The supply chain Retailer Distributor Wholesaler Manufacturer Flow
The supply chain Retailer Distributor Wholesaler Manufacturer Flow of goods Customer Manufacturer Distributor Wholesaler Retailer
The supply chain Flow of Information Production D. Orders Manufacturer W. Orders Distributor Delays (lead times) – Information delays – Transportation delays R. Orders Wholesaler Demand Customer Retailer
The supply chain Information Delay Two period delay D. Orders Manufacturer W. Orders Distributor R. Orders Wholesaler Demand Customer Retailer
The supply chain Transportation Delay Two period delay D. Orders Manufacturer W. Orders Distributor R. Orders Wholesaler Customer Retailer
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.
The supply chain The demand – The demand is unknown The costs – Holding cost: – Shortage cost – Purchasing cost $1 $2 $1
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.
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.
Arriving inventory On hand inventory carried from last period Total inventory
Installation You should have a Beer. Net folder on drive c If you don’t have go to the following webpage: http: //scm. bus. umich. edu/Bee r. Net/ Go down the page till you see the section: Download Client Software
Click Download as an auto extracting Windows executable Save the file (Beerwin 32) in C:
Installation
Installation
Installation Doubleclick on beernet. exe. Wait You should see the following window
Put the correct port number Pick a nickname Put the correct address: scm. bus. umich. edu
Click
Select your role Select a game Join
Observations Customer demand is quite stable – At the first four periods it is 4 units period. – From period 5 till the end the demand is 8 units period. The variability of the order process of the retailer, wholesaler, distributor, and manufacturer is magnified.
What did we observe? Demand variability and uncertainty Amplification of the variability
Demand variability and uncertainty How to deal with demand uncertainty?
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?
Reasons for the magnifications (The bull-whip effect) Unknown demand – What was the demand? – How to forecast the demand?
Reasons for the magnifications (The bull-whip effect) Operational – Use of the wrong purchasing policy • What is the right policy?
Reasons for the magnifications (The bull-whip effect) Delay – Order process – Transportation – Production
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
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?
Solutions Delay – Reduce lead times • Reduce information lead time • Reduce transportation lead time (even if transportation cost is higher) • Reduce production lead times
Solutions Information – Share information • Demand • Orders • purchasing policies
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