9th September 2010 16:59
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Supply Chain Improvement with System Dynamics – Case Examples
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Problem Statement
Several real-world social, economical and management problems, need to be analyzed and to solved. An example of system dynamic -case is logistics network optimization that illustrated in this success story. |
Improvement Approach
System dynamics -consept, introduced by J. W. Forrester in the 1950s. |
Benefits
System dynamics models allow experimenting with different types of management policies and studying the effects of various what-if scenarios. System dynamics as a method is by no means limited to be used only in supply chain management. |
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Company Contact Information
Virable Ltd
Vesa Hölttä, Virable OY, Tekniikantie 14, FI-02150 Espoo, FINLAND
Tel.
, Fax.
E-mail
vesa.holtta @ hut.fi
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Sensitivity of driver shifts to changing parameter values s = reorder point, S = desired base stock)
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Efficient supply chains are essential in food industry for obvious reasons. Most alimentary products have a best before date, i.e. they become worthless if they are not sold in time. This implies that frequent deliveries are needed to minimize the risk of deterioration and that it is not possible to keep products stored indefinitely waiting for more favourable market conditions.
Georgiadis et al. (2004) have utilized system dynamics modelling to the study the supply chain of a Greek fast-food restaurant chain. In their model there is a central producer, a warehouse, a distribution centre and a number of restaurants. The restaurants’ inventories are to be kept at a certain level by delivering products from the warehouse or from the distribution centre. The deliveries are performed using either company-owned trucks or leased transportation capacity |
on the size of the inventory and on the quantity of products in the supply line. In practice the orders that have been made but that have not yet arrived are omitted.
To illustrate problems that arise in this setting, some results of a Beer Game are shown below. The demand to the retailer remains constant after an initial step change from 4 to 8. Backlog starts to create around week 10 with the distributor lagging the wholesaler and the retailer. In this game, the retailer as well as the wholesaler kept their calm and did not resort to enormous orders. However, the distributor got upset by the increasing backlog and increased his/her orders every week without taking into account the beer that will arrive after the delay in the supply chain. The distributor’s orders peaked in week 15 to 38 – almost 5 times the actual demand. This leads to large fluctuations in the production rate of the factory. The orders drop once the large shipments start to arrive. |
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A simplified version of the model is presented in Figure that can be seen by clicking the picture on this page. Sales reduce inventory levels in the northern (NR) and southern (SR) region of Greece. When the inventory levels are low enough, orders for replenishments are sent. Orders also govern the need of transportation capacity and hence the acquisition and leasing of capacity |
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The authors use the model for determining the optimal amount of leasing transport capacity in order to minimize the total cost of the supply chain. It turned out that the optimal cost was reached by increasing the company’s transport capacity. The model was also used for investigating the effect of changing reorder points and base stocks to the optimal number of driver shifts. (See Figure)
This type of figure can be used as an aid in decision making as it tells how many driver shifts there must be available if system parameters are changed. |
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