mitigating supply chain disruptions- essays on lean management, interactive complexity, and tight coupling

MITIGATING SUPPLY CHAIN DISRUPTIONS: ESSAYS ON LEAN MANAGEMENT, INTERACTIVE COMPLEXITY AND TIGHT COUPLING DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Kathryn Ann Marley, M.B.A ***** The Ohio State University 2006 Dissertation Committee: Professor Peter T Ward, D.B.A Adviser Approved by Professor James Hill, Ph.D Professor Paul Nutt, Ph.D Professor David A Schilling, Ph.D Professor Steven J Spear, D.B.A Adviser Graduate Program in Business Administration Copyright by Kathryn A Marley 2006 ABSTRACT The prevalence and cost implications of supply chain disruptions is the motivation for a considerable amount of academic and practitioner literature (e.g., Rice and Caniato, 2003; Hendricks and Singhal, 2003; Blackhurst et al., 2005; Hendricks and Singhal, 2005a, 2005b; Kleindorfer and Saad, 2005; Sheffi, 2005; Tang, 2006; Tomlin, 2006) In this dissertation, I consider disruptions as accidents and use organizational accident theory to address how supply chain disruptions can be prevented by understanding the role of lean management, interactive complexity and tight coupling within a system (Perrow, 1984, 1999a) I accomplish this through three related essays I address the theoretical basis for lean management conceptually in the first essay In the second and third essays, I address empirically the effects of interactive complexity and tight coupling on the likelihood of supply chain disruptions, and the impact that different levels of these conditions have on reducing supply chain disruptions Although lean management has attracted a great deal of attention within academic and practitioner literature, there is little research that addresses why lean management appears to work in practice In the first essay, I address the theoretical basis for lean management by drawing insights from research that considers how complex systems achieve reliability Specifically, I consider two organizational accident theories - Normal Accident Theory (NAT) and High Reliability Theory (HRT) NAT suggests that, in the ii absence of countermeasures, a high degree of interactive complexity and tight coupling lead to accidents (Perrow, 1984, 1999a), while HRT argues that organizations facing these conditions may be vulnerable to accidents but can manage these conditions through application of countermeasures (Roberts, 1990a) Firms practicing lean management achieve improved operational performance by removing complexity from processes (Womack et al., 1990; Womack and Jones, 1996) Therefore, we attempt to make a theoretical contribution by connecting the observable attributes apparent in lean management with the measurable performance being achieved to suggest why and under what conditions these attributes contribute to high levels of performance In our second essay, we consider the impact of interactive complexity and tight coupling on supply chain disruptions Although some disruptions are the result of abnormal events, such as hurricanes, fires, or intentional acts, the focus of this research is on “normal” supply chain disruptions We suggest that disruptions are likely to occur under conditions of a high degree of interactive complexity and tight coupling (Perrow, 1984, 1999a) To accomplish this, we estimate the levels of interactive complexity and tight coupling of various processes in a steel processing plant and relate these to the likelihood of supply chain disruptions The results indicate that there is a significant process complexity effect, thus suggesting that process simplification can be an effective countermeasure to preventing supply chain disruptions In our third essay, we aim to understand the structural changes that firms can make to mitigate supply chain disruptions According to NAT and HRT, the likelihood of disruptions can be reduced by making structural changes to reduce interactive iii complexity, reduce tight coupling, or attack both simultaneously (Perrow, 1999b; Roberts, 1990a) To understand which approach works best, we compare the proportion of supply chain disruptions from groups of processes from a steel processing plant with varying levels of interactive complexity and tight coupling We find significantly fewer disruptions under conditions of low process complexity and tight coupling and no fewer disruptions when processes are simplified and buffered with additional inventory Because lean management involves simplifying processes with reduced slack, our results support the benefits of adopting lean management practices to improve supply chain performance iv Dedicated to Gregg and Colton, the loves of my life and my best friends You fill my life with more joy and happiness than I could ever hope for Thanks for being a part of the journey with me! v ACKNOWLEDGMENTS I would like to thank my advisor Peter Ward for his support, advice, friendship, and mentoring throughout my Ph.D program Thanks also to my committee members James Hill, Paul Nutt, David Schilling, and Steven Spear Your helpful comments and guidance are very much appreciated Thanks to my parents and family for their endless love and support Thanks to Gopesh and Sowmya Anand for being such helpful, supportive, loving, and loyal friends Friends like you are irreplaceable! The Marley’s will miss you! Thanks to the Fisher College of Business, Center for Operational Excellence and Lean Enterprise Institute for their financial support vi VITA July 23, 1974……… Born - Sewickley, Pennsylvania 1996…………………B.A Christian Ministries/Social Service, Grove City College 2000………… M.B.A., Management, University of Akron 2003…………………M.A., Operations Management, The Ohio State University PUBLICATIONS Marley, K.A., Collier, D.A., Meyer-Goldstein, S., 2004 The Role of Clinical and Process Quality In Achieving Patient Satisfaction in Hospitals, Decision Sciences 35 (3), 349369 FIELDS OF STUDY Major Field: Business Administration Minor Field: Quantitative Psychology and Logistics vii TABLE OF CONTENTS Page Abstract………………………………………………………………………… ii Dedication………………………………………………………………………… v Acknowledgments………………………………………………………………… vi Vita………………………………………………………………………………… vii List of Tables……………………………………………………………………… xi List of Figures……………………………………………………………………… xii Chapters: Introduction……………………………………………………………… Normal Disruptions and Ordinary Processes……………………………… 2.1 Lean Management…………………………………………………… 11 2.1.1 The how of lean management……………………………… 13 2.1.2 The why of lean management …………………………… 15 2.1.3 Theoretical consistencies with lean management………… 21 2.2 Matrix of Choices……………………………………………………… 25 2.3 Propositions…………………………………………………………… 30 2.4 Illustration…………………………………………………………… 34 2.5 Conclusion…………………………………………………………… 36 viii Interactive Complexity, Tight Coupling, and Disruption-free Performance…………………………………………………………………46 3.1 Literature Review……………………………………………………… 48 3.1.1 3.1.2 3.1.3 Supply Chain Disruptions………………………………… 48 Organizational Accident Theories………………………… 53 Hypotheses………………………………………………… 57 3.2 Methods……………………………………………………………… 61 3.2.1 3.2.2 3.2.3 3.2.4 Sample………………………………………………………61 Dependent Variable - Supply Chain Disruptions………… 62 Independent Variable - Interactive Complexity…………… 63 Independent Variable – Tight Coupling…………………… 66 3.3 Analysis and Results…………………………………………………… 67 3.4 Discussion……………………………………………………………… 69 3.5 Conclusion…………………………………………………………… 76 3.6 Limitations and Future Research……………………………………… 77 The Impact of Lean Management on Disruptions…………………… 84 4.1 Literature Review……………………………………………………… 87 4.1.1 4.1.2 4.1.3 Supply Chain Disruptions………………………………… 87 Normal Accident Theory and High Reliability Theory…… 91 Hypotheses………………………………………………… 95 4.2 Methods……………………………………………………………… 101 4.2.1 4.2.2 4.2.3 4.2.4 Sample………………………………………………………101 Dependent Variable - Supply Chain Disruptions………… 102 Independent Variable - Interactive Complexity…………… 102 Independent Variable –Tight Coupling…………………… 104 ix Interactive Complexity (Product and Process) Linear Complex High Simplified Processes With low inventory Complex Processes With low inventory H1, H4 Tight Coupling (Inventory) H2, H5 H3, H6 Simplified Processes With high inventory Complex Processes With high inventory Low Adapated from Perrow, Charles (1984, 1999), Normal Accidents: Living with High-risk Technologies, Basic Books, New York, page 97 Figure 4.1 –Research Model 118 Slitting A machine that cuts a sheet of steel into narrower strips to match to match customer needs Regular Rolling Any operating unit that reduces gauge by application of loads Temper Mill Rolling A type of cold-rolling mill, usually with only one or two stands, through revolving cylindrical rolls that finishes cold-rolled, annealed sheet steel by improving the finish or texture to develop the required final mechanical properties By changing the rolls of the temper mill, steel can be shipped with a shiny, dull, or grooved surface Reversing Mill Rolling A type of rolling mill where used to reduce steel sheet or plate Tandem Mill Rolling A type of cold-rolling mill that imparts greater strength, a uniform by passing the steel back and forth and smoother surface, and reduced thickness to the steel sheet Unlike the original single-stand mills, a tandem mill rolls steel through a series of rolls (generally three to five in a row) to achieve a desired thickness and surface quality Annealing A heat or thermal treatment process by which a previously cold-rolled steel coil is made more suitable for forming and bending The steel sheet is heated to a designated temperature for a sufficient amount.of time and then cooled It is done because the bonds between the grains of the metal are stretched when a coil is cold-rolled, leaving the steel brittle and breakable Annealing “recrystallizes” the grain structure of steel by allowing for new bonds to be formed at the higher temperature Lab Testing Any type of quality test required by the customer Decoiling A process of unwinding and flattening a coil of steel and cutting it to the lengths desired by the customer Definitions from American Iron and Steel Institute Glossary, http://www.steel.org Table 4.1 – Definitions of steps in steel processing 119 Low Process Complexity High Process Complexity High Number of Disruptions = 10 Number of Disruptions = 13 Tight Number of Orders = 132 Number of Orders = 93 Coupling Percentage of Disruptions = 7.58 % Percentage of Disruptions = 13.98 % Low Number of Disruptions 10 Number of Disruptions = 27 Tight Number of Orders 93 Number of Orders = 133 Coupling Percentage of Disruptions = 10.80 % Percentage of Disruptions = 20.30 % Table 4.2 – Descriptive statistics: Process Complexity and Tight Coupling 120 Low Product Complexity High Product Complexity High Number of Disruptions = 12 Number of Disruptions = 11 Tight Number of Orders = 103 Number of Orders = 122 11.65 % Percentage of Disruptions = 9.02 % Coupling Percentage of Disruptions = Low Number of Disruptions 18 Number of Disruptions = 19 Tight Number of Orders 110 Number of Orders = 116 16.36 % Percentage of Disruptions = 16.38 % Coupling Percentage of Disruptions = 121 Table 4.3 – Descriptive statistics: Product Complexity and Tight Coupling Z-score H1 H2 H3 H4 H5 H6 H.Tight Coupling/Low Process Complexity H.Tight Coupling/Low Process Complexity H Tight Coupling/Low Process Complexity H Tight Coupling/High Process Complexity L.Tight Coupling/High Process Complexity L Tight Coupling/Low Process Complexity H Tight Coupling/Low Product Complexity H Tight Coupling/Low Product Complexity H Tight Coupling/Low Product Complexity H Tight Coupling/High Product Complexity L Tight Coupling/High Product Complexity L Tight Coupling/Low Product Complexity Table 4.4 - 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