with suppliers is a key way to manage the risks of product transitions. Another way to reduce supply uncertainty downstream is to collaborate in the early phases of product design. 

The business is surrounded by and influenced by its environmental uncertainty. This uncertainty arises from a range of areas including demand uncertainty, competitor irregularities and forecasting errors, bandwagon effects ( follow the leader ), technology innovation and change, and the like. Internal business pressures arise from supply uncertainty, production uncertainty, technical uncertainty, and new product/service uncertainty. 

The third option would be for the buyer to diversify by earmarking multiple suppliers for the same item, and purchasing online from electronic marketplaces. One way of managing demand volatility is to place a small order and then follow it up with additional orders if demand picks up. The availability of multiple suppliers greatly simplifies placement of follow-up orders. Multiple suppliers also help protect against supply uncertainty. 

The decisions a typical company in ME needs to make include procurement of components, assembly of these components to configure products, distribution of products to markets in the EE, and shipment of products to the markets in ME. As explained earher the uncertainty on the procurement side will be significant, and there will be some uncertainty in demand, though not large. Note that retailers in ME may overcome the supply uncertainties (in EE) by using the EE facihties only... 

To elaborate the business model, consider a simple case where a company produces and sells a single product entirely in EE. Assume that the per unit cost of manufacturing the product (including procurement of components) and shipping it to the market is c, and unit sales price is p. The company needs to decide how many units to produce and ship (0, given that there is a huge uncertainty in the supply of components (5) and some uncertainty in demand (D). We may capture the supply uncertainty by denoting the actual delivery from suppliers for an order of Q as yg, where y is a random variable between 0 and 1. It is clear that the manufacturer s expected sales will equal the minimum of supply and demand, expressed as Ey Eo Min yQ,D). As the manufacturer only pays for the amount supplied, yg, his expected profit will be p Ey Ep Min yQ,D) — cEy yQ. He will choose order quantity g to maximize his expected profit. Note that the expression for optimal value of the order quantity is independent of the probability distribution functions of D and y, the actual value will be specific to these distributions (Rekik et al. 2010). 

Because of the high supply uncertainty in EE, a fraction of the components may be produced in the ME, and others procured in EE. They are then assembled in the local facility in EE. The finished functional products are sold in EE as well as ME, as shown in Fig. 7.6. 

Impact of Supply Source Capability on Supply Uncertainty Supply Source Capability Causes Supply Uncertainty to. .. 

Supply uncertainty is also strongly affected by the life-cycle position of the product. New products being introduced have higher supply uncertainty because designs and production processes are still evolving. In contrast, mature products have less supply uncertainty. 

We can create a spectrum of uncertainty by combining the demand and supply uncertainty. This implied uncertainty spectrum is shown in Figure 2-2. 

Manufacturing strategy Lower costs through high utilization Maintain capacity flexibility to buffer against demand/supply uncertainty... 

Inventory strategy Minimize Inventory to lower cost Maintain buffer inventory to deal with demand/supply uncertainty... 

In our discussion to this point, we have focused on situations with demand uncertainty in the form of a forecast error. In many practical situations, supply uncertainty also plays a significant role. The impact of supply uncertainty is well illustrated by the impact of the grounding of MSC... 

In this section, we incorporate supply uncertainty by assuming that lead time is uncertain and identify the impact of lead time uncertainty on safety inventories. Assume that the customer demand per period for tablets at Amazon and the replenishment lead time from the supplier are normally distributed. We are provided the following inputs ... 

The preceding example emphasizes the impact of lead lime variability on safety inventory requirements (and thus material flow time) and the large potential benefits from reducing lead time variability or improving on-time deliveries. Often, safety inventory calculations in practice do not include any measure of supply uncertainty, resulting in levels that may be lower than required. This hurts product availability. 

A reduction in supply uncertainty can help to dramatically reduce the required safety inventory without hurting product avaUabihty. 

In our discussion so far, we have assumed that each stage of the supply chain has a well-defined demand and supply distribution that it uses to set its safety inventory levels. In practice, this is not true for multiechelon supply chains. Consider a simple multiechelon supply chain with a supplier feeding a retailer that sells to the final customer. The retailer needs to know demand as well as supply uncertainty to set safety inventory levels. Supply uncertainty, however, is influenced by the level of safety inventory the supplier chooses to carry. If a retailer order arrives when the supplier has enough inventory, the supply lead time is short. In contrast, if the retailer order arrives when the supplier is out of stock, the replenishment lead time for the retailer increases. Thus, if the supplier increases its level of safety inventory, the retailer can reduce the safety inventory it holds. This implies that the level of safety inventory at aU stages in a multiechelon supply chain should be related. 

What is the impact of supply uncertainty on safety inventory ... 

Anupindi, R., and AkeUa, R. (1993). Diversification under supply uncertainty. Management Science, 39(8), 944-963. 

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