analysis of supplier buyer relationships using resource constrained project scheduling strategies

Theory and Methodology

Analysis of supplier buyer relationships using resource constrainedproject scheduling strategies

Oya Icmeli Tukel a,*, S. Nazli Wasti b

a College of Business Administration, Cleveland State University, Cleveland, OH 44114, USAb College of Business Administration, Middle East Technical University, Ankara, Turkey

Received 29 February 2000; accepted 20 May 2000

Abstract

Many studies in the product development literature discuss the bene®ts of partnering with suppliers. In these

partnership relations buyers and suppliers establish long term, co-operative relationships during Product Development

Projects (PDP) in order to reduce product development time and improve project performance. Traditional contractual

approaches, on the other hand, where buyers work independently of suppliers and lack control over suppliers' re-

sources, are commonly blamed for delays in the development time. This study constitutes of an initial e�ort to model

and investigate these relationships analytically. The impact of scheduling strategies, the number of suppliers, and re-

source availability on PDP completion time is evaluated under contractual or partnership arrangement. Contractual

relationships seem to provide a good or even better development times than the ones provided by the partnership

approach. Ó 2001 Elsevier Science B.V. All rights reserved.

Keywords: Logistics; Outsourcing; Project scheduling; Heuristics

1. Introduction

The development of new products has become afocal point of industrial competition (Trott, 1998;Ulrich and Eppinger, 1995; Wheelwright andClark, 1992). Getting a product quickly to marketenables ®rm to incorporate the latest technologyinto their products and react to rapidly changingconsumer demands. Since a large portion of the

production of complex products is done by outsidesuppliers, particularly in Japan, it has become in-creasingly clear that the success of many of theforemost Japanese ®rms has depended on theirability to gain competitive advantage based onestablishing strategically important relationshipswith suppliers (see for example, Dyer and Ouchi,1993; Helper, 1991; Kamath and Liker, 1994). Akey part of these supplier partnerships is collabo-ration in product development. According toClark and Fujimoto (1991), the level of jointproduct development accounts for a portion of theJapanese lead time advantage.

European Journal of Operational Research 129 (2001) 271±276www.elsevier.com/locate/dsw

* Corresponding author.

E-mail address: [email protected] (O.I. Tukel).

0377-2217/01/$ - see front matter Ó 2001 Elsevier Science B.V. All rights reserved.

PII: S 0 3 7 7 - 2 2 1 7 ( 0 0 ) 0 0 2 2 4 - 1

The traditional US buyer-supplier relations, incontrast, have often been described as ``adversar-ial''. Much of the US academic literature in eco-nomics implies that it is risky and ill-advised togive suppliers responsibility for product develop-ment. The traditional US mode of ``contractualrelationships'' between buyers and suppliers isbased on split work between buyer ®rms andsuppliers. This mode does not include teamwork inproduct development projects (PDPs) between thedi�erent parties.

While there is an abundance of literature de-scribing and comparing empirically the two modesof outsourcing in the US and Japan, this com-parison has not been modeled and tested analyti-cally. The purpose of this paper is to propose amodel to compare the two types of buyer-supplierrelationships using methods developed for re-source constrained project scheduling problems(RCP).

2. The contractual approach: The product develop-

ment project scheduling problem with contractual

supplier involvement model

Suppliers' contractual involvement in PDPs isa traditional practice in the US, where the de-velopment work is split between suppliers andthe buyer. Each party controls its own resources,particularly person power. Based on designspeci®cations produced by the buyer, suppliers

are asked to provide component prototypes by aspeci®ed deadline. Each supplier schedules itsown component development project to meet thedeadline speci®ed by the buyer. Meanwhile, thebuyer schedules the PDP based on expected du-ration and completion time of the componentdevelopment projects. The common objective isto complete the PDP as early as possible. Fig. 1is a network representation of PDP with thisapproach where nodes represent activities andarcs represent precedence relationships. Threecomponent development projects are representedby three activities connected to the PDP sincebuyers are not involved in scheduling and re-source allocation decisions of component devel-opment activities. Rather, they are involved indecisions about the starting and completiontimes of these projects, and the precedence rela-tionships among them and all other activities ofthe PDP.

One of the potential drawbacks of this ap-proach are the delays caused by suppliers, whichcan delay the completion time of PDPs. The di-lemma a buyer faces is how to schedule PDPs suchthat the project completion time is minimized andthe e�ects of suppliers' performance to the projectis reduced. We refer to this problem as the PDPCIand o�er the following conceptual formulation:

Min tN �PDPCI�:

subject to

Fig. 1. The contractual approach.

272 O.I. Tukel, S.N. Wasti / European Journal of Operational Research 129 (2001) 271±276

XSu

rik 6Rk 8k; �1�

tj ÿ ti P dj; �i; j� 2 H ; �2�tpq ÿ tv P Dpq ; �v; pq� 2 H ; �3�tf ÿ tpq P df ; �pq; f � 2 H ; �4�where ti is the completion time of activity i (inte-ger), 1; 2; . . . ;N , fi; j; v; f ;Ng belongs to PDP, tPq

the completion time of the component develop-ment project pq performed by supplierq; q � 1; . . . ;Q, di the duration of activity i, DPq

the expected duration of the component develop-ment project pq performed by supplier q, rik thenumber of person-hours of team k required byactivity i for k � 1; . . . ;K and i � 1; . . . ;N , Rk thetotal person-hour availability of team k, H the setof precedence relationships among activities,H � f�i; j�ji immediately precedes jg and Su is theset of activities that are active at time period u.

The ®rst set of constraints ensures that totalperson-hour requirements do not exceed the per-son-hour availability of each team k. The second,third, and the fourth set of constraints are prece-dence constraints. The second set of constraintsensures that the precedence relationships amongthe activities of PDP are satis®ed. The third set ofconstraints ensures that suppliers' projects startafter all buyer activities, which must technologi-cally precede the supplier projects are completed.The fourth set of constraints ensures that suppli-ers' projects are completed before the buyer startsactivities that technologically succeed those pro-jects. The objective is to minimize the completiontime of the last activity of the project.

In this model, it is assumed that: (i) componentdevelopment projects are connected to the PDP assingle activities with expected duration DPq andzero person-hour requirements; (ii) suppliersschedule component development activities be-forehand to determine the DPq values, used as pa-rameters in the model; (iii) each activity has aknown, deterministic and integer duration;(iv) there are a total of K di�erent types of teams;(v) each activity consumes a known, deterministicand integral number of person-hours (which mightbe zero) from each team and (vi) cannot be pre-empted.

3. The partnership approach: The product develop-

ment project scheduling problem with resource

integration model

In this approach, suppliers work with buyerscollectively but the buyer has more control overthe PDP and allocation of person-hours. As in thecontractual approach, the buyer's objective is toschedule the development activities (in this caseboth component and product) such that the pro-ject completion time is minimized. Fig. 2 is a net-work representation of a PDP with thispartnership approach.

We refer to this problem as the PDPRI. ThePDPRI can be formulated as follows:

Min tM �PDPRI�subject toX

Su

�rik � rzk�6R0k 8k; �10 �

tj ÿ ti P dj; �i; j� 2 H ; �20 �

tz ÿ tj P dz; �z; j� 2 H ; �30 �

ty ÿ tz P dy ; �y; z� 2 H ; �40 �where M � N �PQ

q�1 nq is the sum of PDP activ-ities, nq the supplier activities for all q � 1; . . . ;Q,and R0k � Rk �

Pq cq�SRqk� is the sum of Rk and

SRqk or total person-hour availability at the buyerand supplier q, respectively. The constant cq

speci®es the rate of person-hour allocation bysupplier q where 06 cq6 1.

Compared to the PDPCI model, additionalprecedence relationships are de®ned among com-ponent development and product development ac-tivities and activities are scheduled using integratedperson-hours allocated by each team. The as-sumptions (ii)±(vi) are necessary for both models.

4. Computational results

Four priority rules, minimum slack rule(MINSLK), greatest resource demand (GRD),

O.I. Tukel, S.N. Wasti / European Journal of Operational Research 129 (2001) 271±276 273

maximum penalty (MAXPEN) and maximum to-tal work content (MAXTWK) are selected fromthe RCP literature (Davis and Patterson, 1975;Kurtulus and Narula, 1985), which were also ap-plied to parallel scheduling of a set of productdevelopment projects (Kolisch, 1994). The parallelscheduling scheme obtains feasibility by extendinga partial schedule. At the completion time of anactivity, all schedulable activities are determinedbased on precedence relationships. The heuristicschedules activities according to a priority ruleand assigns a completion time until the usage of aresource meet availability constraints. When a re-source con¯ict occurs, unscheduled activities aredelayed and the procedure moves to the next ac-tivity completion time and attempts to scheduleeligible activities. The e�ectiveness of the proce-dure is dependent upon the type of priority rulesused to select activities to be scheduled.

A total of 350 test problems were examinedusing RCP heuristics, all generated with the fol-lowing characteristics:· Number of suppliers. First three suppliers, and

then ®ve suppliers are considered, each imple-menting a 10-activity component developmentproject in both cases.

· Number of teams. K � 6.· Number of activities. The number of PDP activ-

ities range from 23 (20 activities belonging to the

buyer and 3 supplier projects) to 70 (20 buyeractivities and 5 suppliers).

· Availability of person-hours. Three levels of per-son-hour availabilities are used on the PDPRImodel,� Loose. The buyer and supplier of each team k

allocate 100% of available person-hours.� Moderate. The buyer remains at 100%

person-hour allocation while each supplierallocates 1 person-hour

� Tight. The buyer and each supplier allocate50% of available person-hours.

Results comparing contractual and partnershiparrangements seem to favor the latter for the ma-jority of the priority rules and resource availabilitylevels. This is particularly clear for the best per-forming priority rule in each case. Tables 1 and 2show experimental results with 350 examples forone buyer and ®ve suppliers. MINSLK performsbetter for contractual and partnership/loose re-sources arrangements while MAXPEN is a moree�cient rule when resources become tighter. In allthese cases, the priority rule for partnership largelyoutperforms the contractual arrangement, partic-ularly when resources are tight. In the two extremecases of resource availability (loose and tight),performance indicators still favor partnership al-though the moderate case is unclear. Table 3shows that for a smaller number of suppliers, the

Fig. 2. The partnership approach.


di�erences are much less signi®cant in percentageterms under tight resources.

Finally, the impact of suppliers' delays on PDPcompletion times is considered. During the plan-ning stage, buyers usually cannot predict whichcomponent development activities will be delayedand how this will e�ect the completion time ofPDP. However, they can determine which priorityrule provides a ¯exible schedule in which delaysdue to suppliers can be incorporated into the im-plementation stage with minimal impact on thePDP completion time (see Table 4). In general, theGRD rule that performed poorly for the no delay

case provides schedules with the least delay time,regardless of the supplier involvement approaches.

5. Conclusions

Outsourcing has often been considered a policyfor companies to obtain performance improve-ment and cost reduction through high quality andmore experienced personnel, supported by betterpurchasing power and superior management skills(Cant and Jeynes, 1998). This study shows that,when outsourcing, companies can employ project

Table 1

Priority rules ranking for ®ve suppliers

MINSLK GRD MAXPEN MAXTWK

Contractual partnership 1 4 3 2

Partnership

Loose resources 1 4 3 2

Moderate resources 3 3 1 2

Tight resources 3 4 1 2

Table 2

Performance percentage di�erences between partnership and contractual arrangements for ®ve suppliersa


Loose resources 0.112 0.163 0.255 0.211

Moderate resources )0.412 )0.554 0.155 )0.311

Tight resources 0.078 0.156 0.319 0.250

a Note. Percentages calculated as �tN ÿ tM �=tM , where tN and tM are completion times for PDPCI and PDPRI, respectively.

Table 4

Rules ranking when component development activities are delayed


Five suppliers tight resources 2 1 4 3

Five suppliers (contractual) 2 1 3 4

Table 3

Results for three suppliers


Contractual 1 2 3 4

Partnership

Tight resources 1 4 2 3

Performance di�erences

Tight resources 0.025 0.037 0.077 0.079

O.I. Tukel, S.N. Wasti / European Journal of Operational Research 129 (2001) 271±276 275

scheduling tools to analyze their relationship withsuppliers, focusing on resource characteristics andthe criteria used for scheduling PDPs. The toolsemployed under the contractual approach can per-form as well or better than under the partnershipapproach, given project characteristics, the sched-uling methods, and the performance criteria used.

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analysis of supplier buyer relationships using resource constrained project scheduling strategies

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