Approaches to improve quality in supply chains

Abstract: The quality in a supply chain can be improved by enhancing the customer value of the end product or by reducing the total cost of the product. This thesis focuses on values and costs associated with logistical activities in the supply chain. Two approaches to improve supply chain quality are discussed. The first approach, known as performance-based logistics (PBL), is a business model that aims to improve the quality in industries with technically advanced products, in particular in the military and aviation industry. The second approach is a mathematical solution procedure for solving economic lot scheduling problems (ELSP).The purpose of this research is to describe and develop approaches to improve the quality in supply chains. More specifically, the aims of this research are (1) to summarize previously reported benefits and drawbacks of PBL and to explore critical aspects of implementation, and (2) to develop a solution procedure that finds a feasible minimum cost production schedule for a single machine producing several different products.The results are presented in two appended papers. Paper A provides a literature study on PBL. The literature study shows that PBL can: enhance the supplier’s freedom to decide how to produce and improve the performance of a product; generate better opportunities for the supplier to earn profit; improve the supplier’s long-term competitive position; enable the customer to focus on core activities; reduce the customer’s financial risks; reduce support costs; and increase product performance. However, PBL can also: increase the supplier’s financial risks; require organizational changes that induce the supplier’s business risks; and increase the customer’s dependency on the supplier. Some of the critical aspects of implementation are: designing contracts and payment models; deciding on how to measure performance; defining performance indicators; specifying system levels; and setting target values.Paper B presents a heuristic solution procedure intended to minimize setup cost and inventory holding cost in a machine that produces several products in lots. The solution procedure generates a production schedule that can be repeated in a cyclic pattern without shortages, and it uses an extended approximation for the inventory holding cost, since previous literature has shown that the traditional approximation underestimates the cost.