Journal
of
Operations
Management
30
(2012)
396–405
Contents
lists
available
at
SciVerse
ScienceDirect
Journal
of
Operations
Management
jo
ur
n
al
homep
a
ge:
www.elsevier.com/locate/jom
Valuing
time
in
supply
chains:
Establishing
limits
of
time-based
competition
Joseph
Blackburn
James
A.
Speyer
Professor
of
Operations
Management,
Owen
Graduate
School
of
Management,
Vanderbilt
University,
Nashville,
TN
37203,
USA
a
r
t
i
c
l
e
i
n
f
o
Article
history:
Received
14
March
2012
Accepted
15
March
2012
Available
online
4
April
2012
Keywords:
Time-based
competition
Make-to
stock
supply
chains
Marginal
value
of
time
Inventory
costs
a
b
s
t
r
a
c
t
Over
the
past
two
decades
the
growth
in
international
trade
and
the
offshore
migration
of
US
manu-
facturing
have
created
global
supply
chains
with
longer
lead-times
and
slower
response.
This
suggests
that
traditional
supply
chains
have
encountered
limits
to
time-based
competition
in
which
the
cost
of
faster
replenishment
exceeds
the
benefits.
This
paper
explores
and
quantifies
those
limits
to
time-based
competition
in
make-to-stock
supply
chains
for
functional
products
(products
with
stable
demand
over
relatively
long
life
cycles).
The
marginal
value
of
time
is
used
to
define
the
limits
of
time-based
competition
in
a
supply
chain,
and
we
define
it
as
the
change
in
total
inventory
costs
per
unit
change
in
supply
chain
lead-time.
To
calculate
the
value
of
time,
we
develop
a
set
of
simple
analytical
expressions
that
apply
to
most
standard
reorder-point
inventory
policies
under
deterministic
and
variable
lead-times.
By
not
requiring
optimal
inventory
policies
and
expressing
the
value
of
time
in
terms
of
the
unit
cost
of
the
product,
we
obtain
very
general
results
that
are
essentially
product-free.
We
validate
the
analytical
expressions
using
data
from
actual
supply
chains
to
simulate
the
inventory
cost
effects
of
changes
in
the
lead-time.
The
results
show
that
the
marginal
value
of
time
in
a
supply
chain
is
surprisingly
low;
it
generally
falls
within
a
range
of
0.4–0.8%
of
product
unit
cost
per
week.
Our
analytical
models
explain
why
there
has
been
expansive
growth
in
global
supply
chains
for
func-
tional
products.
The
key
tradeoff
in
outsourcing
is
between
reduced
variable
production
cost
and
the
increased
inventory
cost
of
longer
supply
chain
lead-times.
The
models
show
analytically
that
the
incre-
mental
inventory
cost
is
extremely
small
relative
to
the
cost
benefit.
The
growth
in
global
supply
chains
with
long
lead-times
is
cost,
rather
than
time,
driven.
©
2012
Elsevier
B.V.
All
rights
reserved.
1.
Introduction
Time-based
competition
entered
the
lexicon
of
operations
strat-
egy
in
1988
with
Stalk’s
seminal
piece
“Time—the
Next
Source
of
Competitive
Advantage”.
The
central
theme
of
a
time-based
strat-
egy
is
that
an
organization
can
achieve
a
powerful
competitive
advantage
through
speed:
by
responding
faster
to
customers,
by
faster
development
of
new
products
and
services,
and
by
faster
movement
of
products
through
the
supply
chain
(Stalk,
1990;
Blackburn,
1991).
The
concept
gained
wide
acceptance
in
the
busi-
ness
world
based
on
reports
of
firms
building
successful
business
strategies
around
time-to-market
for
new
products
and
speed
of
response
for
services
and
products
with
variable
demand.
Much
of
the
early
published
work
implied
that
there
were
few
limits
to
time-based
competition,
echoing
a
theme
that
“faster
is
better”
(Schmenner,
1988).
In
Clockspeed
Fine
(1998)
observed
that
industries
evolve
at
different
speeds
and
that
all
compet-
itive
advantages
based
on
speed
were
temporary,
particularly
in
fast
clockspeed
industries.
Souza
et
al.
(2004)
observed
that
E-mail
address:
Joe.Blackburn@owen.vanderbilt.edu
time-to-market
and
industry
clockspeed
tend
to
be
correlated,
and
Bayus
et
al.
(1997)
raised
the
possibility
that
firms
could,
at
times,
be
too
fast
to
market
with
innovative
products.
Subsequent
research
has
found
more
evidence
of
limits
to
time-based
competition.
The
existence
of
limits
to
speed
for
all
pro-
cesses
should
not
be
surprising
because
just
as
the
laws
of
physics
impose
limits
on
the
speed
of
physical
processes,
economics
prin-
ciples
establish
limits
for
business
processes.
Faster
operations
are
desired
only
up
to
the
tipping
point
at
which
the
marginal
benefits
from
additional
time
reduction
equals
the
marginal
cost
of
the
addi-
tional
speed.
This
marginal
value
of
time
(MVT)
effectively
defines
the
limits
of
time-based
competition
for
a
process.
These
limits
are
not
static,
of
course;
they
change
over
time
with
technology,
level
of
competition,
and
customer
preferences—but
they
do
exist.
The
marginal
value
of
time
defines
the
limits
of
time-based
com-
petition
for
a
service
process.
In
many
service
processes
customer
response
time
can
be
improved
through
investment
in
technology
and
resources,
but
the
limiting
value
for
that
investment
is
often
determined
by
the
value
customers
place
on
their
waiting
time.
An
interesting
application
of
this
principle
in
the
fast-food
industry
is
provided
by
Allon
et
al.
(2011).
They
combined
a
model
of
cus-
tomer
behavior
with
an
experimental
study
of
customer
wait
times
0272-6963/$
–
see
front
matter
©
2012
Elsevier
B.V.
All
rights
reserved.
doi:10.1016/j.jom.2012.03.002