Supply Chain Model

An Overview

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Supply Chain Fundamentals

Typically a Supply Chain consists of:

Material flows

Supply of raw material: Lead Times, storage.. Production: scheduling, batch and continuous processes, changeover time, batch Warehousing: dispatch, replenishment, stock policies Market: customer service level and expectations, storage, On Time In Full (OTIF) Transportation: simple or complex?, travel times, variability, small, big orders Third Parties: Outsourcing or Third Party Supply may be a factor at any stage

Information flows

Forecasts: customer demand, Supply Chain forecasting, manual, automatic Actual orders: Order size and frequency profiles, seasonality Processing: Automated or manual, ERP?, Information sharing, emergency orders
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Supply Chain Fundamentals

Ideal Supply Chain
Inventory
Little or no stock held Need for Safety Stock Stock due to large factory batch sizes Stock due to orders arriving too early Longer than desired scheduling horizon Schedule adherence less than 100% Unacceptable trade-off between flexibility and costs Far exceed production, transport times Effective Lead Times fluctuate

Real Supply Chain

Production
Intelligent scheduling Low changeover times Flexibility

Lead Times
Minimum (production or transport time)

Customer Service Levels

Perfect JIT, On Time In Full (OTIF) measure is 100% Orders not always on time Orders not always complete

Result: Customer Service Level Agreements (SLAs) are necessary

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Service Levels and metrics

Service Levels Lead Time, OTIF

Service Levels Lead Time, OTIF

Service Levels Lead Time, OTIF

Service Levels Lead Time, OTIF

Service Level Agreements through the Supply Chain

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Supply Chain Fundamentals

Why the difference between perfect and real Supply Chain? : Uncertainty
Market Demand
Consumer or customer demand may be variable More importantly demand patterns may be difficult to predict Demand is often forecasted poorly. Automated systems with manual interference are typical Market demand forecasts, Supply Chain forecasts and factory forecasts are calculated in isolation from each other, leading to duplication of effort and to the amplification of errors

Production
Often production efficiency is at the expense of overall Supply Chain goals Production batch sizes may be larger than necessary Long forecasting horizon may allow production scheduling to be optimised but lengthens lead time Various unknowns combine so that production schedule adherence is not 100%

Warehousing
Information about existing stock is not shared adequately through the system Safety stock calculation is likely to be less than optimal A replenishment policy which works is likely to be in operation rather than one that is best

Other
Steady predictable demand is handled similarly to volatile demand in the Supply Chain Transportation may be unreliable or unpredictable Raw material supply may be unreliable or unpredictable Arrangements with Third Parties may reduce visibility and information sharing Order Processing may require work-arounds

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Supply Chain Fundamentals

Why the difference between perfect and real Supply Chain? : Uncertainty

Uncertainty, Variability
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What can Simulation do?

Discrete Event Simulation is an approach aimed precisely at accounting for uncertainty:

Mocsims Supply Chain Model was built using using Extend* simulation software with an interface created in Microsoft Excel

Note: Similar logic could be coded into any other DE package. The choice of simulation software is not key. The advantages of Extend are that it:

has Runkit and Player versions and so models can easily be ported and share amongst users is fast is object oriented which allows for easy configuration of different Supply Chain networks once the core modules have been designed has adequate animation Links easily with spreadsheets

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Supply Chain Model output

Results can be formatted to suit client conventions or for easy translation into value
For each Product Type, SKU the following output information is

available instantaneously and against time:

Stock quantities at each location Service level measures such as OTIF for each stage of the Supply Chain or overall Lead Times and Lead Time variance for each stage of the Supply Chain or overall Production metrics Orders in transit

All output can be converted to units of Orders, Quantity or Value Output can be viewed dynamically for training or demonstration

purposes or analysed when runs are complete

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Supply Chain Model dynamic interface

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Case Study
Client applied Supply Chain Simulator to:
Prototype and design an alternative Supply Chain Train the Supply Chain organisation Demonstrate and sell advantages of the proposed Supply Chain structure

across the business

Project Stages were:

Configuration of the model to match existing Supply Chain conditions and

proposed alternative structures Collection, analysis and processing of historical data Tuning the model to match As-Is conditions Design of simulation scenarios Completion of simulation runs and compilation of results Run training courses based on the scenarios tested
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Case Study detail

Sample of scenarios tested:
All variability/uncertainty parameters switched off to demonstrate the perfect-world Supply Chain:
Lead Times are a minimal (equal to production or transport times only) Service levels (On Time In Full - OTIF) are 100% at each Supply/Demand stage

Introduce demand variability (order frequency, order size, then both)

Then adjust safety stock levels to increase OTIF values Repeat runs until OTIF is at acceptable levels

Repeat the previous experiment for different types of uncertainty and variability:
Forecast accuracy Production schedule adherence Supply Chain accuracy

Carry out runs to show the effect of increasing agreed Lead Times relative to the average possible throughput times
In this case a build-up of stock occurs because orders often arrive earlier than expected. This stock would have to be either acceptable to the and customer or held until a suitable delivery point by the supplier.

Show impact of changes to Supply Chain production batch size

Bigger batch size improves production efficiency but means increased stock must be held downstream in the Supply Chain In this case it was possible to reduce the negative impact of small batch sizes on factories be designing an optimum production sequence which minimised changeover times. The model was able to quantify the overall benefits, even in scenarios where conditions were worse for manufacturing
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Case Study detail

Planned scenarios include:
Carry out runs to show the impact of changing the length of
Review period (for each warehouse a review period can be set. This makes warehouse management simpler but effectively increases Lead Time) Scheduling horizon (Increasing this makes production scheduling easier but increases Lead Time)

Customer types split into segments with different Customer Service Levels
Model would help to quantify the benefits of splitting customers in different ways for example it might be rational to separate stable predictable demand from more unpredictable.

Show the benefits of increased visibility and information sharing

The model was configured to account for three strategies: Make to Stock, Make to Order and Vendor Managed Inventory

For details contact info@mocsim.co.uk