Production strategies for exceptional orders management

Increase of competitiveness, unpredictable changes in the demand, rise of new trade procedures generated from e-business models; these factors, during last years, had obliged industry to search for significant improvement in supply chain management and production processes. Since year, supply chain efficiency and flexibility constituted major study topics in operations management area; however, while in past times the research mainly focussed on the analysis and optimisation of single phases among the whole processes, the attention have recently converged on the performances and on the design of the supply chain in its entirety (Beamon,1998). Now, more than in past time, the pursuit of profit for an individual firm in the supply chain seems not to be a far-sighted strategy, if compared to the search for efficiency of a global system, where all players may have the opportunity to agree on production planning and operations management, as well as to share logistic and distribution processes, in order to cooperate and defeat competition. With such hypotheses, the design of flexible contractual agreement gains in importance; the negotiation of productive capacity among supply chain players is, indeed, often based on the basis of an indicative value, to which the customer reserves the rights to apply changes within a certain period of time from the delivery of the order. The capability of promptly reacting to the modification of his customer requests clearly becomes a major competitive advantage factor for the supplier. In order to effectively sustain this reaction, the supplier may be forced to speed-up all or some of his internal processes – first at all, the production process – in different ways according to the amount of the order variation; the maximum flexibility in the exploitation of the supplier potentialities is though needed, in the sense of “capability of reacting to modification of customers’ needs” (Brandolese et al., 1995). In this way, the supplier faces a number of chance for production strategies: an exceptional order which requires an immediate execution and a quick delivery indeed, may be carried out partly using stock and partly varying the production pace; the expediting strategy needs to be considered after the evaluation of lots of decision variables; moreover, the choice of a specific production strategy influences a number of aspects related to the production units itself: the behaviour of finite products and raw materials inventory levels, the overbalance of production rate, the variation in management costs, etc. On the other hand, the increased flexibility of the supplier gives advantage to the downstream units, which can diminish their inventory costs, decreasing in example their safety stock levels. The advantages for the customers coming from the possibility to launch an exceptional order which overcome the planned deliveries require the production unit to invest in flexibility, and this investment must be rewarded through an adequate increase in the supply contractual agreement cost. In this work the product-based expediting (Srivastav, 1999) case is taken into consideration; the expeditor represents the entity which continuously adds demands on the top of previously stated order specification (Miller, 2001). The attention devoted to these topics is witnessed by the rise of societies and fellowships which consider the study of expediting as their mission – first at all, the Expediting Management Association, EMA. The aim is to focus on the customer-supplier relationship and to quantify the increase in the contract cost, due to the opportunity for the customer to launch, in the interval between two planned deliveries, and exceptional order of a variable quantity of products, with immediate delivery. The influence of the production strategy choice on this capability will be analysed, and in order to do this, a formalization of the production strategy concept aligned with the main theories of operations management will be proposed.