Cost characterizations of supply chain delivery performance

Contemporary management theories advocate the reduction of variance as a key step in improving the overall performance of a system. We address variance reduction strategies for improving delivery performance to the end customer in a multistage serial supply chain when delivery performance is evaluated with respect to a delivery window. Models are developed that incorporate the variability found in the individual stages of the supply chain into a financial measure that serves as a benchmark for justifying the capital investment required to improve delivery performance. A framework is developed and policies are defined for allocating financial resources for delivery improvement among the competing individual stages of the supply chain. Analytical models for reducing the expected penalty cost associated with untimely delivery to the final customer in a serial supply chain are developed. The models presented attempt to optimize the variance of delivery distribution to the final customer subject to cost-benefit and budget constraints. Variability that is reduced in the delivery distribution to the final customer is then allocated to the component stages of the supply chain.