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The supply chain

The supply chain. Retailer Distributor Wholesaler Manufacturer Flow of goods. Customer. Manufacturer. Distributor. Wholesaler. Retailer. The supply chain. Flow of Information Delays (lead times) Information delays Transportation delays. Production. D. Orders. W. Orders.

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The supply chain

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  1. The supply chain • Retailer • Distributor • Wholesaler • Manufacturer Flow of goods Customer Manufacturer Distributor Wholesaler Retailer

  2. The supply chain Flow of Information • Delays (lead times) • Information delays • Transportation delays Production D. Orders W.Orders R. Orders Demand Customer Manufacturer Distributor Wholesaler Retailer

  3. The supply chain Information Delay • Two period delay D. Orders W.Orders R. Orders Demand Customer Manufacturer Distributor Wholesaler Retailer

  4. The supply chain Transportation Delay • Two period delay D. Orders W.Orders R. Orders Customer Manufacturer Distributor Wholesaler Retailer

  5. The Supply Chain • We assume a model in which unsatisfied demand is back ordered. • This means that: If an order is not satisfied at some period. The order might be satisfied in a later period.

  6. The supply chain • The demand • The demand is unknown • The costs • Holding cost: $1 • Shortage cost $2 • Purchasing cost $1

  7. The supply chain • Initial inventories • Every player will get 4 units in the first 4 periods • Every player has orders of 4 units for the first two periods.

  8. The objective • Minimize your own total cost over 30 periods. • Definitions • Total cost = Total purchasing cost + Total holding cost + Total shortage cost. • Shortage cost. A cost paid, every period, for every unit that is not delivered.

  9. Total inventory On hand inventory carried from last period Arriving inventory

  10. Installation • You should have a BeerNet folder on drive c • If you don’t have go to the following webpage:http://scm.bus.umich.edu/BeerNet/ • Go down the page till you see the section: Download Client Software

  11. Click Download as an auto extracting Windows executable • Save the file (Beerwin32) in C:

  12. Installation

  13. Installation

  14. Installation • Doubleclick on beernet.exe. • Wait • You should see the following window

  15. Put the correct port number Pick a nickname Put the correct address: scm.bus.umich.edu

  16. Click

  17. Select your role Select a game Join

  18. Observations • Customer demand is quite stable • At the first four periods it is 4 units per period. • From period 5 till the end the demand is 8 units per period. • The variability of the order process of the retailer, wholesaler, distributor, and manufacturer is magnified.

  19. What did we observe? • Demand variability and uncertainty • Amplification of the variability

  20. Demand variability and uncertainty • How to deal with demand uncertainty?

  21. Magnification of the variability • Why is it bad? • Assuming everything else is fixed, larger variability increases safety stock • Larger safety stock increases the total cost and reduces profit. • Why?

  22. Reasons for the magnifications (The bull-whip effect) • Unknown demand • What was the demand? • How to forecast the demand?

  23. Reasons for the magnifications (The bull-whip effect) • Operational • Use of the wrong purchasing policy • What is the right policy?

  24. Reasons for the magnifications (The bull-whip effect) • Delay • Order process • Transportation • Production

  25. Reasons for the magnifications (The bull-whip effect) • Information • Players don’t know the: • demand • orders placed by other players • Inventory policy of other players

  26. Reasons for the magnifications (The bull-whip effect) • Incentives • What is the objective of the different players? • Maximize (minimize) their own profit (cost) • They have no incentive to cooperate unless they benefit. • What does it mean to cooperate? • Share information • What are the risks? • What are the difficulties?

  27. Solutions • Delay • Reduce lead times • Reduce information lead time • Reduce transportation lead time (even if transportation cost is higher) • Reduce production lead times

  28. Solutions • Information • Share information • Demand • Orders • purchasing policies

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