Int. J.

Production Economics 85 (2003) 155–170

Flexibility in logistic systems—modeling and

performance evaluation
M. Barada,*, D. Even Sapirb
a
Department of Industrial Engineering, Faculty of Engineering, Tel Aviv University, Ramat Aviv, 69978 Tel Aviv, Israel
b
Israeli Defense Army, Israel

Abstract

This paper examines potential benefits of flexibility in logistic systems. It briefly reviews flexibility concepts and
existing flexibility frameworks before suggesting a bottom-up framework for flexibility in logistic systems. Then, one
among the proposed system logistic flexibility types, denoted here trans-routing flexibility, is quantitatively investigated.
The research focuses on flexibility’s benefits exclusive of cost considerations. Logistics dependability, a customer
oriented logistic performance measure is introduced. The analysis is framed in a multi-factor design of experiments
(DOE) that considers factors representing changes in operational and environmental conditions of a logistic system and
design factors, such as trans-routing flexibility, acting as countermeasures to changes. The model stems from a military
logistics scenario easily adaptable to an industrial or service environment. Using DOE to examine the important
interactions between the factor effects contributes to a better understanding of the logistics decision problems and their
eventual solutions.
r 2003 Elsevier B.V. All rights reserved.

Keywords: Flexibility; Logistics; Performance measures; Design of experiments

1. Introduction flexibility in distribution and marketing channels

Flexibility in logistic systems may well represent
a potential source of improved efficiency. How-
ever, contrary to flexibility in manufacturing
systems, which has been widely researched, it
seems that research on flexibility in logistic systems
has been conspicuous by its absence (Jensen,
1997). In a broad way flexibility has been defined
as ‘an attribute of a system technology for coping
with the variety of its environmental needs’
(De Groote, 1994). As such, the research of
*Corresponding author. Fax: +972-3-6407669.
E-mail address: barad@eng.tau.ac.il (M. Barad).
has been very limited. Andersson (1991) referred
to flexibility as synonymous to change and not as a
countermeasure for coping with changes and
variations. In logistic channels the way of thinking
has been mainly influenced by time-based strate-
gies, see e.g. Billesbach and Hayen (1994) and
Dougherty and Pittman (1995). Quick response
was the main goal of a logistic system. To ensure
quick response in highly competitive situations,
as demanded by the time-based strategy, sup-
pliers resorted to increased service levels, thereby
increasing costs.
A different way of thinking for meeting
the time-based constraints is through increased

0925-5273/03/$ - see front matter r 2003 Elsevier B.V. All rights reserved.
doi:10.1016/S0925-5273(03)00107-5
156 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
flexibility. From a performance perspective, flex-
ibility is a powerful system ingredient that enables
stable performances under changing conditions.
Most of the logistic systems characteristics exhibit
changes and uncertainties. Increasing flexibility in
logistic systems can be regarded as a strategy for
improving the system responsiveness to changes.
The main goal of this paper is to emphasize and
illustrate the importance of flexibility in logistic
systems. To achieve this goal, a framework for
flexibility in logistic systems has to be envisaged.
To get further insight into the potential benefits of
flexibility in logistic systems, a quantitative more
detailed example, eventually illustrating the bene-
fits of a specific logistic flexibility type within the
defined frame is also necessary. Hence, we model
and examine in some depth a specific logistic
flexibility type, which we denote trans-routing
flexibility. This flexibility type combines principles
of transshipment, routing flexibility and decision
flexibility. We investigate the performance of a
logistic system possessing trans-routing flexibility
focusing on flexibility’s benefits exclusive of cost
considerations. We deem that conventional, cost
oriented logistic performance measures prevailing
in most logistic systems may not always be
appropriate. Instead, we suggest as an advanta-
geous alternative, a customer oriented logistic
performance measure, emphasizing quick response
delivery through reduced supply uncertainty dur-
ing a replenishment cycle. We introduce such a
measure, logistics dependability, which we define as
the probability that there is no supply shortage
until the end of a replenishment cycle, under given
starting conditions and inventory policy during the
replenishment cycle. Logistics dependability seems
to be particularly appropriate for non-profit
organizations, including military systems.
We define a twofold objective. (1) To utilize the
manufacture oriented and decision-making flex-
ibility literature for suggesting flexibility types
pertinent as design factors in logistic systems and
(2) to quantitatively analyze the effect of one such
factor, namely trans-routing flexibility, on the
system logistics dependability. The analysis is
framed in a multi-factor design of experiments
(DOE) that considers factors representing changes
in operational and environmental conditions of
the logistic systems and design factors, such as
logistics flexibility, acting as countermeasures to
change.
The remainder of this paper is organized as
follows: Section 2 reviews flexibility in the litera-
ture while Section 3 presents a framework for
flexibility in logistic systems. A model for explor-
ing eventual benefits of trans-routing flexibility is
developed in Section 4. Section 5 describes a multi-
factor experimental design and Section 6 concludes
the paper.
2. Flexibility in the literature
In recent years the literature on flexibility has
tremendously increased. The majority of the
published articles deal with flexibility of manufac-
turing systems. Naturally this shows the complex-
ity of this concept as well as its importance. There
has even been a proliferation of papers that review
the flexibility literature (e.g. Gupta and Goyal,
1989; Sethi and Sethi, 1990; Suarez et al., 1991;
Kaighobadi and Venkatesh, 1994; Barad and Nof,
1997; De Toni and Tonchia, 1998; D’Souza and
Williams, 2000). The published reviews consider
different aspects of flexibility such as definitions,
classification and measurement of flexibility,
choices, interpretation and requests for flexibility.
In spite of this proliferation of reviews or rather
because of it, there is less and less agreement
among the authors even on the basic flexibility
classification tools such as ‘types’, ‘dimensions’
and ‘measures’. It seems that as far as the
flexibility taxonomy is concerned each paper starts
from scratch.
2.1. Flexibility measuring dimensions
The two most agreed upon dimensions for
measuring flexibility of any type are range and
response (Slack, 1983; Gerwin, 1993; Upton,
1994). The range dimension measures the variety
of available alternatives for the system adaptation,
so that it may continue to operate. This dimension
is associated with the system effectiveness and is
typically measured by counting the number of
options or by a normalized index. The response
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
dimension measures the easiness with which the
adaptation can be carried out in terms of the
reaction time (or cost) needed to respond to
the change that occurred. This dimension may be
thus associated with the system efficiency. Addi-
tional measuring dimensions were suggested by
other authors. For example, Shewchuck (1998)
suggested ‘operational’, ‘action’ and ‘state’ as
additional dimensions of flexibility; Upton de-
noted the response dimension as ‘mobility’ and
also added ‘uniformity’ of the range alternatives as
a third measuring dimension. A third dimension as
proposed by Olhager and West (2002) was
‘distension’ of the existing flexibility range.
2.2. Flexibility types in manufacturing systems
Flexibility types in the manufacturing literature
can be reviewed through different frameworks.
Some of these frameworks have a top-down
hierarchical structure viewing flexibility through
a manufacturing strategy or a market perspective.
The ‘classical’ early approach to flexibility frame-
works has a bottom-up structure related to a
manufacturing hierarchy. See Olhager and West
for a more detailed review of flexibility frame-
works. Typically, both top-down and bottom-up
flexibility frameworks consist in a three level
hierarchy with a common second level, the system
level. To keep our review as concise as possible, we
limit it to the bottom-up manufacturing oriented
hierarchy, to which a bottom-up logistic oriented
hierarchy is easily adaptable. According to this
structure (see e.g. Sethi and Sethi, 1990; Benjaafar
and Ramakrishnan, 1996) the three hierarchical
flexibility levels are: basic, system and aggregate
levels.
(a) The basic flexibility types comprise flexibility
of the system components. The main compo-
nents of a manufacturing system are its
machines, the material handling units and
the transporting network (Barad and Nof,
1997).

Machine flexibility is the most fundamen-
tal flexibility type. It is easily grasped as a
concept and easily measured on the two
flexibility dimensions mentioned above.
157
On the range dimension machine flex-
ibility is measured as the set of different
tasks it is capable of performing. This
measure, also known as the machine
versatility, can be normalized as a ratio
of all tasks that the manufacturing system
can perform. On the response dimension
it is measured in terms of the duration of
its preparation tasks (setup). These may
be related to the time needed to change
tools in a tool magazine, the positioning
time of a tool, etc.

The flexibility of a material handling unit
can be regarded as similar to that of a
machine. Its range dimension measures
the variety of tasks that the unit is
capable of performing. Its response di-
mension measures the preparation dura-
tion for switching from task to task.

The transportation network flexibility
considers only its range dimension. Chat-
terjee et al. (1986) suggested measuring it
as the ratio of all feasible transportation
paths to the number of paths in a
universal linking network of the system.
(b) The system flexibility types are composites of
the basic flexibility types at the manufacturing
system level. Here we briefly consider routing
flexibility. This flexibility type supports deci-
sions at a tactical level for responding quickly
to changes, disruptions or failures. In order to
utilize the system routing flexibility, informa-
tion is needed on the system status, its control
capabilities and on the on-line human parti-
cipation in decision-making.

Routing flexibility is the capability of
processing a part through varying routes,
or in other words by using alternative
machines. For a given number of ma-
chines in the system routing flexibility will
increase with the individual versatility of
the machines in the set. The rationale of
routing flexibility is to cope with short-
term disturbances, such as breakdowns
and changes in requirements by enabling
alternative manufacturing options. To
realize these options not only versatile
machines are needed but also flexible
158 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
material handling, flexible transporting
network and on-line control.
(c) The aggregate flexibility types represent the
aggregated attributes of the manufacturing
system technology enabling it to cope with the
variety of changes and needs at the strategic
level, hence at a long-term range. Here we
only consider marketing flexibility and expan-
sion flexibility as pertinent to our short
review.

Marketing flexibility is defined as time/
cost for introducing a new product. It is
associated with external decisions and
intended to quickly respond to the
challenges imposed by the competitive
market conditions and by the demanding
customers.

Expansion flexibility is concerned with
the easiness of modifying the capacity of
a manufacturing system, enabling its
adaptation to perceived future changes
in product demand.
2.3. Flexibility in sequential decision-making
Another way to look at flexibility is from a
sequential decision-making perspective. Flexibility
research in decision theory has been carried out on
the value of flexibility in sequential decisions under
uncertainty (see e.g. Pye, 1978; Mandelbaum and
Buzacott, 1990). A flexible decision is amendable
in the future whereas a non-flexible decision is
irreversible. Hence, flexibility may limit the risk of
an early commitment to an alternative whose value
is uncertain. According to Shannon (1948), max-
imal uncertainty occurs when there is an equal
probability for each action in a given set of
alternative actions. Minimal uncertainty occurs
when there is but one possible action, i.e. there is
no uncertainty. Each additional possible action
increases the level of uncertainty. Benjaafar et al.
(1995) define flexibility in multi-stage decision-
making as the degree of future decision-making
freedom an action leaves, once it is implemented.
In other words, the flexibility of an action can be
measured as a function of the number of actions
that are possible at each of the subsequent stages.
Thus, flexibility allows decision-makers to alter
their position upon receipt of new information. It
can be viewed as a device enabling decision-makers
to respond effectively to future changes, by
minimizing the degree of their future commitment.
In many decision situations, decision-makers may
be more concerned about minimizing risk than
they are about maximizing expected values. The
author proved that given perfect information and
under plausible conditions the expected risk of a
decision strictly decreases with an increase in its
flexibility. Two approaches to the decision timing
were considered in Benjaafar (1994), one is
planning-based while the other is real time-based.
From a flexibility viewpoint a planning-based
decision approach has no flexibility. Under this
approach the activities are carried out in a defined
order selected through the optimization of certain
global performance measures. Typically this
means selecting a minimum cost program. Such
approach is justified in a deterministic environ-
ment where changes are not expected. Most often
this is not the case. By contrast, a flexible or
opportunistic approach enables making decisions
in real time. Decisions are made close to the time
when actions are carried out and maximum
information is available. Thus, pre-commitment
to actions whose outcome is uncertain is mini-
mized.
A flexible approach to multi-stage decision-
making is justified in an uncertain environment
where future information on values and costs is
expected. Such an environment is relevant in
manufacturing as well as in logistics, investment,
marketing, product development and other areas.
2.4. Flexibility in logistic systems
Following are some attempts to define flexibility
in logistic systems.
2.4.1. Military logistics flexibility
Kress (1999) mentioned several types of changes
that the military logistics flexibility has to cope
with: the quantities of the needed resources, their
mix, timing and location. He distinguished be-
tween intrinsic flexibility and structural flexibility.
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
Intrinsic flexibility is associated with the versa-
tility of the transportation equipment and with
the versatility of the logistic products. Each may
be measured on a range dimension, considering
the capability of the transportation equipment
to carry a variety of products and that of a
logistic product to satisfy a variety of end users
needs.
Structural flexibility refers to the structural
properties of the logistic deployment among
several given hierarchical command levels at the
theater of military operations. It considers
the capacity of the transferring channels among
the command levels and is determined by the
distribution of assets among these levels. Its
objective is to enable flexibility in decision-making
by postponing assets allocation to the end users,
i.e. the combat units. Kress suggests an index for
measuring and comparing potential structural
flexibility of various deployment postures.
2.4.2. Inter-organizational logistics flexibility
Jensen defined inter-organizational logistics
flexibility as the key logistics activities, specified
and ordered by one set of actors in the channel and
executed by another set of actors belonging to the
logistic channel. The degree of flexibility is
determined by the size of the choice set for
execution and planning in the logistic dimensions,
available for the executive set of actors. Logistic
dimensions are time, quantity and eventually
packaging and load carriers. According to this
author, the degree of executive flexibility increases
with the number of different time distributions and
quantities while planning flexibility increases with
increasing possibilities for advance planning and
with the number of activities that can be planned
in advance.
It should be mentioned that this interpretation
of flexibility is opposed to flexibility in sequential
decision-making where planning in advance is
associated with lack of flexibility. Also, pick-up
times and delivery times within time intervals,
instead of at points of time, do not provide
executive flexibility but rather a relaxation of the
requirements within the marketing channel, or in
other words flexibility of requirements.
159
2.4.3. Flexibility-like approaches in supply chains
2.4.3.1. Transshipment. This approach involves
movement of stock between locations at the same
echelon level where physical distances between the
demand locations and the supply locations are
small (see e.g. Herer and Tzur, 2001). Transship-
ment supports agility (Fisher, 1997), and thus
provides operational flexibility to the logistic
system. This capability can be interpreted in the
sense of physical postponement of assigning the
stock to a specific location. Appropriate perfor-
mance measures for appraising this policy are
savings in stock holding costs and in delivery time
when out of stock.
2.4.3.2. Postponement. Ernst and Kamrad (2000)
define fundamental characteristics that influence
the operation of supply chains. Since postpone-
ment implies capability of keeping products in
their generic form as long as possible, we may
interpret it as flexibility in sequential decision-
making.
3. A framework for flexibility in logistic systems
We have seen that the attempts to research
flexibility in logistic systems have not added
novel angles to the analysis and measurement of
this concept. Though not presented as such, in
fact they rely on flexibility elements defined in
manufacturing systems and in sequential deci-
sion-making. Here are some findings of our
review.
* Flexibility types in military logistic systems
presented in Kress rely on their respective
parallels in manufacture or in decision areas.
The name ‘intrinsic’ flexibility is used as a
general term to denote what is called in
manufacturing systems ‘flexibility of a trans-
portation unit’ or ‘flexibility of a product’.
‘Structural’ flexibility actually describes flexible
sequential decision-making in hierarchically
structured logistic systems.
* Flexibility in marketing channels focuses
on flexible supply and demand constraints
(Hemaida and Kwak, 1994; Jensen, 1997) and
160 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
thus we may denote it flexibility of require-
ments.
* Transshipment and postponement may be
interpreted as applied flexibility in logistic
systems. Transshipment can be considered an
application of routing flexibility, a manufactur-
ing system flexibility type. Postponement keeps
products in their generic form, so as to enable
usage of further information regarding demand
of specific products. As such, postponement
may be considered an application of flexibility
in sequential decision-making.
Applying the rational of this summary, we may
now suggest flexibility types in logistic systems
based on the following principles.
* Bottom-up classification of flexibility as in
manufacturing systems: basic, system and ag-
gregate flexibility types.
* Measurement of flexibility based on range and
response dimensions.
* Justification of flexibility as in multi-stage
decision-making; when future information is
expected, a degree of future decision-making
freedom is justified.
3.1. Basic flexibility types in logistic systems
Contrary to basic flexibility types in manufac-
turing, which concern mainly the physical re-
sources, basic flexibility in logistics (as grasped by
researchers in this field) appear in the context of
supply/demand relations. Hence we suggest here:
* product flexibility,
* requirements’ flexibility.
These two basic flexibility types are associated
with supply/demand relations and can be mea-
sured on a range dimension. We may add:
* flexibility of a transportation tool,
* flexibility of a transportation network.
The latter two basic flexibility types are asso-
ciated with physical resources, thus resembling
their parallels in manufacture.
3.2. System flexibility types in logistic systems
Trans-routing flexibility is defined here as a
logistic system flexibility which combines princi-
ples of transshipment, routing flexibility and
decision-making flexibility. From a decision-
making perspective, trans-routing flexibility allows
decision-makers to alter their position upon
receipt of new information thus meeting the
conditions of flexible decision-making. Instead of
increasing the service level at the beginning
of a cycle—a planning-based or rigid decision
regarding inventory level—trans-routing allows
increasing the service level in a flexible manner,
i.e. on-line when a shortage occurs, by overcoming
it through stock transfer from a nearby location at
the same echelon provided information on stock
levels is shared among locations. The new infor-
mation concerns the shortage occurrence as well as
the capability of the nearby location to provide the
required supply.
We suggest measuring trans-routing flexibility
on a response dimension as the time/cost needed to
transfer stock from one location to another at the
same echelon. The number of transshipment links
(per location) at the echelon level may measure it
on a range dimension.
* Product-postponement flexibility is another sys-
tem flexibility suggested here. It combines
features of product flexibility with postpone-
ment. This flexibility type will support decisions
at the tactical level for responding quickly to
changes in demand requirements. On a response
dimension it is measured as the time/cost to
transform a product from its generic form into
a demanded specific product. On a range
dimension it is measured by the variety of
generic products and specific products per
generic type.
3.3. Aggregate flexibility types in logistic systems
Aggregate flexibility types consider long-term
decisions in logistic systems such as the design of
the distribution system. Typically, a flexible design
may concern the possibility to easily change the
number of logistic storage areas and their location
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
and/or the type and capacity of the transportation
tools and transportation networks.
4. Modeling the benefits of trans-routing flexibility
The model presented in this paper stems from a
military logistics scenario. The problem focuses on
the logistic performance of combat units (end
users) including movement of stock among them
(end users at the same echelon level) and the
logistic relations with their common supply loca-
tion. This scenario can be used in any inventory
situation where there is a common distribution
center and several closely located similar base
demands with trans-routing capabilities and
shared on-line information on their inventory
status. For example in repairable inventory
systems spare parts can be trans-routed among
similar repair shops to improve system response
when out of stock; blood supply can be improved
by having such trans-routing capabilities among
hospitals in the same region.
Objective: Measures of effectiveness of logistic
models have traditionally been objective functions
of average cost per unit time. The problem of
shortage has been treated through constraints
regarding the probability of a shortage during a
cycle or through shortage costs. Here the logistic
performance is not related to cost modeling but is
expressed by the dependability of a logistic system
(at an echelon level) to provide protection against
shortages during a replenishment cycle.
4.1. Inventory policy and notation
(a) The inventory control policy here observes the
inventory level at discrete points spaced T
time units apart, representing the cycle length.
(b) There are N end users (combat units) at an
echelon level located at close proximity one to
another. They receive supply from the same
higher logistic level.
(c) The inventory policy for each end user i; i ¼
1; 2; y; N; is {Si ; T}. Every T time units, there
is a renewal of stock that restores the
inventory level to Si ; as planned.
161
(d) The cycle time T is fixed and consists of L
equal time periods.
(e) {X1 ; X2 ; y; XN } are stochastic variables de-
scribing the demand per period at end user i;
i ¼ 1; 2; y; N: We assume that these variables
are independent and identically distributed
with expected value m and variance s2 :
Accordingly, Si ¼ S for i ¼ 1; 2; y; N:
(f) X ðkÞ is a stochastic variable representing the
cumulative demand over k time periods, k ¼
1; 2; y; L; at any end user i; i ¼ 1; 2; y; N;
with distribution function fk ðxÞ:
(g) The inventory level Sa ðLÞ at the beginning
of a cycle (at any end user) is determined
by considering a given desired service level
1  a; i.e.,
P½X ðLÞ pSa ðLÞ ¼ 1  a: ð1Þ
Accordingly, fL ðSa ðLÞÞ ¼ 1  a that may also
be expressed as Sa ðLÞ ¼ f1 L ð1  aÞ; where
f1
L ð Þ; is the inverse function of fL ðxÞ:
(h) The lead time, i.e. the time between the
placement and receipt of an order from the
higher supply level, is deterministic and
consists of t time periods, toL: When a
replenishment order is placed, the demand
during the lead time is known.
A single-item model is considered.
4.2. System specific variables
4.2.1. Changes
As by its definition flexibility is a counter
measure to changes, we model here two types of
change that may occur during a cycle (see also
Barad, 1998). These are (1) changes in demand
stemming from different activities performed
by a combat unit during a cycle and (2) changes
related to a disruption during the replenishment
process.
(1) To measure the magnitude of a change in
demand we use the coefficient of variance (CV).
Without loss of generality we assume that the
change does not affect the expected demand, but
only the variance. Hence, the CV ratio expressing
162 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170

the change actually represents the variance ratio. information on their inventory levels, further
ðCVÞ1 =ðCVÞ0 ¼ ðs21 =m2 Þ=ðs20 =m2 Þ decisions can be made.

¼ s21 =s20 ; s1 > s0 ;

where s20 ands21 are the respective variances of the
demand per period before and after the change. As
detailed below, this change can be measured in
terms of the service level that due to the increase in
variance diminishes from 1  a to 1  a1:
Let X1ðkÞ be a stochastic variable representing the
cumulative demand over k time periods, k ¼
1; 2; y; L; after the change occurred, with dis-
tribution function fk1 ðxÞ: Following the increase
in the variance of the demand per period, s21 > s20 ;
the variance of the cumulative demand per k
periods, V ðX1ðkÞ Þ; k ¼ 1; 2; y; L; also increases,
V ðX1ðkÞ Þ > V ðX ðkÞ Þ: Accordingly, Sa ðLÞ; calculated
to ensure a service level 1  a for a demand
probability distribution fL ðxÞ with variance
V ðX ðkÞ Þ; will ensure a lower service level, 1  a1;
or equivalently a higher risk for fL1 ðxÞ whose
variance is higher. This higher risk probability, a1;
can be specifically calculated for a given distribu-
tion:
a ¼ 1  fL ðSa ðLÞÞo1  fL1 ðSa ðLÞÞ ¼ a1:
(2) A disruption in the replenishment process
delays the arrival of stock renewal by Dt time
periods thus extending the cycle duration from L
to L þ Dt: We may eventually assume that such an
event occurs with probability p; 0opo1:
Again, we can measure the change in terms of an
increase in the risk level, or equivalently in terms
of the service level that, due to the extension of
the replenishment cycle, is reduced from 1  a to
1  a2: This situation is described by the following
expression:
a ¼ 1  fL ðSa ðLÞÞo1  fLþDt ðSa ðLÞÞ ¼ a2:
4.2.3. Operational assumptions
(i) The transfer of stock is carried out only when
an end unit has enough extra inventory as
necessary to satisfy its own demand and that
of the out of stock unit throughout a lead
time period or until the cycle ends, whichever
occurs first.
(ii) An end user with such extra inventory can
transfer stock to no more than one out of
stock location.
(iii) In case of shortage, a single additional
replenishment per cycle can be obtained from
the higher level supplier to satisfy the demand
of the out of stock end user and the one that
carried out the transfer.
4.2.4. Flexibility measures
Trans-routing flexibility can be measured on
each of the two dimensions: response and range.
ð2Þ On a response dimension it is measured as the
transfer time between two locations at the same
echelon level. Here we assume that the transfer
time between two locations at the same echelon
level is negligible, i.e. that there is maximum
flexibility on the response dimension. We measure
trans-routing flexibility on a range dimension
through u; the number of transshipment links per
end user at the echelon level, u ¼ 0; 1; y; N  1: In
a rigid system u ¼ 0: In a flexible system with N
end users at the same echelon level, maximal trans-
routing flexibility is obtained for u ¼ N  1;
implying that all end users at the same echelon
ð3Þ

4.2.2. Investigated flexibility type

In the model here a flexible logistic system
possesses trans-routing flexibility. Users at the
same echelon level are inter-linked to enable short-
term supply when out of stock. In contrast to a
rigid system where no further decisions can be u=1 u=2 u=N-1
made during a replenishment cycle, in a flexible Fig. 1. A logistic system with varying levels of trans-routing
system with inter-linked end users and available flexibility.
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
level are inter-linked. Fig. 1 depicts such a logistic
system, with N ¼ 5 end users and varying levels of
trans-routing flexibility.
4.3. System performance measure:
Logistics dependability
To measure the capability of a logistic system
to provide protection against shortage during a
replenishment cycle, we introduce a variable that
we denote logistics dependability. In a reliability
context, dependability is a measure of the item
operating conditions at one or more points during
the mission, given the item conditions at the start
of the mission. In the literature it has been defined
as the probability that an equipment mission will
be successfully completed within the mission time
(see e.g. Blanchard, 1974).
D ¼ R þ ð1  RÞM0 ;
where R is the system reliability for a given mission
time (representing the safety index), M0 the
operational maintainability is the probability that
when a failure occurs it will be repaired in time not
exceeding the allowable downtime.
Logistics dependability of a system is defined as
the probability that there is no supply shortage
until the end of a replacement cycle, for given
starting (and changing) conditions. The following
equation is a conceptual (simplified) equation
intended to match the definition of dependability
in the reliability literature (see Section 4.4 for
specific calculations):
DL ¼ Pr þ ð1  PrÞ PsðuÞ;
where DL is the logistics dependability, Pr the
probability that the demand does not exceed the
inventory on hand during a cycle at all echelon
end users, PsðuÞ the probability of overcoming the
shortage for a given trans-routing flexibility u;
u ¼ 0; 1; 2y; N  1:
Starting conditions of a replacement cycle
1. 1  a (service level),
2. cycle time (L0 ),
3. lead time (t0 ),
4. demand variability ðCV Þ0 ;
5. trans-routing flexibility ðuÞ:
163
Potential changes during a replacement cycle
1. Increased demand variability per period
[ðCVÞ1 > ðCVÞ0 ].
2. Interruption of the replenishment activity there-
by increasing the lead time by Dt and implicitly
the cycle time.
To enable a comparison basis, both change
types can be measured in terms of decreased
service level or increased risk, Da (see expressions
(2) and (3)).
4.4. Calculating logistics dependability
The inventory level S at the beginning of a cycle
is calculated for a given service level 1  a and
cycle length L; using Eq. (1).
In a rigid system the confidence level 1  a
completely determines the system dependability.
In a flexible system shortage can be overcome
through stock transfer at the echelon level. The
probability of stock shortage and the probability
of successful trans-routing are calculated for
each period k within a replenishment cycle L; k ¼
1; 2; y; L
Let Gk be the probability of no stock shortage at
a given location until period k; ak the probability
that the first shortage at an end user occurs in
period k:
Gk ¼ P½X ðkÞ pS for k ¼ 0; 1; 2; y; L;
G0 ¼ 1 and by its definition GL ¼ 1  a: ð4Þ
Hence,
ak ¼ P½X ðkÞ > S  P½X ðk1Þ > S:
Substituting we obtain
ak ¼ Gk1  Gk ; k ¼ 1; 2; y; L: ð5Þ
By its definition
X
L
ak ¼ a; ð6Þ
k¼1
Hk is the probability of a successful stock transfer
at the end of period k; it is defined as
Hk ¼ PfX ðkÞ pS  2 Y ðkÞg; ð7Þ
164 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
where
Y ðkÞ ¼ /1
minðt;LkÞ ð1  aÞ:
Eq. (7) conforms to position (f), Section 4.1, and
operational assumptions (i)–(iii). A successful stock
transfer as defined here implies that with prob-
ability 1  a the current stock of the end user acting
as a supplier will cover its own requirements as well
as those of the user in need until a replenishment
arrives or the cycle ends, whichever occurs first. We
assume that a stock shortage will not occur again
during the same cycle at the same location that was
out of stock and received additional supply.
To introduce our concept we shall start with a
simple model.
Model 1: N ¼ 2 (no changes)
During a replenishment cycle there are three
possible events:
(1) No stock shortage; probability ð1  aÞ2 :
(2) Shortage at one end user; probability 2að1  aÞ:
(3) Shortage at both end users; probability a2 :
For u ¼ 0
DL ¼ ð1  aÞ2 :
For u ¼ 1 a successful trans-routing is carried out
when a shortage occurs at any of the two end users
while the other has enough stock to act as a
temporary supplier. This event may occur in any
of the L cycle periods. The probability that it
occurs in period k is 2ak Hk : Accordingly,
XL
DL ¼ ð1  aÞ2 þ 2 ak H k : ð9Þ
k¼1
We may now consider a general model (N end
users including changes).
Model 2: NX2
(a) No changes
As in model 1, the logistic dependability is
calculated as a sum of two probabilities:
(1) the probability that no shortage occurs at any
end user,
(2) the probability of one shortage at any of the
N locations in any of the L cycle periods
coupled with a successful trans-routing.
For u ¼ 1 we obtain
DL ¼ ð1  aÞN
X
L
þN ak ½ðGk ÞN1  ðGk  Hk ÞN1 : ð10Þ
k¼1
The expression in the square brackets represents
the probability that at least one among the other
N  1 end users can perform a successful trans-
routing. ðGk  Hk ÞN1 is the probability that
though they are not out of stock, none of the
N  1 users have enough stock left for a successful
stock transfer.
(b) Changes (of two types)
Type 1: Increased demand variability. This
change implies an increase in the variance of
variable X ; the demand per period, and conse-
quently that of variable X ðkÞ ; the demand per k
periods, causing the service level 1  a to decrease
(see expression 2). The same will happen to the
probability of other events, such as Gk and Hk ;
that are related to the demand not exceeding a
certain value. The structure of Eq. (10) will not
change but the calculated dependability for the
same starting conditions will be lower.
ð8Þ Type 2: Interruption of the replenishment activity.
As mentioned above, such an interruption in-
creases the lead time by Dt and accordingly the
cycle time as well as the risk, which raises from a to
a2: Assuming this event occurs with probability p;
Eq. (10) changes as follows:
DL ¼ ð1  pÞfð1  aÞN
X
L
þN ak ½ðGk ÞN1  ðGk  Hk ÞN1 g
k¼1
þ pfð1  a2ÞN
X
Lþt
þN ak ½ðGk ÞN1  ðGk  Hk ÞN1 g: ð11Þ
k¼1
4.5. Simple numerical examples
Let us first explore the performance of trans-
routing flexibility levels for various system sizes N
(N ¼ 3; 4, 5, 6) when changes are not in effect and
then when a type 1 change occurs. We assume that
the demand per period (hour) at each end user is
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 165

Dependability Improvement the larger systems even through one linkage per
(No changes) end user.
80.00%
60.00%
40.00% 5. A multi-factor experiment
20.00%
0.00% 5.1. The design and its rationale
1 2 3 4
u=1 u=N-1 To get a better understanding of the logistic
decision problems and their eventual solutions we
Fig. 2. Dependability improvement for systems of varying size shall methodically examine the effects of several
(no changes).
factors on the dependability of a logistic system of
given size N: As the complexity of Eqs. (10) and
Dependability Improvement (11) do not permit an analytical approach, we shall
(changes) use the statistical experimental design technique.
120.00%
We distinguish several factor types that may affect
100.00%
dependability: design factors that the decision-
80.00%
maker can manipulate in order to increase the
60.00%
system dependability, environmental factors that
40.00%
represent different normal operating conditions
20.00%
and, change factors that, as revealed by the
0.00%
numerical example, are particularly relevant for
1 2 3 4
emphasizing the value of flexibility.
u=1 u=N-1 The effects of five factors are investigated:
Fig. 3. Dependability improvement for systems of varying size Two design factors: trans-routing flexibility
(changes). that supports decision-making in real time and
service level that supports static planning-based
normal with expected value m ¼ 100; s0 ¼ 0:25m;
decisions.
the service level is 1  a0 ¼ 0:90; the cycle length is
Two environmental factors: demand variability
L ¼ 24 hours and the lead time is t ¼ 3 hours.
and lead time.
Fig. 2 presents the dependability improvement
One change factor representing increase in the
over a rigid system for one linkage per end user
demand variability during the cycle.
and for maximal linkages (N  1) per end user
when no changes occur. The investigated system performance is the
Fig. 3 shows the same four systems when a type system logistic dependability, that in terms of
1 change is in effect. This causes an increase in s; DOE is denoted the dependent variable or the
s1 ¼ 0:30m; and accordingly an increase in the risk response.
per user, a; from 0.10 to 0.143. The logistic dependability of a rigid system of
The main conclusions from Figs. 2 and 3 are: given size N; operating under given environmental
conditions, is solely affected by the service level.
1. Trans-routing flexibility improves dependability This static, planning-based decision determines the
even when changes are not in effect; the inventory level at the beginning of a replenishment
percentage improvement increases with the cycle for any given values of the lead time or of the
system size. demand variance. Thus, in a rigid system planning
2. When changes are in effect, the value of neutralizes the effect of these environmental
flexibility, measured as percentage improvement factors on the system dependability. By contrast,
of the logistic dependability is higher. Substan- as seen in the numerical example, the depend-
tial improvement (up to 20%) is obtained for ability of a system possessing trans-routing
166 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
flexibility, was affected by the environmental
factors even when changes during the cycle are
not considered. The following questions are
investigated here:
* How effective is trans-routing flexibility, as
compared to an increased service level, for
coping with changes that occur during a
replenishment cycle?
* Is trans-routing equally effective for any de-
mand variability?
* Does lead time affect the benefits of trans-
routing?
These questions will be answered through an
analysis of the interaction effects between the
investigated factors.
The experiment is designed as a full two level
factorial experimental design in five factors, 25.
The system we investigate consists of 4 end users,
N ¼ 4:
Table 1 presents the numerical values of the
five independent factors in the designed experi-
ment. The other numerical input values are as in
Section 4.4.
5.2. Analysis and results
Typically, in a statistical experimental design the
response is a stochastic variable. Eventually, the
statistical analysis of the experimental results is
used to estimate variances and to build confidence
intervals for some unknown parameters. In our
experiment, the response (dependability) is not a
stochastic variable, but is calculated using Eq. (10)
Table 1
Investigated factors and their numerical levels
Factor name Description (type)
A: flex Trans-routing flexibility
(design)
B: confid Service level (design)
C: lead time Lead time (environment)
D: CV Demand variability coefficient
(environment)
E: change Increased demand variability
(type 1 change)
for varying values of the parameters as prescribed
by Table 1. The role of experimental design here is
to discriminate in a methodical way between the
important factor effects and the negligible ones. As
the analysis results are not used to estimate
variances, or to build confidence intervals, we
deem it is legitimate to use this technique.
The data analysis here combines analysis of
variance (ANOVA) with a graphical procedure
relying on a Normal Probability plot. The
procedure is described in the experimental design
literature (see e.g. Montgomery, 1997). According
to this procedure standardized effects are calcu-
lated for each factor and each interaction. The
Normal Probability Plot is used to graphically
estimate the important effects. The effects that are
negligible are normally distributed with mean zero
and white noise variance and will tend to fall along
a straight line, whereas significant effects will have
non-zero means and will not lie along the straight
line. The white noise variance needed for the
ANOVA is estimated by pooling the variances of
the negligible effects that lie along the straight line.
Here the white noise variance stands for the
negligible factor effects and no further usage will
be made of its numerical value. Fig. 4 describes the
results in terms of ANOVA.
The zero p-values in ANOVA disclose the
important factor effects. These are: the two design
factors, namely A—trans-routing flexibility and
B—service level, as well as E—the change in the
demand variability. Several interaction effects,
namely AD, AE and BE, are also important.
Among the factors exhibiting a zero p-value we
Measure Low value High value
u—number of linkages per 0 (rigid) 3 (maxflex)
end user
1  a—probability 0.80 0.90
(Da ¼ 0:10)
Fraction of cycle time L L=8 L=4
s2 =m2 0.0625 0.090
Da—increased risk No change Da ¼ 0 Change Da ¼ 0:043
following change
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170 167

Analysis of Variance for dependf

--------------------------------------------------------------------------------
Source Sum of Squares Df Mean Square F-Ratio P-Value
--------------------------------------------------------------------------------
A:flex .366347 1 .366347 50500.09 . 0
B:confid .415849 1 .415849 57323.92 . 0
C:leadtime .00000101531 1 .00000101531 .14 .7132
D:CV .00848579 1 .00848579 1169.75 . 0
E:Change .0468869 1 .0468869 6463.25 . 0
AB 4.27813E-7 1 4.27813E-7 . 6 .8112
AC .00000101531 1 .00000101531 .14 .7132
AD .00855105 1 .00855105 1178.74 . 0
AE .0035343 1 .0035343 487.20 . 0
BC 3.00313E-7 1 3.00313E-7 . 4 .8413
BD .0000543403 1 .0000543403 7.49 . 146
BE .0019987 1 .0019987 275.52 . 0
CD 5.25312E-7 1 5.25312E-7 . 7 .7913
CE 6.32812E-7 1 6.32812E-7 . 9 .7715
DE .00000185281 1 .00000185281 .26 .6202
Total error .00011607 16 .00000725438
--------------------------------------------------------------------------------
Total (corr.) .851829 31

R-squared = 99.9864 percent

R-squared (adjusted for d.f.) = 99.9736 percent

Fig. 4. The analysis of variance.

deliberately ignore the effect of factor D—demand
variability. In this particular case the mean effect
of factor D, which proved to be ‘‘significant’’, is
actually the effect of factor D for a flexible system.
In other words, the effect of factor D is only
present when factor A is at a high level and thus in
our analysis we only consider the effect of
interaction AD. When there is no flexibility, i.e.
factor A is at a low level, the service level
neutralizes the effect of any increase in the demand
variability. (See Appendix A for further explana-
tions and calculations.)
The zero p-values in Fig. 4 do not show the
effect direction, i.e. whether it has a positive effect,
i.e. it increases dependability or it has a negative
effect on dependability. The Normal Probability
Plot in Fig. 5 supplies this information. It is seen
that six factor effects do not fall along the straight
line (again the effect of factor D is not considered).
These are compatible with the zero p-values in
Fig. 4.
Four factor effects are positively placed with
respect to the line and two are negatively placed.
The two most significant positive effects are the
effects of A and B, the design factors. Let us recall
that the effect of factor A represented the increase
in dependability obtained for a system with highest
range flexibility u; u ¼ N  1 ¼ 3; as compared to
a rigid system, u ¼ 0: The effect of factor B
represented the increase in dependability following
a decrease in risk, from 0.2 to 0.1 (an increase in
the service level 1  a from 0.8 to 0.9). As judged
by their magnitude these two effects were equiva-
lent. The two other positive effects are the two
interactions, AD and AE. The most negative
factor effect is the effect of factor E, the change
in the demand variability that increased the risk
level by 0.043. The next negative effect is the
interaction BE. The lead time did not affect the
logistic dependability.
Let us now interpret the interaction results. The
negative interaction between the change factor E
and the design factor B, means that under
changing conditions increasing the service level is
not an effective procedure. By contrast, trans-
routing flexibility is more effective under changing
conditions. This is illustrated by the positive effect
of interaction AE.
Also, as shown by the positive significant
effect of interaction AD, trans-routing flexibility
168 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
Normal Probability Plot for dependf
99.9
99
95
percentage
80
50
20
5
1
.1
-90
Fig. 5. Normal probability plot of the results.
(factor A) is more effective for higher demand
variability than it is for lower demand variability
(see also Appendix A). This result can be explained
by the fact that a higher demand variability
necessitates a higher stock level. This stock is not
well utilized in a rigid system. By contrast, a
flexible system utilizes this higher stock in a
dynamic way during a replenishment cycle thus
improving the system dependability.
6. Concluding remarks
Two objectives were outlined in the introduction
and both were met throughout the paper. The first
objective was to utilize the rich manufacture
oriented literature and decision-making flexibility
literature for building flexibility types pertinent as
design factors in a logistic system. This was carried
out in Section 3, where specific flexibility types and
measures were suggested.
The second objective was to quantitatively
analyze the effect of such a factor, namely trans-
routing flexibility, on logistics dependability, a
new performance measure of a logistic system, as
suggested in this paper. This was achieved in
Sections 4 and 5. In Section 4 a model, with
measures for all the variables involved in the
experimental design in Section 5, was developed.
Additional, more specific objectives were defined
in Section 5.1. These were realized through the
experimental design in analysis as detailed in
Section 5.2. The results contribute to a better
understanding of the logistic decision problems
and their eventual solutions.
10 110 210 310
Standardized effects
Design of experiments is a multi-purpose
technique that can be applied to physical as well
as to simulated experiments. Here it was applied to
investigate calculated results of complex analytical
expressions whose parameters were methodically
varied. Its great advantage is a methodical
examination of the factor effects and especially
of their interactions that may shed light on more
complex aspects of a decision problem.
The main contributions of this paper are:
* Illustrating the importance of flexibility in
logistic systems.
* Blending manufacture oriented and decision-
making flexibility with ‘flexibility-like’ approaches
in supply chains to suggest a framework for
flexibility types in logistic systems.
* Introducing logistics dependability as a service-
oriented performance measure of a logistic
system.
* Providing a methodology for quantitatively
exploring causal relations between the amount
of the logistic flexibility in a given system and
its performance under varying operating and
design conditions.
This paper did not consider any economic
aspects of the problem. However, the approach
can be easily extended to take into account
inventory costs on one hand and the necessary
investments for providing given levels of trans-
routing flexibility to systems of given sizes on the
other hand. The expected level of measurable
changes and operating conditions coupled with the
necessary costs will then dictate the optimal
amount of flexibility.
 M. Barad, D. Even Sapir / Int. J. Production Economics 85 (2003) 155–170
Appendix A. Estimating main factor effects and
interactions in a multi-factor two level experiment
Assume only factors A and D are considered
Notation
Factor levels at which experiments are carried out
A1, A2—respective low, high levels of factor A
D1, D2—respective low, high levels of factor D
Symbolic expressions for numerical results of the
experiments
conducted for given factor levels
A1 D1 ) (1) A2D1 ) a
A1D2 ) d A2D2 ) ad
Calculations
Effect of D at A2 is calculated as: (ad2a)
Effect of D at A1 is calculated as: (d  ð1Þ)
Average main effect of
D ¼ 12½ðad  aÞ þ ðd  ð1ÞÞ:
Effect of A at D2 is: (ad  d)
Effect of A at D1 is: (a  ð1Þ)
Average main effect of
A ¼ 12½ðad  dÞ þ ða  ð1ÞÞ:
Interaction AD is defined and calculated as: (I)
(half) the difference between the effect of D at A2
and the effect of D at A1
1 Chatterjee, A., M.A. Cohen, W.L. Maxwell, L.W. Miller, 1986.
2½ðad  aÞ  ðd  ð1ÞÞ
or equivalently as (II) (half) the difference between
the effect of A at D2 and the effect of A at D1
1
2½ðad  dÞ  ða  ð1ÞÞ
In our case
1. There is no effect of D at A1: d  ð1Þ ¼ 0:
Substituting this result in Eqs. (A.1) and (A.3) it is
seen that:
Average main effect of
D ¼ 1=2ðad  aÞ ¼ interaction AD ðdefinition IÞ:
169
Thus, in this case there is no point in considering
the average main effect of D since, as seen above it
cannot be separated from interaction AD
2. Interaction AD is positive, ðad  dÞ > ða  ð1ÞÞ
(definition II). This means that the effect of A at
D2 is higher that the effect of A at D1
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