Simulations and Supply Chain
Management
David Sparling
Court of Experts
September 6, 2002
University of Guelph
Supply Chain Management
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What is a Supply Chain?
– A network of organizations designed to
secure raw materials, convert them into
products and deliver them to consumers
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How can simulation help managers learn
about supply chains?
Outline
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Beer game simulation I – the problems
– Paper based introductory simulation
– Discussion of results and how to use them
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Beer game simulation II – moving toward
solutions
– Excel based
– Supported by lectures and Excel forecasting models
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Taking supply chain simulations further
Understanding Supply Chain
Challenges – The Beer Game
Beer Game Simulation
How does interaction with other organizations
affect our ability to satisfy the needs of our
customers?
Manufacturer
Distributor
Wholesale
Retailer
Customer
Beer Game Simulation
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I’m the customer
Information passes between levels only through
the Order Forms
Orders which you cannot fill from inventory are
backordered and filled later
It takes two periods to ship from one level to the
next or to manufacture product
Only the manufacturer actually produces beer
Inventory Form never leaves your level
Completing the Simulation
1.
2.
3.
4.
5.
6.
Update demand on Inv Form
Update filled and backorder on Inv and
Order forms
Give Order form back to customer
Place order with supplier
Wait for supplier to return form
Enter amount from filled into Transit 2
Beer Game Results
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What happened?
Why?
What would have made your job easier?
What would have made it harder?
This discussion identifies the problems and
challenges
Group Discussion
1. What are 2-3 objectives for different members of
the supply chain?
Group 1 - Retail
Group 2 - Wholesale
Group 3 - Distributor
Group 4 - Manufacturing
2.
What performance measures would are be
appropriate determining how well the chain is
accomplishing its objectives?
Moving Toward Solutions
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Once problems are identified the next step
is to develop solutions
Discussion includes
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Decreasing number of levels
Decreasing transportation times
Coordination in the supply chain
Forecasting
Managing inventory
 Placement
 Safety
stock and service levels
Stage 2
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Next stage determined by learning
objectives
My second simulation deals primarily with
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Forecasting
Supply chain coordination
Adjusting forecasts based on recent results
Inventory management
Stage 2 - Group Assignment
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Work as a complete supply chain
Plan a strategy for improving supply chain
performance
Submit the supply chain strategy summary
sheet prior to the second simulation
Simulate the chain for up to 15 periods and
analyse supply chain performance
Stage 2 Simulation Model
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Excel model of the beer game supply chain
Levels linked and orders and shipments are
transmitted automatically between levels
Costs are calculated automatically for the
each level and the entire supply chain.
– Backorder costs
– Inventory carrying costs
– Costs for changing the level of manufacturing
production by more than 5% per period.
Features of the Stage 2 Assignment
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Smaller groups (3-4) work together as a
complete supply chain.
Data provided
– Last 15 periods demand for a recently
introduced product
Discussion: What does the data tell us? Can
it be used to predict future demand?
Forecasting Lecture or Discussion
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When should different models be used?
What information should be included in the
forecasts – what is relevant?
How can one select the best choice among
different forecast methods?
TASK 1 – Select a forecasting method and
forecast for periods 16-30
Simulation Support
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Excel Time Series Forecasting Models
– Moving average, exponential smoothing, trend
lines and double exponential smoothing
– Models include a measure of forecasting bias,
Cumulative Sum of Error and a measure of
accuracy, Mean Absolute Deviation
Initializing the Supply Chain
Task 2 – Translating the forecasts into supply
chain setup values
• Participants assume that they have
completed period 15 and are beginning
period 16
• They must initialize their supply chains
– Opening inventory at each level
– Transit 1 leading into each level
– Opening production level at manufacturing
Simulation Preparation
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1.
2.
3.
Groups disperse for 2-3 hours to prepare
Armed with simulation model and
forecasting models
They begin by addressing the forecasting
problem first
Once they have the forecasts they address
the inventory adjustments
Finally they make a strategy for handling
new data as demand occurs
Decisions
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Inventory and transit 1 quantities –
must consider
– Forecast
– Demand variability
– Response time
– Customer service level
– Costs of backorders vs inventory
Running the Simulation
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Groups return and are given period 16
demand.
Orders are passed directly from one
level to the next to speed up the
simulation – assumes complete
coordination
Groups decide how much to produce to
replenish their system
Running the Simulation
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They review demand relative to forecast –
do they need to change their strategy and
alter forecasts?
Repeated periods 17-25 - stop
Total costs reviewed for all groups
Strategies and where groups were
successful or had problems are discussed
Further Steps
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Additional simulations can include
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More complicated inventory management
Fewer levels and shorter transit times
Multiple retail customers – multiple prices
Multiple products and suppliers -beyond the
capabilities of the current simulation model
Learning objectives
– Inventory placement as well as quantities
– Managing multiple customers – tradeoffs
Benefits of the Simulations
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Experiential learning has a higher retention
Highlights supply chain challenges and
importance of communication
Introduces the many management decisions
involved in managing a supply chain
Can be used to review and reinforce key
concepts
Thank you
Questions?