Investigating the effects of lead-time uncertainties and safety stocks on logistical performance in a bordering-crossing JIT supply chain

We study a dual delivery risk problem that firms inside the free trade zones (FTZ) along the US-Mexico border (i.e., maquiladoras) often face in their daily operations. It is commonly observed that maquiladoras’ suppliers keep buffer inventories of components in a 3rd party logistics (3PL) warehouse on the US side of border. Maquiladoras will “call-off” the components when they are needed for production runs, often multiple times a day. Each call-off shipment is an international shipment that is involved with export/import procedures and is subject to customs inspection, which often causes delays. Such delivery uncertainty, combined with the 3PL replenishment uncertainty, makes just-in-time (JIT) operations a challenging task for maquiladoras. In this study, we examine how a firm’s logistical performance can be affected by multiple transportation risks and multi-locational buffer inventory strategies in a border-crossing JIT supply chain. Our results show that a firm’s service level is more affected by the border-crossing uncertainty, whereas a firm’s order lead-time performance is predominantly attributed to the 3PL replenishment risk.