Relative Improvements of Supply Chain Redesign Strategies

Daniel Dumke — Mon, 29 Aug 2011 13:21:00 +0000

The Bullwhip Effect was first discovered and analyzed in the 1950s. It triggered more intense research on the supply chain system (even though the term supply chain was not yet coined).
Starting in the early 1980s, this research finally lead to significant changes in real supply chains as well.
This article does a follow up on these developments and evaluates the relative improvements of each of the strategic stages.

Supply chain redesign process

The authors refer to a supply chain redesign process called “Cardiff methodology”. It is depicted in figure 1, key elements are the real supply chain as a starting point, this supply chain is then analyzed and converted into a conceptual model of the chain. In the the next step this conceptual model is transformed into a mathematical representation and then simulated to generate new insights on the dynamic behavior of the system. Lastly, this knowledge is used to adapt the real supply chain, and the process is restarted.

Figure 1: Supply Chain Design Process (Berry and Naim, 1996)

History of supply chain redesigns

The article in great length on the shifting redesign paradigms since the 1980s. Four phases are distinguished here. I will highlight the corner stones of each of them.

Phase 1 – Just in time
Just in time initiatives were launched in the early 1980s, with the goal of reducing in-plant lead times. As a result: “The application of JIT techniques have achieved very significant reductions in lead-times and inventory. In European plants, the average manufacturing cycle time from component start to finished good shipment has been reduced by around 50%, with an accompanying drop in inventory.”
Phase 2 – Interplant planning and logistics integration
The next step was to improve the information flows thoughout within the company and on its edges. Key components here was the introduction of MRP systems and the supporting EDI.
Phase 3 – Vendor Integration
During the next phase the focus shifted towards the supply side. And the vendors were integrated into the systems established in Phase 2.
Phase 4 – Time based management
Should be seen as a broader view on the above mentioned steps to lead time reduction. So time based management includes the comprehensive reduction of total cycle times from product development to the end customer.

Case study

The author use a case study to highlight the effects of above mentioned strategies on supply chain performance. Using the example of a PC supply chain the authors create a computer simulation model of this specific chain and test the above mentioned redesign strategies. Overall five different models are generated one baseline case including the state of the supply chain before the redesign strategies and one model for each of the four phases mentioned above.

The results can best be seen in figure 2.
At about time 5 a positive demand shock is induced into the system, after that customer demand is constant again. The results show decreasing factory order rate fluctuations with each new strategy employed.

Figure 1: Supply Chain Dynamics with different Supply Chain Designs (Berry and Naim, 1996)

Conclusion

This article has two major contributions first it has a very informative listing of the strategic paradigms during a 20 year time period. Furthermore it also shows that these strategic changes have not been in vain, but each of the phases has the potential to improve the supply chain performance.

Reference:

Berry, D., & Naim, M. (1996). Quantifying the relative improvements of redesign strategies in a P.C. supply chain International Journal of Production Economics, 46-47, 181-196 DOI: 10.1016/0925-5273(95)00181-6

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Supply Chain Simulation and the Bullwhip Effect

Daniel Dumke — Wed, 20 Apr 2011 08:59:00 +0000

I already reviewed some articles by Denis Towill primarily because he does some interesting research on simulation and supply chains, but also because I like his clear style in his articles.

In one of his early papers (1992) he teamed up with Naim and Wikner and described state of the art strategies to fight the bullwhip effect or as it is called in the paper by its older name: Industrial Dynamics.

Industrial Dynamics

I already described the causes of the bullwhip effect and how to measure it in an older post. The bullwhip effect describes amplifications in demand within the supply chain. Exemplary effects can be seen in figure 1.

Figure 1: Effect of the Bullwhip Effect (Towill et al. 1992)

Improving SC Dynamics

One way to improve the supply chain dynamics is to introduce a leaner supply chain, which in turn will lead to lower lead times and lower amplifications.

In a lean supply chain stocks are located at a low level of “added value”, to keep the inventory cost lower.

The next decision to make is to find the right trade-off between stock levels and production rates. If you increase the flexibility of production, you might be able to reduce the inventory overall. There are two alternatives:

Fixed process rate / varying inventory levels

Varying process rate / fixed inventory

There are four sectors where where further improvements can be acchieved:

Industrial engineering improvements, eg. changing the product design or changing the layout of the production

Production engineering improvements, eg. integration and sequencing of processes to reduce lead times

Information technology improvements, eg. quicker data capture and electronic data interfaces

Operations engineering improvements, eg. pull system instead of push, shared planning

Optimization

To examine their points, Towill et al. design a simple supply chain simulation model with four stages (retailer, distributor, warehouse and factory). The results (figure 2) show that above mentioned improvements can lead to a reduction in the amplification.

Figure 2: Strategies for Reducing Demand Amplification (Towill et al. 1992)

The authors conclude that reducing the overall lead times in the supply chain may be an expensive solution. As an alternative they suggest to remove some stages from the chain which also leads to significant reductions in the amplifications. Probably the cheapest way to reduce the bullwhip effect may be to increase collaboration in the chain, in this case especially concerning forecasts and planning.

Conclusion

Simulation model cannot only help in theoretical exercises. There are very important applications in real life applications as well when the task is to optimize generic strategy recommendations like those mentioned above.

Reference:

Towill, D., Naim, M., & Wikner, J. (1992). Industrial Dynamics Simulation Models in the Design of Supply Chains International Journal of Physical Distribution & Logistics Management, 22 (5), 3-13 DOI: 10.1108/09600039210016995

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