In a recent article, my co-authors and I examine the impact of improved strategic alignment of inventory on resiliency and continuity. More specifically, we investigate the impact of improved strategic fit by comparing two distinct approaches to inventory management within a service parts environment. We hypothesize that a well-aligned approach to inventory management can enhance continuity and resiliency. We test these hypotheses via a longitudinal field study involving ten United States Air Force (USAF) locations and two years of data (approximately 650,000 inventory transactions). Results from nine test locations and one control location suggest that a well-aligned approach to inventory management is indeed effective in improving continuity and resiliency, thus enhancing service based strategies—in this case, the USAF’s ability to be mission-capable. While the results of the study are derived from the USAF, we believe the implications are farther reaching into the use of inventory as a means of realizing a strategic fit.
An assessment of the impact of the alternative inventory approach on the occurrence of disruptions relied on the comparison of the proportion of inventory flow disruptions (backorders) under the item approach with the proportion of disruptions under the system approach. Six of the eight test locations showed a significant reduction in the proportion of inventory flow disruptions experienced after implementation of the system approach. The average reduction in the proportion of inventory flow disruptions was 6.8%, with a high of 12.8% and a low of 1.9%. It is worth noting that one location (location 3) experienced no significant change in the proportion of disruptions, while another location (location 2) actually experienced a significant increase in the proportion of inventory flow disruptions. Follow-up discussions with USAF personnel attributed the increase in inventory flow disruptions to an increase in demand, highlighted by an additional 8,000 transactions compared to the previous year. Interestingly, several other locations experienced increased transactions, yet still had lower percentages of flow disruptions.
An assessment of the impact of the alternative inventory approach on the number of operational disruptions again relied on a comparison between the pretest proportion of operational disruptions (item approach) and posttest (system approach) proportion of operational disruptions. The proportion of operational disruptions is defined as the number of unsatisfied inventory requests that resulted in an operational disruption divided by the total number of inventory requests (transaction). All of the test locations experienced a significant reduction in the proportion of operational disruptions. The average reduction in proportion of operational backordered units was 0.66% with a minimum reduction of 0.18% at location 3 and a maximum reduction of 1.61% at location 7. A look at the raw data reveals a reduction of over 1,100 operational disruptions across all eight locations despite an increase of over 32,000 transactions. It is interesting to note that the system approach was able to reduce the number of operational disruptions at location 2, negating much of the adverse impact of the increased demand and increased number of inventory flow disruptions discussed previously.
Univariate analysis of variance allowed for the assessment of the impact of the system approach on the mean duration of the inventory flow disruptions. The analysis considered the differences in the mean duration of the disruption under the item approach and the system approach. All eight of the test locations experienced a significant reduction in the mean duration of inventory flow disruptions. The average reduction in mean disruption duration was 9.72 days with individual locations experiencing reductions ranging from 2.71 days to 18.02 days.
Additional univariate analysis of the mean difference in the duration of operational disruptions revealed that 5 of the 8 test locations experienced a significant reduction in the mean duration of operational disruptions. Those locations experiencing a significant reduction experienced an average reduction in the length of the operational disruptions of over 71 days, with reductions in duration ranging from 46 days at location 2 to 111 days at location 7. Although, locations 1, 4 and 5 did not experience a significant reduction in duration per disruption, these locations did experience fewer (number and percentage) operational disruptions.
The non-equivalent control group portion of the analysis also relied on the comparison of proportions and means. Data from both the test and control locations were used to further assess the impact of the system approach on the occurrence and duration of disruptions. The system approach seems to have had no clear significant effect on either the occurrence of inventory flow disruptions or the occurrence of operational disruptions at either the test or the control location. However, both the test and control locations experienced a significant increase in the proportion of inventory flow disruptions and both experienced a significant reduction in the proportion of operational disruptions.
During the univariate tests comparing the mean inventory flow disruption duration, the test location was found to have experienced a significant reduction in the mean duration of disruptions under the system approach. The control location experienced no significant change in mean duration of inventory flow disruptions. The comparison of the duration of operational disruptions revealed a significant reduction in mean duration at the test location, while the control location experienced a significant increase in the mean duration of operational disruptions.
Source: Boone, C., Craighead, C., Hanna, J., and Nair, A. (2013). “Implementation of a System Approach for Enhanced Supply Chain Continuity and Resiliency: A Longitudinal Study,” Journal of Business Logistics, 34(2), 220-232.