232

The transfer of systems technology: logistics systems for underdeveloped countries Peter DAVIS The Wharton School, Unh,ersity of Pennsyh,ania, Philadelphia 19104. U.S.A.

Received December 1979 Revised January 1980 Communicated by R.L. Ackoff

New approaches to large scale industrial development in less developed countries require closer attention to the design of the support systems needed to keep the plants running after construction. System redundancy, loose coupling of subsystems and the capability for adaptive learning become particularly important design principles given the complexity of the operating environment. This paper discusses the appli- cation of these principles to logistics systems design for a multibillion dollar steel plant. Specific guidelines are devel- oped for the requisitioning process for spare parts and mater- ials, for item identification, for the use of assemblies and for the organization of storage and retrieval procedures.

1. Introduction

The growth of basic industry in the less developed countries (LDC) continues today as it has for most of the post World War II era. Motivated by a need to expand domestic manufacturing capability to effi- ciently exploit domestic resources, to decrease reli- ance on the advanced economies, and to avoid missing out on important phases of technological advance- ment, the majority of LDCs are still investing large amounts of capital in the development of a basic industrial infrastructure.

Industrialization of the LDC requires technology transfer. However, the technology transfer involved in the development of a major new industry, is both complicated and multifaceted. In an important sense, technology is not transferred simply by the shipment

The author would like to thank David Boodman, Harold Cypress and George Harris of Arthur D. Little Inc. for their helpful suggestions and Russell Ack~ff for his review of an earlier draft.

North~Iolland Publishing Company Emopean .Iournai of Operational Research 7 (1981) 232-241

of hardware. Effective transfer for an LDC also implies a capability of the recipient to integrate the techno- logy into an existing industrial base;, and to use it without continued managerial dependence on the supplier nations. Integration and independence repre- sent major long term goals which the majority of na- tions are now beginning to address seriously.

The transfer of technology becomes particularly problematical when the technology forms part of a large scale industrialization project such as the build- ing of a refinery, a steel mill or a large manufacturing plant. Traditionally LDC's have relied on the turnkey approach in such cases. The entire undertaking is sub- contracted to a foreign prime supplier (usually from the U.S., Europe, Japan or Korea). However, this approach induces little indigenous learning and often results in plants which are poorly integrated into the industrial framework of the host country. In reaction, pressure builds within the LDC to establish more local control and initiative. A hybrid approach is developed falling somewhere between the turnkey and a 'do it yourself' effort. Local mana- gement becomes, in effect, the prime contractor. Foreign contractors are called in where necessary to pertbrm specific tasks or supply equipment which is not available domestically.

The result of the hybrid approach is a hybrid plant and a combination of subcomponents which may never have been assembled together in the same way anywhere else in the world. In one recently con- structed steel plant in Latin America, key plant equipment was supplied by fifteen different manu- facturers distributed over every major industrialized country in in the world.

The technical problems of design, construction and linkage of the component parts in the hybrid plant are extraordinarily difficult. The problems of develop- ment of the systems and procedures to maintain and supply the hybrid plant once constructed are simply horrendous. At times they defy the imagination. Turn- key plants come with proven support systems. With the hybrid plant these systems have to be developed from the ground up under extremely adverse condi- tions.

In this paper I will analyze approaches to the deve-

0 377-2217/81/0000-0000/$02.50 © North-Holland

P. Davis / Transfer of systems technology 233

lopment of systems for the supply of spare parts and raw materials to the hybrid plant. I have culled lhese ideas from several years of experience as a consultant to steel compalues in the LDCs (particularly in Latin America). My intent is to emphasize two contrasting points: (1) that of all the technology transfer prob- lems, the transfer of 'soft,' procedural or systems tech- nology is among the most difficult, and (2) while there is no well formulated science of system design for such cases, we can apply a number of principles which allow us to do more than simply 'muddle through.'

These sentiments echo Wagner's 1974 assessment:

"I believe that the production and inventory systems designed for [the large integrated plant] can get only very limited help from the available scientific literature o~l produc- tion and inventory analysis. Nevertheless, 1 do think it is poss- ible to use formal science-like approaches for designing hn- proved systems" I2, P. 2821.

Many of the approaches discussed below apply to any large scale logistics system design problem. How- ever, the focus is on design principles which become particularly important within the operating environ- ment of the LDC. My aim is to sensitize systems con- sultants to the special features of design in these envi- ronments and to provide project managers in the LDCs with criteria to judge the relevance of design approaches offered by outside expert groups.

2. The approach

A hybrid integrated steel plant built on a green field site with a capacity in excess of one million tons per year represents a several billion dollar investment for the LDC. Support of plant operations will require at least 150 000 different stock keeping units (SKUs) in stores, spare items and raw materials. Typically up to 40% of these items are purchased abroad, are made under a variety of industrial standards, and have reorder lead items in excess of six months. Local engineers are generally inexperienced with the partic- ular technology of the new plant Inventory control and purchasing agents are unfamiliar with the supply needs of the equipment involved. They are also inbred with an operating philosophy which is designed more to detect fraud or to comply with elaborate govern- mental rules and procedures than to facilitate internal efficiencies.

There are so many conditions for error in such an environment, that the primary focus in systems deve- lopment has to be on designs which are practical,

robust, and functional. Design configurations can be made more sophisticated as staff capability develops, environmental uncertainty is reduced, and learning takes place over the fkst few years of operation. Two design principles are particularly inlportant. These are:

(1) system redundance, (2) loose coupling of subsystems to reduce the reac-

tivity of subsystems to the point that failure in one part of the system does not bring down the whole system.

These principles can be used to generate more spe- cific guidelines for system development.

3. Guidelines for system development

3.1. The design o f paraliel structures

Except in the case of an economic stock-out, the basic test of ~m inventory system is that the item be retrievable when it is required. Failure to retrieve may be due to a failure in the development process (e.g. a potential need was never identified) or in the operating process (e.g. a part is incorrectly requisitioned). Suc- cessful operation of either process depends on the successful execution of a set of serially connected acti- vities (Fig. 1 ). In each case, if Oi = probability of successfully completing stage i for a given item, tile process reliability r = npi.

Because of this serial dependence, low rates of failure at each phase can combine to pr',duce highly unreliable systems (ifpi = 0.95 Vi, r = 0.74). The use for a simple serial structure is therefore inadequate, particularly for the development process where tile risks of failure of individual tasks may be quite high. A service level of 75% and less would lead rapidly to system's collapse.

One of the most powerful ways of increasing sys- tem reliability is through the design of a parallel struc- ture. If the development process is repeated indepen- dently and in parallel through a separate stream of activity, system reliability may be improved dramati- cally. Assuming equal probability of failure at each stage (1 - p) and n repetitions of a development pro- cess with m stages, system reliability becomes:

R = 1 - (1 _ p m ) n

Fig. 2 shows system reliability for m = 3, n = 1, 2, and 3. At levels above p = 0.8, the parallel structures rapidly approach perfect reliability.

Let us consider how these reliability properties

234 P. Davis / Transfer of systems technology

~/~nitial prior need for tem determined ,J

I~m identified correctly I

~ f Item purchased

~ /" Item shipped

[ ~'tem received correctly

l I Item required by engineer [

I Item identified by engineer [

,i Physical item matched with [ J . . . . inventory contract identifi- 14----f 'touu.~n;~neermg°°°cumen" cation (standard d e s c r i p t i o n ~ ~.u,,,p,===u and parts number) /

I arehouse requisition completed

Item location in warehouse [~ /Warehouse location [ determined I TM [ system developed

] , ~ I=tem located

Item delivered to engineering site

Item used for repair or routine maintenance

Fig. 1. The development system to support demand for a spare part.

--- [ = Operations

[/ ]= Development

of the development system might be applied to the ordering process. A steel plant can be divided up into the majo~ production and support areas (the blast furnace, rolling mills, pellet plant, etc.). In a typical integrated plant there may be up to 15 major plant areas. One way to increase the reliability of the spares and material acquisitions process is to allow each area to purchase, expedite, and rec.eive Rs own items without consideration of the possibility of equivalent orders being placed in other parts of the plant. The extent to which this introduces parallelism depends on the

number of plants ordering the same item. A typical distribution of the equivalency of spares and material needs is shown in Fig. 3. Approximately 20% of all items are used in only one area. 13% of all items are used in all 15 areas. The distribution is bimodal. There is a tendency for an item to be either specialized or c o m m o n .

We will consider the development system to have performed reliably if at least one order from one area is successfully executed, the items are success- fully received, and correctly documented. Clearly tHs

P. Davis / Transfer of systerns technology 235

.g.

.8

.7

. 6 - -

.6

.4

.3

.2

. l

R3

• I ,2 .3 .4 .S .6 .7 .8 .9 1.0 P

Fig. 2 Reliabi l i ty o f sys t em conf igura t ions .

If, on the other hand, all stock had been pur- chased taking into consideration the demand for the plant as a whole, the optimal order quantity would have been:

QT = (2A~ddC) I/2 + ST,

where ST is the safety stock based on plant-wide demand. Now the safety stock, Si = ¢ • o (dr), where

is a constant and o(di) is the standard deviation of the demand.

If we assume that the demands in the different' areas are independently distributed, then:

o ~ ( a ) = ~o:(di), o(d ) = ( ~ , o = ( d O ) ' /2 .

is only a crude index of reliability. We might, for " example, want to define reliability in terms of suffi- cient stock successfully received to cover one resupply lead time for the plant as a whole. We can, however, use the crude index to give some indication of the trade-offs involved.

Suppose a given plant is made up of N areas. Sup- pose further that a given stock keeping unit (SKU) is to be held in k of these areas. If each purchases an economic order quantity (EOQ) plus the appropriate safety stock, the purchase quantity Qi for area i will be approximately:

Qi = (2AddC) m + si ,

where: A is the ordering cost, di is the demand, C is the carrying cost, Si is the safety stock. Total quantity purchased Q = ~kQi,

k

Q : ~ ((2addC) ~/" + S~). l = 1

16

14 ̧

6

4

2

Number of areas with needs for the same equipment

Fig. 3, Similarity of needs.

' / o ' , ' , ' t ~ ' t ~

Therefore

sv = (~Cs~) "~ •

Hence

QT = (SAdt/C) 1t2 + ( ~ S~)'/2 .

It is easy to show that the greatest difference in order quantities between the joint and the individual cases occurs when the demand distribution in each case is identical. If we assume this worst case:

d;=d Vi, s~=s Vi,

QT =V-~--~' ~-" V~+ V~--,

Now Q is the total quantity actually purchased and

In the worst case, if all the material actually pur- chased arrives, there will be an excess stock on hand of:

The total cost of purchasing and holding this excess stock will be:

TC = b(Q - Q O + (k - 0 , 4 ,

where b is a holding cost constant.

23b P. Davis / Transfer o[ systems technology

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0 Reliability

Fig. 4. Reliability vs. maximal overstocking.

As a function of k, the number of areas indepen- dently purchasing the item, the maximal total cost for multiple orders is:

T c = b(2;(k - V ~ ) + ~k - 1)A

Of course, the behavior of this function will depend on the relative magnitudes of the order costs and car- rying costs. The case most favorable for multiple or- ders will be when the order costs are low. Let us assume for the moment, therefore, that A = 0. We can then plot the maximal oversupply (and the expected oversupply) against system reliability as a function of k (the number of plants independently ordering) and p (the reliability of a single ordering process.) Such plots are shown in Fig. 4.

We can use these plots to derive a reliability/over- supply ratio. The plot of such a ratio is shown in Fig. 5. While these plots need to be suitably parameterized for particular cases, they indicate that multiple orde- ring may be beneficial for those items which are com- mon to a few (up to say, 5) plants. An examination of Fig. 4 shows that multiple ordering may thus be appropriate for at least 20% of the SKUs. Extremely large ordering costs would of course reduce this figure.

LO

0--" | 2 3 4 5 6 Number of plants

Fig. 5. Reliability/oversupply ratio.

3.2. The recognition of equivalence

A second, and quite powerful, method for effec- tively increasing parallelism in the system is by im- provement of the recognition of equivalence. Any plant stocking a large number of items will have large nhmbers of hidden or close, but not exact, equiva- lences. Clearly, the more these can be detected the more reliable tile development system will become.

Usual practice would be to detect equivalent item~ before purchasing takes place to minimize total order quantities. However, given the potential advantages of multiple ordering, it may be sufficient to recognize these equivalences after purchasing, but before plant commissiGning. A secondary advantage of delayed equivalence recognition is the avoidance of additional error in the ordering process. For the large number of items for which it is important to avoid multiple purchasing, equivalence recognition becomes a serial part of the purchasing process. Its accuracy then becomes of paramount importance.

The detection and subsequent management of equivalent items requires the use of three codes:

(a) a temporary identifier, (b) a descriptive code, (c) a unique identifier.

The temporary identifier is for internal documentation purposes and is eventually removed from the system. The descriptive code facilitates a systematic search for equivalences. The unique identifier allows items identified as equivalent to be subsequently managed, as if they were the same item. The flow throught the process is illustrated in Fig. 6 for the case of spare parts equivalence detection.

There are two applicable criteria of equivalence - functional equivalence and structural equivalence. Functional (or more broadly, input-output) equiva- lence is relevant to the replacement of an item in a larger assembly. Structural equivalence is relevant to the maintenance of the component parts of the item. Clearly, functional equivalence does not imply struc- tural equivalence, nor vise-versa. In a sophisticated system it may be desireable to use more than one unique identifier for an item, allowing for the use of multiple equivalence criteria. Generally, however, this is not done in order to avoid extra operating system complexity, and its consequent potential for confusion.

The most difficult and arduous part of the equiv- alence detection process is the assignment of a descrip- tive code. A descriptive code sets out, in hierarchical

SPARE PART DESCRIBED BY ENGINEER FROM DOCUMENTATION

. . . . . . . . . . TEMPORARY IDENTIFIER WRITTEN ON DOCUMENTATION

l I UNIQUE IDENTIFIER

WRITTEN ON

~ __DOCUMENTAT ON

1 UNIQUE IDENTIFIER FOR TEMPORARY IDENTIFIER RETURNED TO ENGINEER

Fig. 6. Assignment of unique identifier.

P. Davis / Transfer of systems technology

PART DESCRIPTION PLUS ] ~1 TEMPORARY IDENTIFIER

. SENT TO .CATALOGUE CENTRA~

DESCRIPTION CONVERTED TO STANDARD DESCRIPTION

D~SCRIPTION CODE ASSIGNED

I , _

DESCRIPTION CODE FILE SEARCHED

1 i UNIQUE IDENTIFIER ASSIGNED

237

fashion, the criteria by which equivalence is to be judged. The language of the code must be standard and uniformly applicable. A vocabulary and a set of equivalence criteria must be set up for each type of item.

There are two major difficulties with this proce- dure: (1)the development of the descriptive code and (2) its application. Descriptive codes either don't exist, or exist at such general levels (as in the Federal Supply System) as to be virtually useless. Technical expertise therefore has to be assigned to the develop- ment of codes, with an amount of detail Much makes their application both feasible and effective. There is also, apart from the technical difficulties, the problem of language. Spanish, for example, has three common words for the English word, 'bearing'. Standard trans- lations and usage are therefore essential. Major prob- lems in application arise due to

(1) the lack of specification of equipment charac- teristics by suppliers;

(2) the inexperience of personnel and therefore

the limited capability to make judgements; (3) the need to translate from a variety of different

industrial standards and foreign languages. The latter problem is particularly acute for LDCs. It is not uncommon that equipment supplied to major plants in LDCs would be described under five or six sets of identical standards and the same number of natural languages.

The development of a standard set of de,.'riptive codes should, for most LDCs be a national ur, der- taking. It almost never is, and a continuing price is paid in terms of ineffective logistics control.

3.3. The use o f assemblies

The effective use of assemblies can do a great deal to enhance the reliability of a logistics system and becomes a vital part of inventory management in LDCs. In general, the number of assemblies held in stock should be much greater under the operating conditions of an LDC than would be normal practice.

238 P. Davis / Transfer of systems technology

In assembly maintenance if a part fails, the complete assembly is changed, and the defective assembly is then repaired without affecting the production pro- cess. An assembly, being a larger piece of equipment, will be more readily identified and will often be kept in close proximity to the production process, allow- ing rapid maintenance and the avoidance of down- time. The required lead time for the location of spare parts is increased by the mean time between failures of the assembly. Furthermore, with the purchase of the assembly and it.s components a further element of parallelism is introduced. The trade-off, of course, is with the additional cost of the assembly itself.

We can give some guidelines on the appropriate level of assembly usage as a function of dislocations in the parts retrieval process. In general, the use of assem- blies will be justified for pieces of equipment subject to spontaneous (and hence non-deterministical|y pre- dictable) failure whose breakdown leads to disruption of production, and hence a high stock-out cost. We have developed procedures which allow the deterlnina- tion of optimal inventory levels for spontaneously failing parts as a function of the stockout cost per unit time, the the replacement time (replenishment or repair), the number of units installed, and the unit failure rate. (Fig. 8 shows the relationship between these variables and optimal inventory levels.) We will not show the derivation of these relationships, which are described elsewhere, but will investigate their implications for assembly acquisition. (Davis and Smith Ill).

The question we will address is: how much differ- ence does ineffective inventory management and item retrieval make to the appropriate number of assemblies held on standby? We will assume that if the assembly is held in inventory it will be handled as a standby

J P- 108

10 8

:i_ r,.g l

,,lllOi .01 j I 18 Repair Time x No. of Units Installed x Unit Failure Rate : l x n x c N = Optimal Number of Assemblies

Fig. 7. Optimal inventories o f assemblies.

<

ca >

. o r e ' ' .oo2 ~o3 ~ ~ ~ ~, Repair T i m e / F a i l u r e Rate

Fig. 8. Total cost of assemblies as a factor of repak time.

item, and upon failure of the operating unit it replaces it will be installed ready for operation almost immedi- ately. If the assembly is not available the appropriate spare parts have to be identified, the assembly stripped down, the spares located in stock, shipped and installed. Let us suppose that the spares are available, but their identification, location and shipment taken several hours due to failures in the inventory control process. Under what circumstances should an assembly be held, which would not otherwise be held, due to the excess waiting time for stock identification and deli- very?

We can answer this question by investigating the boundary between N = 0 and N ~ 1 in Fig. 7. (Strictly we should also look at the boundaries between N = 1 andN= 2, betweenN. = 2 andN= 3, etc. However, the major impact will be on first unit purchases.) Stockout costs are difficult to estimate. If production is lost, the stockout cost will be the contribution of the lost production to fixed costs. In a lm. tons per year plant, this would amount to approximately $2.5m per week of lost production However, most plants carry a forward buffer which allows the plants upstream to continue operations even when produc- tion is lost downstream. In such cases, stockout costs should be equal to the variable costs of making up the buffer. For the purposes of illustration we have assumed this (the more usual cost) to be around $20 000 per week of lost production We will assume:

stockout cost per unit = 20 000, carrying cost = 20%, number of units installed = 1. If we now consider varying prices for a given assem-

E ts.

<

$ .

14

.,~, .0= . ~ .,~ . ~ Repair Time/Failure Rate

0.67 1.34 2.02 2.69 3.36 Repair time

(hrs) 0.17 0.336 0.50 0.67 0.84

Fig. 9. Cost of required assemblies as a function of repair time.

bly we can derive the price at which it just becomes worthwhile to hold it on standby. This price is derived as a function of the repair time (using spare parts) expressed as a fraction of the mean time between assembly failures (Fig. 8).

I fg = replacement time, o = transitional value,

i) tx g k .

Although for small g, k = 1, and the relationship is linear. Fig. 9 also shows the transitional values as a function of actual repair time given variou~ mean fail- ure rates. Thus, if the mean inter-failure time is 1 month, and the repair time 2 hours, assemblies costing

I O

112~1 I

A E:8 I

z6 .

4 ¸

2

P. Davis ] Transfer o f systems technology 239

Fraction of Difficult Requests

Fig. 10. Maximal warehouse size as a function of the fraction of difficult requests.

less than $15 000 should be on standby. Assuming that tile 'ABC' phenomenon for inven-

tories applies to assemblies, we can derive the total additional cost as a function of repair time. Tile functional form of this cost is shown in Fig. 10. It can be seen that savings in repair time can lead to a very substantial reduction in assembly holdings. For assemblies which fail an average of once per month, a reduction of the repair time from 2 hours to 1 hour reduces assembly inventory by 40%. Furthermore, an efficiency of parts retrieval and assembly repair also increases the payoff in terms of saved assembly costs. There may well be a bigger return (depending on the failure rate, etc.) on reducing delays from 2 hours to I hour than from 4 hours to 2 hours. This puts increasing pressure on inventory control to per- form effectively.

3. 4. Decentralized storage atzd retrieval

There is an increasing tendency for modern multi- plan operations to centralize warehouse activities. With a centralized holding policy all spares and store items are held in one large facility, and deliveries are made from the facility to the various areas of the plant. There are a number of advantages to such a policy including

(1) lower aggregate storage costs, (2) improved protection against theft, loss and

damage, (3) better equipment standarization (i.e., greater

recognition of item equivalences across plants), (4) easier implementation of economic reordering

practices on a plant-wide basis (i.e., greater avoidance of duplicate orders, stock-outs in one alea when parts are available in another, etc.),

However, centralization carries major risks. If all inventories are to be handled centrally, then the cen- tral warehouse must function effectively, or there will be widespread disruption of operations.

There are severe obstacles to tile effective operation of a centralized facility at the outset of operations under the kind of conditions we have been discussing. Let u~ consider the case in which a certain percentage of the items has been purchased, documented and located as the inventory central system deraands. For the remaining items, some problems have arisen. Either the item was not ordered, or not properly documen- ted, or it was lost or misplaced.

In the first case, when an order arises for a given item the clerk will locate it rather easily. His search

2 4 0 P. Davis / Transfer of systems technology

through the stacks will be hierarchically organized (group, class, first descriptive characteristic, second descriptive characteristic, etc.). If we suppose that a five level hierarchical organization is sufficient to uniquely identify eadi of N items in a warehouse , and that the number of alternatives at each node of the hierarchy is equal, then even a simplistic search pro- tess for properlyidentified items still require only n comparisons to be made, where

, , = _ ~ u o . 2 .

For a facility with 100 000 items, n = 25. If, on the other hand, the required item has been

lost or misplaced, but the clerk believes it to be in the warehouse, he is confronted with a search task which is an order of magnitude more difficult. Sup- pose that he can cut down the region in which the spare might be located to 1/10th of the possible items, but he has no further information on its possible whereabouts. If we assume that he gets no further in- formation on its location as he continues to search (except of course when he finds the item) he will on average have to make n comparisons, where

n = & 7 2 0 .

For a facility with 100 000 items, n = 5000. He must make 200 times as many comparisons as in the documented case.

What does this do to the level of service offered by the warehouse?

Consider the warehouse to be a single channel facili- ty, serving a simple queue with random arrivals. Sup- pose the overall arrival rate is ~, and the service rate p. Suppose further that a fraction k of all items in the warehouse cannot be located through the regular retrieval system. (We will call these 'difficult requests'.) We will assume that the clerk does not know that the request is a difficult one until he actually carries out his search. (He cannot, therefore, establish a priority system in which he delays those requests which cannot readily be found.) Suppose now that easy requests arrive at random (at a rate ?t~) and independently of the difficult requests (at a rate X2). Then,

At /h= 1 - k , h 2 / h = k .

Suppose easy requests are serviced at a rate Pl and difficult ones at a rate/d2, and

/x2//x I = m,

generally m < < 1 .

Then we can show that the average time we must wait for a request to receive service (in the steady state) is W, where

u2i T2 + t x l t w l 1 W=

;sL-:, Let

X l /p I = s ,

then we can write

(, s 2 + (1 - k ) + w = ( l i

: t

s ks

or rearranging terms:

1 - g ) ( I - k ) (1 -- ~) ks l , , ,~J"

Consider a situation in which the difficulty of the 'difficult searches' increases. At this happens,/a 2 ~ 0 and m ~ 0 (assuming p ! constant).

But as m ~ 0 , W-+ oo the critical value o f m is given by:

(1 - k)(1 - s) - k s l m 2 = O ,

o r

1 - - s m = assuming s < I .

s

As M approaches this value the expected waiting time grows infinitely long, and the system breaks down. Fig. 10 shows a plot of the critical value of m as a function of k for various values of the basic 'service parameter' s.

it is evident that with increasing k the drop in allowable m ratios is precipitous. Increasing k below very small values ("0.01) is catastrophic for the sys- tem. Some leverage can be bought by decreasing s to very low values. (Thi s can be done, for example, by increasing the number of clerks handling requests, i.e., by increasing the number of service channels.) How- ever, the price for doing this is high. The s ratio gives us a measure of how busy the basic warehousing operation would be if there were no difficult cases. If s = 0.1 the service channels would be id le 90% of the time if no difficult cases were to appear. Massive redun-

P. Davis / Transfer of systems technology 241

dancy is needed in order to handle the difficult cases. Using the search time ratios derived above we can

express m as a function of N. Thus

N 1 N °'s

M= 20 2 .5N °'z - 50

This allows us to plot the maximum allowable warehouse size as a function of k and s (see Fig. 10). If as many as 10% of the items are not entered properly into the system it is practically impossible to deliver reasonable service with stocks of more than 3000 items. This in turn results in a proliferation of the number of warehouses (up to 30 with stocks of 3000 items), and raises attendent difficulties in warehouse management and location. It also greatly extends the time for the engineer to identify the appropriate stocking location and pick up the required materials.

In effect it becomes impossible to provide ade- quate service if more than 1 to 2% of the items cannot be identified and located by the regular inventory retrieval system. A major effort has to be undertaken therefore to insure these limits are not surpassed. The variability of waiting time with k would suggest that in order to avoid system breakdown stocking should be decentralized with up to, say, 10 warehouses in operation at commissioning. As k decreases and ser- vice increases, a gradual policy of centralization can be implemented.

4. Implementation and folio,w-up

The design of a logistics support system must, as we have tried to show, be highly responsive to the real operating conditions which are in the development of large scale industrialization projects in LDCs. Systems which appear to be optimal in an abstract analysis or, in terms of the conditions faced ha the highly indus- tri,,iized nations, will not work in less propitious environments. To fail to recognize the differences and the way they affect system performance is to court

disaster. The concern about design assumptions is embedded

in the larger concern about system adaptation. The system must clearly be fully adapted to local condi- tions. However, there is a second and equally impor- tant concern about adaptation. The system must remain adapted over time. Typically, once a major

system is implemented it becomes extraordinarily difficult to change it. For example, in practice, tile tendency will be to maintain a decentralized ware- housing approach in perpetuity. This tendency arises, in part because of a prediliction to stay with the familiar, in part hecause of rigidities buih into tile existing system, and in part because there are no clear measures of system effectiveness which point the way toward improved configurations.

The first problem must be handled by appropriate administrative response. Tile second problem is a design problem. Facilities, for example, can be built with a degree of flexibility at the outset. Warehouses can be built to expand or contract. Spaces can be left on site for the expansion of existing facilities or the building of new ones. Operating systems can be designed to permit the progressive addition of new features. Typically once attention is addressed to this problem, a large number of adaptive responses can be detected in even the most rigid systems.

Tlie third problem can be addlessed using proce- dures of the type we have discussed in this paper. Essentially the system design must be parameterized to indicate the relationship between changing condi- tions in the system and its environment, and the appropriate design configurations. For example, in the case of multiple purchasing, the appropriate level of redundancy can be expressed as a function of the reliability of the acquisitions process. Over time this reliability must be continually reassessed and the redun,£ .ncy of purchasing activities adjusted according- ly. Unless this is done, there is an obvious potential for substantial waste to arise in the system. The mana- gement process should include periodic review cf a set of key parameters and a corresponding adjustment of the design configuration. In this way the system will evolve over time, adapting to the localized improve- ments that may be achieved with actual operation of the system. Eventually a stable steady state should be reached, characteristic of ',nature' operating systems.

References [ 11 P. Davis, and D.J. Smith, Assembly purchases lot steel

plant maintenance, working memorandum, Arthur D. Little Inc., Cambridge, MA 11975).

[ 2] H. Wagner, The design of production and inventory sys- tems for mttltifacility and muitiwarehouse companies. Manag. Sci. {June 1974).