METHODOLOGY FOR DESIGN OF SIMULATION MODEL FOR EFFECTIVE SUPPLY CHAIN MANAGEMENT

Associate Professor Dr. Khalid bin Hasnan Mohd Nurhanif bin Hashim Azli bin Nawawi Chua Yik Yen Zaliati bin Jaafar Universiti Tun Hussein Onn Malaysia khalid@uthm.edu.my Supply Chain Management

ABSTRACT Supply chain is a series of linked suppliers and customers where every customer is also a supplier for the next downstream organization until a finished product reaches the ultimate end user. In this project, computer simulation model will be used to propose solutions for two supply chain problems, shrinkage and bullwhip effect. Simulation modeling can assist manufacturers to establish supply chain performance and making early decision for upcoming problems. A simulation model of a paperbased industry was developed using Arena software. Shrinkage has been identified to occur at the transportation and assembly process module. The bullwhip effect could be seen to occur even at primary supplier as it tries to adapt to the consumer demand fluctuation. Dynamic process simulation allows organizations to study their process from a system perspective, providing better understanding of cause and effect.

1. INTRODUCTION

Nowadays, manufacturers face a very tough challenge: To deliver the right product, to the right customer and the most crucial is at the right time with the most minimum cost and absolutely with the highest products’ and services quality. In overcoming this big challenge, rather than turning their head to production processes enhancement, manufacturers usually ‘take a look’ in their supply chain operations. As a result, extensive effort and researches were done to establish the satisfactory level of Supply Chain Management (SCM). Supply Chain Management (SCM) is a process focused on integrating/utilizing suppliers, manufacturers, warehouses, and retailers, so that products are manufactured and delivered at the right quantities and at the right time, while minimizing cost as well as satisfying customer requirement (Robert, et al., 1999).

The traditional supply chain (refer Figure 1) consists of sources, suppliers, processors, distributors, retailers and consumers. To be more precise, SCM will work on integrating all elements in the supply chain and makes them work together in order to achieve a higher ‘visibility’ in the supply chain itself. Moreover, a higher visibility in supply chain system will enable all supply chain actors (sources, suppliers, processors, distributors and retailers) to offer maximum customer service at the lowest possible costs. This will result to raising number of happy customers and a very decent position in the market share.

Sources

Supplier s

Processor s

Distributors

Retailers

Market

Figure 1: Traditional Supply Chain Actors (Vieira, G.E., 2001)

In today’s scenario, there are two main problems in supply chain which are shrinkage and Bullwhip effect. These problems initiated many research projects and unfortunately, based on a discussion with members of Federation of Malaysian Manufacturers (FMM) held on 17 March 2008, shrinkage is the biggest supply chain problem suffered by Malaysia’s retail industries.

To be more precise, shrinkage (refer Figure 2) can be defined as a losing stock through inefficient processes, poor stock accounting or theft and an age-old problem for retailers (Alex Reeves, 2006).

On the other hand, Bullwhip effect is a not an issue that can be taken for granted. Bullwhip effect is the key to ‘waste’ generation in the supply chain. Bullwhip Effect is a deformation in information when it goes upstream in the supply chain. More precisely, the demand of the customer is put out of shape each time it goes from a company to another.

Figure 2: Shrinkage review by Alex Reeves (2006)

In order to overcome shrinkage and Bullwhip effect problems, one can see that the visibility in the supply chain needs to be improved. To do that, every actor in the supply chain must be

highly integrated so that the supply chain system can be managed holistically to achieve strategic advantages (Arntzen, et al., 1995). Furthermore, computer simulation can play an important role in this scenario, since it can be used to evaluate the impact of the integration in the chain. For that reason, this project used the development of a computer environment in Arena (Rockwell Software Inc.) to aid the responsible for operations to better analyze and test new ways to improve supply chain performance (increase its profitability), under the idea of having all of its chain members collaborating. Secondly, the overall project showed that the bullwhip effect can be more easily studied with computer simulation instead of spreadsheets, which can perform very limited analysis of dynamic and stochastic systems like supply chains. 2. RESEARCH METHODOLOGY

Modeling construction started from simple stages to complex stages. According to methodology flowchart (please refer Appendix A), this project began with problem formulation stage. During this stage, it is very important to clearly understand a particular problem and put together some assumptions for the model. The next stage was setting some objectives and overall project plan. This stage required some more detailed information about the project which includes time to complete, number of workers, hardware and software requirements, cost needed and others. Then the next concurrent stages were model conceptualization and data collection. These two stages were important in order to develop a model that excellently ‘imitates’ the real world manufacturing industry. Due to global compatibility, this model utilized SCOR concepts during the model development stage. The SCOR (Supply Chain Operations Reference) model has been developed and endorsed by the Supply-Chain Council (SCC), an independent not-for-profit corporation, as the cross-industry standard for supply-chain management. Kimberly-Clark Corporation agreed to act as a case study for this research. To ensure the model was compatible with ARENA simulation software, the model was translated and coded into computer familiar form and to make sure this model is feasible, verification process was executed on the developed model. Lastly, documentation and reporting was carried out. This stage is crucial so that the model can be reused by other simulation analyst and to embed all results from performed analysis. 3. LITERATURE REVIEW (Please refer Appendix B)

4. FINDINGS

The developed simulation model was based on a paperbased company. Based on the company (Kimberly-Clark Corporation) data, it was noted that shrinkage has been identified to occur at the transportation and assembly process module. On the other hand, the bullwhip effect could be seen to occur even at primary supplier as it tries to adapt to the consumer demand fluctuation. Furthermore, due to the wide recognition of SCOR model, researchers took this chance to develop several simulation sub models that based on SCOR concept using ARENA. In addition, these SCOR-based sub models were embedded and utilized in the supply chain simulation.

5. CONCLUSION

Supply chain system is one complex dynamic system and it is possible to develop a simulation model that can ‘imitate’ such complex system. The developed simulation model will allow the related companies to study their system’s process from a system perspective. This will provide a better understanding of cause and effect of shrinkage and Bullwhip effect and at the same time, it will give way for a better prediction of outcomes. Besides, the developed simulation model was also embedded with SCOR-based sub models. Besides, the developed supply chain model was approved by Kimberly-Clark Corporation. The model is not the best model but it can be used as a reference for future researches.

ACHIEVEMENT i. Name of articles/ manuscripts/ books published Title of Thesis
Simulation Model for Effective Supply Chain Management Using ARENA Improving Supply Chain Traceability using FRID Technology

Name of Author

Year published 2009

Mohd Nurhanif bin Hashim

Chua Yik Yen

2008

ii.

Title of Paper presentations (international/local)
Title of Paper Name of Journals / Books Year published

RFID Technology and Zigbee Network in Improving Supply Chain Traceability

International conference on instrumentation, communications, information technology and biomedical engineering (ICICI-BME) 2009, Bandung Indonesia International conference on recent and emerging advanced technologies in engineering (iCREATE 2009) KL, Malaysia

2009

Improving Supply Chain Traceability using RFID Technology

2009

iii.

Human Capital Development
Name Mohd Nurhanif bin Hashim Relation / Contribution Thesis for Master of Mechanical & Manufacturing Engineering Thesis for Degree of Mechanical Engineering Doctor of Philosophy in Manufacturing Engineering Research Assistant Status Completed

Chua Yik Yen Azli bin Nawawi Zaliati binti Jaafar

Completed On-going Completed

REFERENCES Alex Reeves, (2006). “Plugging The Leaks.” (U.K): Trade brochure.

Arntzen, B.C., Brown, G.G., Harrison, T.P. & Trafton, L.L.(1995), "Global Supply Chain Management at Digital Equipment Corporation.”Interfaces, 69-93.

Guilherme Ernani Vieira (2004). “Ideas for Modeling and Simulation of Supply Chains with ARENA.” The 2004 Winter Simulation Conference, Curitiba, PR, Brazil.

Jack G.A.J. van der Vorst, Seth Tromp and Durk-jouke van der Zee. (2005). “A Simulation Environment For The Redesign Of Food Supply Chain Network: Modeling Quality Controlled Logistics.” Proceedings of the Winter Smulation Conference, 1658-1667. Robert B. Handfield and Ernest L. Nichols, JR. (1999). “Introduction To Supply Chain Management.” Prentice Hall, Upper Saddle River, New Jersey.

Seung- Kuk Paik and Prabir K. Bagchi (2007). “Understanding the Causes of the Bullwhip Effect in a Supply Chain.” International Journal of Retail & Distribution Management. 35. 308 – 324. Verma, A. K. (2006). “Improving Agility of Supply Chains Using Base Stock Model and Computer Based Simulation.” International Journal of Physical Distribution & Logistic Management. 36. 445 – 454

Yoon Chang and Harris Makatsoris (2002). “Supply Chain Modeling Using Simulation.” Institute for Manufacturing, University of Cambridge, UK.

APPENDIXES Appendix A: Methodology Flowchart

Appendix B: Literature Review Table
Author, Title, Year - Guilherme Ernani Vieira - Ideas For Modeling And Simulation Of Supply Chain With Arena. -2004 - Jack G.A.J. van der Vorst, et al. - A Simulation Environment For The redesign Of Food Supply Chain Networks: Modeling Quality Controlled Logistic. - 2005 - Yoon Chang, et al. - Supply Chain Modeling Using Simulation - 2002 - Issues in supply chain management and requirement for supply chain - Using any simulation - Industry - Discuss more about simulation in supply chain modeling. - Effective & efficient in supply chains - Using ALADIN Supply Chain Issues - Bullwhip effect Computer Modeling - Using Arena Application - Industry - System Engineering Graduate Program - Industrial partner. - Food in supply chain. Comment - Only two performance measure- Inventory level & service level.

- Focus on food supply chain. - Models for Quality Controlled Logistics

modeling. - Bullwhip Effect Alok K. Varma - Improving Agility of supply Chin Using Base Stock Model and Computer Based Simulations. - 2006 - Seung-Kuk Paik, et al. - Understanding of The Bullwhip Effect in Supply Chain. - 2007 - Bullwhip Effect - For efficient in supply chain - Using mathematical model. - Using Base Stock Model - Using any simulation - Industry - Discuss bullwhip Effect and the impact of VendorManaged Inventory (VMI) - Industry - The model focus on total inventory cost and lead-time.

Appendix C: The developed supply chain model

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