Simulations and Supply Chain Management David Sparling Court of Experts September 6, 2002 University of Guelph.

Simulations and Supply Chain Simulations and Supply Chain ManagementManagement

David Sparling David Sparling

Court of ExpertsCourt of Experts

September 6, 2002September 6, 2002

University of GuelphUniversity of Guelph

Supply Chain ManagementSupply Chain Management

• What is a Supply Chain?What is a Supply Chain?

– A A networknetwork of organizations designed to of organizations designed to securesecure raw materials, raw materials, convertconvert them into them into products and products and deliverdeliver them to consumers them to consumers

• How can simulation help managers learn How can simulation help managers learn about supply chains?about supply chains?

OutlineOutline

• Beer game simulation I – the problemsBeer game simulation I – the problems– Paper based introductory simulationPaper based introductory simulation– Discussion of results and how to use themDiscussion of results and how to use them

• Beer game simulation II – moving toward Beer game simulation II – moving toward solutionssolutions– Excel basedExcel based– Supported by lectures and Excel forecasting modelsSupported by lectures and Excel forecasting models

• Taking supply chain simulations furtherTaking supply chain simulations further

Understanding Supply Chain Understanding Supply Chain Challenges – The Beer GameChallenges – The Beer Game

Beer Game Simulation Beer Game Simulation

How does interaction with other organizations How does interaction with other organizations affect our ability to satisfy the needs of our affect our ability to satisfy the needs of our customers?customers?

Wholesale

Distributor

Retailer

Manufacturer

Customer

Beer Game SimulationBeer Game Simulation

• I’m the customerI’m the customer• Information passes between levels only through Information passes between levels only through

the Order Formsthe Order Forms• Orders which you cannot fill from inventory are Orders which you cannot fill from inventory are

backordered and filled laterbackordered and filled later• It takes two periods to ship from one level to the It takes two periods to ship from one level to the

next or to manufacture product next or to manufacture product • Only the manufacturer actually produces beerOnly the manufacturer actually produces beer• Inventory Form never leaves your levelInventory Form never leaves your level

Completing the SimulationCompleting the Simulation

1.1. Update demand on Inv FormUpdate demand on Inv Form

2.2. Update filled and backorder on Inv and Update filled and backorder on Inv and Order formsOrder forms

3.3. Give Order form back to customerGive Order form back to customer

4.4. Place order with supplier Place order with supplier

5.5. Wait for supplier to return formWait for supplier to return form

6.6. Enter amount from filled into Transit 2Enter amount from filled into Transit 2

Beer Game ResultsBeer Game Results

• What happened?What happened?• Why? Why? • What would have made your job easier?What would have made your job easier?• What would have made it harder?What would have made it harder?

• This discussion identifies the problems and This discussion identifies the problems and challengeschallenges

Group DiscussionGroup Discussion1. What are 2-3 objectives for different members of 1. What are 2-3 objectives for different members of

the supply chain?the supply chain?

Group 1 - RetailGroup 1 - Retail

Group 2 - WholesaleGroup 2 - Wholesale

Group 3 - DistributorGroup 3 - Distributor

Group 4 - ManufacturingGroup 4 - Manufacturing

2.2. What performance measures would are be What performance measures would are be appropriate determining how well the chain is appropriate determining how well the chain is accomplishing its objectives?accomplishing its objectives?

Moving Toward SolutionsMoving Toward Solutions

• Once problems are identified the next step is to Once problems are identified the next step is to develop solutionsdevelop solutions

• Discussion includes Discussion includes – Decreasing number of levelsDecreasing number of levels– Decreasing transportation timesDecreasing transportation times– Coordination in the supply chainCoordination in the supply chain– ForecastingForecasting– Managing inventory Managing inventory

PlacementPlacement Safety stock and service levelsSafety stock and service levels

Stage 2Stage 2

• Next stage determined by learning Next stage determined by learning objectivesobjectives

• My second simulation deals primarily withMy second simulation deals primarily with– ForecastingForecasting– Supply chain coordinationSupply chain coordination– Adjusting forecasts based on recent resultsAdjusting forecasts based on recent results– Inventory management Inventory management

Stage 2 - Group AssignmentStage 2 - Group Assignment

• Work as a complete supply chainWork as a complete supply chain• Plan a strategy for improving supply chain Plan a strategy for improving supply chain

performance performance • Submit the supply chain strategy summary Submit the supply chain strategy summary

sheet prior to the second simulationsheet prior to the second simulation• Simulate the chain for up to 15 periods and Simulate the chain for up to 15 periods and

analyse supply chain performance analyse supply chain performance

Stage 2 Simulation ModelStage 2 Simulation Model

• Excel model of the beer game supply chainExcel model of the beer game supply chain• Levels linked and orders and shipments are Levels linked and orders and shipments are

transmitted automatically between levelstransmitted automatically between levels• Costs are calculated automatically for the Costs are calculated automatically for the

each level and the entire supply chain.each level and the entire supply chain.– Backorder costsBackorder costs– Inventory carrying costsInventory carrying costs– Costs for changing the level of manufacturing Costs for changing the level of manufacturing

production by more than 5% per period.production by more than 5% per period.

Features of the Stage 2 AssignmentFeatures of the Stage 2 Assignment

• Smaller groups (3-4) work together as a Smaller groups (3-4) work together as a complete supply chain. complete supply chain.

• Data providedData provided– Last 15 periods demand for a recently Last 15 periods demand for a recently

introduced productintroduced product

Discussion: What does the data tell us? Can Discussion: What does the data tell us? Can it be used to predict future demand?it be used to predict future demand?

Forecasting Lecture or Discussion Forecasting Lecture or Discussion

• When should different models be used?When should different models be used?• What information should be included in the What information should be included in the

forecasts – what is relevant?forecasts – what is relevant?• How can one select the best choice among How can one select the best choice among

different forecast methods?different forecast methods?

TASK 1 – Select a forecasting method and TASK 1 – Select a forecasting method and forecast for periods 16-30forecast for periods 16-30

Simulation SupportSimulation Support

• Excel Time Series Forecasting Models Excel Time Series Forecasting Models – Moving average, exponential smoothing, trend Moving average, exponential smoothing, trend

lines and double exponential smoothinglines and double exponential smoothing– Models include a measure of forecasting bias, Models include a measure of forecasting bias,

Cumulative Sum of Error and a measure of Cumulative Sum of Error and a measure of accuracy, Mean Absolute Deviationaccuracy, Mean Absolute Deviation

Initializing the Supply ChainInitializing the Supply Chain

Task 2 – Translating the forecasts into supply Task 2 – Translating the forecasts into supply chain setup valueschain setup values

• Participants assume that they have Participants assume that they have completed period 15 and are beginning completed period 15 and are beginning period 16period 16

• They must initialize their supply chainsThey must initialize their supply chains– Opening inventory at each levelOpening inventory at each level– Transit 1 leading into each levelTransit 1 leading into each level– Opening production level at manufacturingOpening production level at manufacturing

Simulation PreparationSimulation Preparation

• Groups disperse for 2-3 hours to prepareGroups disperse for 2-3 hours to prepare• Armed with simulation model and Armed with simulation model and

forecasting modelsforecasting models1.1. They begin by addressing the forecasting They begin by addressing the forecasting

problem firstproblem first2.2. Once they have the forecasts they address Once they have the forecasts they address

the inventory adjustmentsthe inventory adjustments3.3. Finally they make a strategy for handling Finally they make a strategy for handling

new data as demand occursnew data as demand occurs

DecisionsDecisions

• Inventory and transit 1 quantities – Inventory and transit 1 quantities – must considermust consider– Forecast Forecast

– Demand variabilityDemand variability

– Response timeResponse time

– Customer service levelCustomer service level

– Costs of backorders vs inventoryCosts of backorders vs inventory

Running the SimulationRunning the Simulation

• Groups return and are given period 16 Groups return and are given period 16 demand.demand.

• Orders are passed directly from one Orders are passed directly from one level to the next to speed up the level to the next to speed up the simulation – assumes complete simulation – assumes complete coordination coordination

• Groups decide how much to produce to Groups decide how much to produce to replenish their systemreplenish their system

Running the SimulationRunning the Simulation

• They review demand relative to forecast – They review demand relative to forecast – do they need to change their strategy and do they need to change their strategy and alter forecasts?alter forecasts?

• Repeated periods 17-25 - stopRepeated periods 17-25 - stop• Total costs reviewed for all groupsTotal costs reviewed for all groups• Strategies and where groups were Strategies and where groups were

successful or had problems are discussedsuccessful or had problems are discussed

Further StepsFurther Steps

• Additional simulations can include Additional simulations can include – More complicated inventory managementMore complicated inventory management– Fewer levels and shorter transit timesFewer levels and shorter transit times– Multiple retail customers – multiple pricesMultiple retail customers – multiple prices– Multiple products and suppliers -beyond the Multiple products and suppliers -beyond the

capabilities of the current simulation modelcapabilities of the current simulation model

• Learning objectivesLearning objectives– Inventory placement as well as quantitiesInventory placement as well as quantities– Managing multiple customers – tradeoffsManaging multiple customers – tradeoffs

Benefits of the SimulationsBenefits of the Simulations

• Experiential learning has a higher retentionExperiential learning has a higher retention• Highlights supply chain challenges and Highlights supply chain challenges and

importance of communicationimportance of communication• Introduces the many management decisions Introduces the many management decisions

involved in managing a supply chaininvolved in managing a supply chain• Can be used to review and reinforce key Can be used to review and reinforce key

conceptsconcepts

Thank youThank you

Questions?Questions?