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Supply Chain Simulation , A System Dynamics Approach for Improving Performance

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Supply Chain Simulation, A System Dynamics Approach for Improving Performance

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Supply Chain Simulation, A System Dynamics Approach for Improving Performance

Introduction:

A supply chain is a network of facilities and distribution options that performs the following functions; the procurement of materials, transformation of these materials into intermediate and finished products; distribution of these finished products to customers. Supply chain management is a strategy through which the integration of these different functions can be achieved (Shapiro 2000).

Supply chain simulation implies operating a model that suitably represents a supply chain. Supply chain management can be carried out in the model should it be impossible, too expensive or impractical to do so in the real organization. Model performance may be studied and the properties relating to real supply chain performance may be deduced.

There are several reasons to simulate the supply chain. It could prove impossible or costly to observe certain processes in a real supply chain, for instance, sales in forthcoming years, etc. A supply chain can be too complex to describe it as mathematical equations. Even if a mathematical model was formulated, it could be too complex to obtain a solution by means of analytical techniques. It is feasible to study changes in a supply chain in a model and/or to verify analytical solutions. Supply chain simulation can provide a valuable idea about the most important variables and how they interact. It can also be used to experiment with new situations about which little or no information is available (uncertainty), and to check new policies and decision rules before risking experiments with the real supply chain.

This chapter discusses the use of analytical or simulation models to then describe the characteristics of simulation-based models. Next, it defines the main supply chain simulation objectives and highlights supply chain simulation method. Finally, this chapter addresses different supply chain simulation techniques.

TOC

1 Introduction to Supply Chain Simulation . . . . . . . . . . . . . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Analytical or Simulation-Based Models? . . . . . . . . . . . . . . . . . 2
1.3 Characteristics of a Simulation Model . . . . . . . . . . . . . . . . . . . 3
1.4 Objectives of Supply Chain Simulation . . . . . . . . . . . . . . . . . . 4
1.5 Types of Supply Chain Simulation . . . . . . . . . . . . . . . . . . . . . 4
1.5.1 Spreadsheet-Based Simulation . . . . . . . . . . . . . . . . . . . 5
1.5.2 System Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.5.3 Discrete Events Systems Dynamic . . . . . . . . . . . . . . . . 6
1.5.4 Business Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.6 Techniques for Supply Chain Simulation . . . . . . . . . . . . . . . . . 7
1.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2 Conceptual Framework for Supply Chain Simulation . . . . . . . . . . 11
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 The Supply Chain Network Structure. . . . . . . . . . . . . . . . . . . . 11
2.2.1 Identifying Supply Chain Members . . . . . . . . . . . . . . . . 12
2.2.2 Network Structural Dimensions . . . . . . . . . . . . . . . . . . 13
2.3 Supply Chain Business Processes . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Supply Chain Components . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Supply Chain Simulation Procedures . . . . . . . . . . . . . . . . . . . . 17
2.6 Learning Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3 Bullwhip Effect in Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Examples of the Bullwhip Effect. . . . . . . . . . . . . . . . . . . . . . . 25
3.3 The Four Causes of the Bullwhip Effect. . . . . . . . . . . . . . . . . . 26
3.4 Measuring the Bullwhip Effect . . . . . . . . . . . . . . . . . . . . . . . . 28
3.5 Supply Chain Structure and the Bullwhip Effect . . . . . . . . . . . . 31
3.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4 System Dynamics: Main Concepts . . . . . . . . . . . . . . . . . . . . . . . . 37
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.2 Causal Loop Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3 Flow Diagram. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.4 Constructing a Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.4.1 Creating the Causal Loop Diagram . . . . . . . . . . . . . . . . 43
4.4.2 Creating the Flow Diagram . . . . . . . . . . . . . . . . . . . . . 44
4.4.3 Model Validation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.5 Supply Chain Simulation Variables . . . . . . . . . . . . . . . . . . . . . 45
4.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

5 Starting to Model the Supply Chain: Warehouse Management . . . 51
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.2 Nature of a Cause-and-Effect Diagram’s Dynamic Performance: A Case of a Products Warehouse Management . . . . . . . . . . . . . 52
5.3 Practice Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.3.1 Problem 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.3.2 Solution to Problem 1 . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.3.3 Problem 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3.4 Solution to Problem 2 . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3.5 Problem 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.3.6 Solution to Problem 3 . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6 Modeling a Traditional Supply Chain by Using Causal Loop Diagrams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.2 Patterns Used to Propose the Construction of a Traditional Supply Chain Model . . . . . . . . . . . . . . . . . . . . . . . 76
6.3 A Traditional Supply Chain Modeling Proposal: Causal Loop Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
6.3.1 Physical Description of the Traditional Supply Chain . . . 78
6.3.2 Causal Loop Diagram of a Traditional Supply Chain . . . 79
6.4 Other Supply Chain Management Areas . . . . . . . . . . . . . . . . . . 84
6.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7 Getting into Practice: Modeling an Entire Traditional Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.2 Practice Problem: Modeling an Entire Traditional Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.2.1 Observations for Constructing the Proposed Model . . . . . 90
7.3 Solution to the Practice Problem . . . . . . . . . . . . . . . . . . . . . . . 94
7.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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