Object-oriented dynamic supply-chain modelling incorporated with production scheduling

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Abstract

In this paper we present a new modelling approach for realistic simulation of supply-chains. It is based on an object-oriented architecture, which enables flexible specification of the supply-chain configuration along with its operational decisions and policies.

A model of a generic supply-chain node is developed to capture the features present in all supply-chain entities. The generic node models in detail activities such as inventory control, manufacturing processes and order handling. The supply-chain model is constructed by linking generic nodes and specifying the physical and business attributes of each supply-chain member. The generic-node model may also be linked to external software for greater accuracy, e.g., detailed production scheduling or optimisation.

The model provides a fully dynamic simulation of the supply-chain and the effect of various uncertainties can be evaluated through Monte Carlo simulation and other, more efficient, sampling techniques (not described here).

A case study is presented to illustrate the applicability of the model. The case study demonstrates how the effect of policy changes on the supply-chain performance under uncertainty can be evaluated before implementation.

Introduction

Today’s dynamic business environment is continuously changing because of globalisation, regulatory changes, increasing intensity of competition, increasingly demanding customers, new information technology, and mergers and acquisitions. The recent economic slow down has forced companies to intensify their efforts to identify and realise potential cost savings. Supply-chain management (SCM) is recognised to be an area that enables appreciable gains in efficiency, which is highlighted by the axiom: “a 1-cent reduction in supply-chain costs can have as much as a 5-cent improvement on operating profits” (Lancioni et al., 2000).

A supply-chain is a network of facilities and distribution points that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers (Ganeshan and Harrison, 1995). The purpose of SCM is to deal effectively with external strategic changes, such as globalisation, and operational uncertainties, such as demand fluctuations, in order to take advantage of any new opportunities and to drive down the overall supply costs. While the cost of changing a business strategy or operational policies can be huge, managers can minimise the risk of making expensive mistakes by quantitatively analysing their business and assessing various strategies and policies with simulation models. Models for this purpose need to be dynamic because of the time correlation of upstream and downstream operations and the various uncertainties that exist in a supply-chain.

We present an approach based on object-oriented dynamic modelling in which inventory replenishment systems (including ROP, DRP, etc. policies) and production planning have been modelled in detail. The object-oriented approach gives the flexibility to customise any aspect of the model with little effort, or to include external software components. In the model used for the case study, the production planning component is replaced with an external scheduling program, which provides more accurate production plans. Hence both production and logistics aspects are taken into account.

The remainder of this paper is organised as follows: Section 2 gives a review of the literature on supply-chain modelling approaches. Section 3 describes the new modelling approach developed and the simulation procedure. Section 4 illustrates the benefits and insights gained with this modelling approach using a case study. Finally, concluding remarks are given in Section 5.

Section snippets

Literature review

Supply-chain modelling approaches can be classified into two main types: analytical models and simulation models. Analytical models often employ mathematical programming techniques, which maximise certain benefits by optimising the strategic design and/or operational policies of the supply-chain. More information on analytical models can be found in the reviews of Vidal and Goetschalckx (1997) and Beamon (1998). Although analytical models are useful in many cases, they are often too simplistic

Modelling concepts

An object-oriented approach is used for the development of the simulation model to give the following benefits: (1) supply-chains of arbitrary complexity being easily modifiable due to the connection of constituent components; (2) incorporation of various decisions on location, production, inventory and transportation into the model; and (3) creation of a library of reusable, generic components. As a result, the user can easily modify the simulation model to reflect changes in the supply-chain

Description

The dynamics of the supply-chain of a fairly vertically integrated multinational pharmaceutical company are studied here. The performance measures of two of their prime products are estimated based on their existing inventory management and production policies. The modelled supply-chain structure is shown in Fig. 3.

There are four final products being sold in two markets: Pack A and Pack B in the Japan market; Pack C and Pack D in the USA market. These final products are packs of tablets made

Conclusions

Because of today’s dynamic and competitive business environment and the significant potential cost savings of supply-chain improvements, it is beneficial to have an accurate simulation model to explore and evaluate various supply-chain improvement policies before their implementation. An object-oriented dynamic modelling approach was developed, from which new models can easily be built from scratch for this purpose. It is based on a generic supply-chain node that is connected to other generic

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