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Horizontal Collaboration in Flexible Supply
Chains: A Simulation Study
Anuj Prakash*. S.G.Deshmukh**
* Department of Mechanical Engineering, Indin Institute of
Technology Delhi, Hauz Khas , New Delhi, India
tel/fax: +91-991046888
e-mail: anujpra@gmail.com
** Department of Mechanical Engineering, Indin Institute of
Technology Delhi, Hauz Khas , New Delhi, India
tel/fax: +91-11-26591056
e-mail:deshmukh@mech.iitd.ac.in
Submitted:08/01/2010
Accepted:07/02/2010
Appeared: 16/02/2010
HyperSciences.Publisher
Abstract
—
In the current strong competitive industrial context, enterprises must react quickly to the
market changes. In order to face this problem, enterprises must be flexible and collaborate together. Both
the flexibility and collaboration requires high communication between various information systems at
one hand and on the other hand the compatibility of their practices. Collaboration is mainly applied for
inter-organizational purposes and that collaboration is known as vertical collaboration. In this research,
the impact of the horizontal collaboration in the flexible supply chains has been studied. The flexible
supply chains (FSCs) and horizontal collaboration between them has been modeled by using ARENA
7.0, a simulation package. The novelty of the paper is that it proposes the new paradigm of horizontal
collaboration with flexible supply chains (FSCs). Horizontal collaboration can be a key issue for other
enterprises to select the new business opportunities by exercising the collaboration. The total cost of
supply chain is taken as the performance measurement. In this study, the total cost of a supply chain
includes the ordering cost, inventory cost, and back order cost of all the nodes of flexible supply chain.
To show the impact of collaboration, a numeric example has also been solved where two FScs have been
considered with different inventory policies (s, S and s, Q) and distributor node has been deemed for
collaboration of those supply chains.
Keywords: Supply Chain Management, Collaborative Supply Chain, Flexible supply chain (FSC),
Horizontal collaboration, Inventory policies
1. INTRODUCTION
Today's business climate has rapidly changed and has
become more competitive as ever in nature. Businesses now
not only need to operate at a lower cost to compete, it must
also develop its own core competencies to distinguish itself
from competitors and stand out in the market. Enterprises are
now competing globally and traditional barriers between
industries are breaking down. Thus the main goal for
enterprises are maximizing added value and reducing total
cost across the entire trading process through focusing on
speed and certainty of response to the market. There is a
challenge for Supply chain networks to become more
efficient and more responsive to the increasingly demand of
customers, driven by competitive pressures and supported by
developments in information technology. Due to
globalization, Supply Chain Management (SCM) has become
a tool for companies to compete effectively either at a local
level or at a global scale. In order to meet the challenges of
the global market, companies are extending their supply
chain by adding more flexibility and cooperating with
partners whose complementary capabilities can give the
whole business network a competitive edge. The evolving
Flexible Supply Chains (FSC
s
) environment requires a
judicious combination of flexibility and cooperation based
integration. FSCs are a network that is composed of many
firms (i.e. nodes) in order to supply products responding to
customer demands where every individual node has an option
(i.e. flexibility) to select subsequent nodes based on
alternatives. FSC
s
are composed of many flows guided by
autonomous entities or nodes. Hereby collaborative supply
chain with flexibility planning approaches play a major role
in efficiently matching the demand of the market place with
supply capabilities of inter and intra organizational networks.
Collaboration is a negotiated cooperation between
independent parties by exchanging capabilities and sharing
burdens to improve collective responsiveness and
profitability. Specifically, inter-organizational collaboration
is defined as: “a process in which organizations exchange
information, alter activities, share resources and enhance each
Journal of Studies on Manufacturing (Vol.1-2010/Iss.1)
Prakash and Deshmukh / Horizontal Collaboration in Flexible Supply Chains … / pp. 54-58
Copyright © 2010 HyperSciences_Publisher. All rights reserved 54 www.hypersciences.org
other’s capacity for mutual benefits and a common purpose
by sharing risks, responsibilities and rewards.” Thus,
companies tend to focus on streamlining the cross-company
processes from an extended perspective of supply chain. The
actual economic context forces the enterprises to collaborate
together to survive against an increasingly aggressive
competition. In the current strong competitive industrial
context, enterprises must react quickly to the market changes.
In order to face this problem, enterprises must collaborate
together. According to Barratt (2004) and Simatupang and
Sridharan (2002), horizontal, vertical and lateral integration
are the forms of supply chain collaboration strategies.
Horizontal integration occurs when two or more unrelated or
competing organizations (at the same level of the supply
chain) producing similar products or different components of
one product, form a cooperative association to share
resources such as warehouse space and manufacturing
capacity Horizontal integration may overcome financial
barriers to trade (Manning and Baines, 2004). Vertical
integration takes place at different levels of the supply chain.
The integration between producer and the distributor enables
better physical and information flows, improvements in the
trade-off between level of service and average stock, more
economical inventory management control and better
transportation systems (Caputo and Mininno, 1996). Lateral
collaboration combines the benefits and sharing capabilities
of both vertical and horizontal integration. Integrated
logistics and inter-modal transport are examples of an
application of lateral integration that aims at synchronizing
carriers and shippers of multi firms in a seamless effective
freight transport network (Simatupang and Sridharan, 2002).
In the present paper, the impact of the horizontal
collaboration in the flexible supply chains has been studied.
The flexible supply chains and horizontal collaboration
between them has been modeled by using ARENA 7.0, a
simulation package. The novelty of the paper is that it
proposes the new paradigm of horizontal collaboration with
flexible supply chain. To show the impact, a numeric
example has also been solved where two FScs have been
considered with different inventory policies (s, S and s, Q)
and distributor node has been deemed for collaboration of
those supply chains. The total cost of supply chain is taken as
the performance measurement. In this study, the total cost of
a supply chain includes the ordering cost, inventory cost, and
back order cost of all the nodes of flexible supply chain.
The remaining of the paper has been organized in the
following manner: section 2 provides the literature review of
collaboration in supply chain whereas section 3 states the
problem. Section 4 describes the conceptual model of
horizontally collaborative flexible supply chain. Section 5
presents the numerical analysis whereas the paper will be
concluded in section 6.
2. LITERATURE REVIEW
Flexibility is an important factor in manufacturing and supply
chains. Stecke and Solberg, (1981) have carried out a
simulation study for a dedicated type of flexible system
examining loading strategies and dispatching rule for
manufacturing. In the literature, there are some studies
addressed to evaluate the effect of flexibility configurations
on SC
s
planning performance, such as lost sales (e.g., Albino
et al., 2002). In this paper, like other simulation studies
focused on the flexibility of a multi-node supply chain (e.g.,
Garavelli, 2003), SC
s
total cost has been investigated.
An inter-organizational relationship in which the
participating parties agree to invest resources, mutually
achieve goals, share information, (Ring and Van de Ven,
1994; Gray and Hay, 1986; Stank et al., 1999; Barrat and
Oliveira, 2001) resources, rewards (Phillips et al., 2006) and
responsibilities as well as jointly make decisions and solve
problems can be depicted as collaboration. Collaboration is
based on mutual trust, openness, shared risk and shared
rewards that yield a competitive advantage, for better
performance (Horvath, 2001).
Collaboration is for sharing the costs of large investments,
pooling and spreading of risk, and access to complementary
resources (Swink., 2006). Similarly, firms establish close,
long-term working relationships with suppliers and customers
who depend on one another for much of their business,
developing interactive relationships with partners who share
information freely, work together when trying to solve
common problems when designing new products, who jointly
plan for the future, and who make their success inter-
dependent (Spekman et al., 1998). More and more companies
are collaborating in the supply chain because of market
diversity, competitive pricing and shorter product life cycles.
Malhotra et al. (2005) maintain that supply chain partners are
engaging in interlinked processes that enable rich information
sharing and building information technology infrastructures
that allow the processing of information obtained from their
partners to create new knowledge. Their study showed how
various inter-organizational relationships contributed to
knowledge creation capabilities in firms (Malhotra et al.,
2005). Similarly, Boomer (2001) also argues that the benefits
of collaboration include revenue enhancements, cost
reductions and increased operational flexibility to cope with
high demand uncertainties. Both practitioners and academics
are increasingly interested in supply chain collaboration
(Horvath, 2001).
Collaboration implies working more closely with a shared
vision and trust (Lee and Billington, 1992). Furthermore,
sharing information, joint planning, joint problem solving
and joint decision-making are some of the components of
collaboration discussed in the literature. Soonhong et al.
(2005) revealed that sharing periodical information either
formally or informally is regarded as the essential ingredient
for collaborative partners to ease the flow of products,
services and feedback from customers.
In the light of abovementioned literature review, it can be
said that the collaboration is very important for the global
competitive edge. From the prominent review of literature, it
can be clearly seem that a lot of researchers have worked on
vertical collaboration in supply chain but there are very few
Journal of Studies on Manufacturing (Vol.1-2010/Iss.1)
Prakash and Deshmukh / Horizontal Collaboration in Flexible Supply Chains … / pp. 54-58
55
researchers who have studied the vertical collaboration in
flexible supply chain. Thus the paper presents a novel study
of horizontal collaborative flexible supply chain. The next
section depicts the conceptual model of FSCs (works on
different inventory policy) in collaboration.
3. CONCEPTUAL MODEL
The simple concept of supply chain collaboration is that the
firms are getting closer to each other. It also means that the
borders become less distinct. In the present study, two
simulation models of Four-stage multi-node FSC network for
a single product using different inventory policy management
has been taken in to the account. The manufacturer gets raw
materials from outside suppliers. The demand (µ=100, σ=15)
comes from customer/market, which follows a Normal
distribution, at the retailer nodes. The retailer carries
inventory (I=1000) and replenishes the stock from the
distributors according to a (s, S) and (s,Q) inventory control
policy; when inventory position at the retailer reaches s, an
order is placed. The order size equals the difference between
the inventory capacity S and the actual inventory level. The
excess demand is assumed as backordered at the retailer.
When the retailer places an order, the distributor satisfies the
full order immediately upon availability. Delayed retailer
orders are satisfied on a first-come, first-served basis. (Fig.1)
Fig. 1. Working concept of Supply Chain Network
Both FSCs have partial collaboration by collaborating the
distributor node evaluate the impact of horizontal
collaboration on collaborative supply chain network (Fig. 2).
Figure shows the horizontal collaboration in simple supply
chain. Here, both chain members agree to ensure timely,
accurate, and relevant data for the effectiveness of
information sharing. In this study, the shared information
includes items such as inventory levels, lead time and cost.
Fig. 2. Partial Collaborative conceptual Supply Chain Model
(Distributor Node)
4. COMPUTATIONAL ANALYSIS
From the perspectives of all the researches, it can be
concluded that the collaborative supply chain is evaluated on
some performance measures like reducing the supply chain
cost, adopting total quality management, closer links between
demand/supply (reducing backorder cost). In the present
study, the collaborative supply chain is evaluated on the basis
of reducing the supply chain cost as well as reducing
backorder with trade off between inventory holding cost and
backorder cost.
In this collaborative FSC, the distributor will make its
inventory decisions by considering the manufacturer’s
inventory decisions to estimate the backorder cost when
backordered. Accordingly, this section presents some
interesting results obtained from a series of studies carried
out in this direction.
Fig. 3. The variation of Total Inventory Holding Cost vs.
Distributor Inventory level
Fig. 4. The variation of Total Backorder Cost vs. Distributor
Inventory level
Journal of Studies on Manufacturing (Vol.1-2010/Iss.1)
Prakash and Deshmukh / Horizontal Collaboration in Flexible Supply Chains … / pp. 54-58
56
In this study, first the impact of horizontal collaboration has
been shown on the inventory holding cost of two FSCs with
different inventory policies. Fig 3 shows the plot between
total inventory holding cost and distributor inventory levels
with varying reorder point quantity of distributor as the
collaborative node. From this curve it is observed that if the
maximum inventory level fixed and varying the reorder point,
inventory holding cost for both the supply chain increases but
the total inventory cost of collaborative supply chain is less
then the sum of total inventory cost of both the FSCs.
In fig. 4, the graph shows the impact of backorder cost and
according to this graph it is experienced that backorder cost
for both the supply chain decreases. In case of collaboration,
total backorder cost of collaborative supply chain is less then
the sum of total backorder cost of both the supply chain.
To show the impact of collaboration on another component of
total cost of supply chain (ordering cost), a graph has been
plotted between total ordering cost and distributor inventory
levels (Fig. 5). This graph illustrates that ordering cost for
both the supply chain is increases as increases in reorder
quantity. There is also one important observation is that there
is not much difference between the total ordering cost of
collaborative supply chain and the sum of total ordering cost
of both the supply chain.
Fig. 5. The variation of Total Ordering Cost vs. Distributor
Inventory level
Fig. 6. The variation of Total supply chain Cost vs.
Distributor Inventory level
From the graph below it is observed that total cost for both
the supply chain increases as increases in reorder quantity
(fig. 6). In case of collaboration, there is slightly difference
between the total cost of collaborative supply chain and the
sum of total cost of both the supply chain.
5. CONCLUSION
This research addresses the approach to evaluate the
horizontal collaboration of two FSCs by focusing on
inventory decisions between all players of the four-echelon
supply chain. For real time decision making in supply chain
management, simulations are carried out to measure the total
cost of supply chain before and after applying the
collaboration. Supply chain collaboration plays a crucial role
in improving overall performance that benefits all the chain
members. The horizontal collaboration can reduce the overall
cost of the supply chains and the enterprises can improve the
real time decision making process by adopting the suitable
inventory policy. This study also shows that in the
collaboration there is not always the win-win situation
therefore the cost of one chain can be more than the other.
Thus, to achieve the win-win situation under these condition
collaborative partners must share their profit across the
supply chain and some intangible aspects such as trust, senior
management commitment, trust, flexibility, teamwork,
patience should also be taken into the account.
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AUTHORS PROFILE
Mr Anuj Prakash is a young researcher who is pursuing Ph.D. from IIT,
Delhi. He is working in the domain of FMS, CIM, supply chain
management, Operation Management, Optimization. His research involves
GA, SA, AIS, and Fuzzy Systems applications to the flexible system
problems. He has some good publications in some internationals journals
and conferences.
Prof. S.G. Deshmukh is a Professor in the Mechanical Engineering
Department at Indian Institute of Technology (IIT), Delhi. His papers have
been published in many reputable international journals like International
Journal of Operations & Production Management, International Journal of
Productivity and Performance Management, Production Planning and
Control, International Journal of Production Research, etc.
Journal of Studies on Manufacturing (Vol.1-2010/Iss.1)
Prakash and Deshmukh / Horizontal Collaboration in Flexible Supply Chains … / pp. 54-58
58
