Algorithms in SCM

Learning objectives

By the end of this session you will be able to:

 Know about the algorithms in SCM
 Understand the Importance of algorithms the in SCM
 Case study

Khadi is a cloth woved using with hand-spun yarn. In

1925, Mahatma Gandhi established the first association of
Khadi producers. It was a symbol of self reliance and
independence against clothes imported from abroad.
Later during the 1940s, when independence movement
reached its pinnacle, Khadi became the symbol of India’s
independence struggle. In independent India, the
government of India at the federal level, and the state
governments at the State level, set up promotional
government bodies under the banner of Khadi & Village
Industries Commission and Khadi & Village Industries
Board respectively.
 Case study

Problems
The fast changing consumer tastes, the opening up of the
electronic media to the rural areas, the accelerated
development of telecommunication facilities and greater
integration with global markets seemed to have adversely
affected the steady growth of Khadi.
 Case study

Some of the most common problems identified are:-

 Lack of information about the needs of consensus
 Lack of ability to produce goods to achieve common
satisfaction as per changing needs
 Lack of strategic alliances between various producing
institutions to build a sustained supply chain
 Inadequate inventory management
 Lack of product upgrading and product
diversification
 Lack of technology upgrading
 Case study

A major strength of Khadi is that it is 100 percent

cotton and it is 100 percent manually prepared. It is
mostly dyed with natural colours.
There is a great need to collaborate and be partners in
the production of Khadi amongst the institutions so
that consumer interest can be catered to.
There is a need to promote faster product development
to keep pace with demand. At the same time, there is a
need to invest in e-supply chains, starting from
procuring purchase orders to successfully making final
deliveries cutting across regional, national and
international boundaries.
 Case study
• What is your inference?
• What are your suggestions?
Algorithms
• An algorithm is a procedure or formula for solving a problem
• Algorithm is used to solve any kind of real world problem with a set
of instructions
Introduction
• Supply chain planning is a critical task in operations management
• It algorithmically solves immediate problems of finding availability
schedules, sourcing decisions and resource allocations to produce a
plan that meets goals in an effective manner
• It also provides insight into the trade-offs of different factors,
constraints and rules
Algorithms and ERP
In the enterprise software paradigm, the supply chain planning
element often goes under the name Advanced Planning and
Scheduling (APS) in order to distinguish it from simpler approaches
such as those based on simple demand accrual as used in MRP
Modelling
Models and data are two very important elements of supply chain
optimization, and a plan’s usefulness greatly depends on the quality of
both
Rules of modelling
The four golden rules of modelling are:
1. State Quantified and Measurable Objectives: For example, use an
objective such as “minimize the sum of the daily fixed cost of
assets”.
2. Faithfully Represent Required Logistics Processes in Models: It
is easy to make mistakes in the model such that it doesn’t represent
the way things work in the real world.
3. Explicitly Consider Variability: Too often, models associated with
supply chain and logistics optimization either assume that there is
no variability or assume that using average values are adequate.
4. Ensure that Data is Accurate, Timely, and Comprehensive: If the
data is not accurate and/or it is not received in time to include it in
the optimization, the resulting solutions will obviously be suspect.
Levels of Planning
• Organizations have different ideas regarding the time period for
which to be modelled and optimized, and the amount of detail
• For example, shipment scheduling may be done on a day-by-day
basis, while optimization of warehouse locations or changes in
supply chain strategy may take place in a matter of quarters
 Levels of Planning
Strategic
Execution system
Shipment scheduling Tactical

Production scheduling Operational

Planning detail

Transport Planning
Manufacturing Planning
Inventory Planning
Supply chain planning
Demand planning
Supply chain network design
Strategic planning
Minutes Hours Weeks Quarters Years
Time period
 Levels of Planning
• Models that have a detailed and long time horizon or a large number
of products, decisions, and constraints can be highly complex and
difficult to optimize.
• For example, a planning system might require an overnight runtime
in order to generate the detailed production plans for several
thousand products. Hence, scoping the level of planning is critical
when applying supply chain planning to your organization.
Aggregate Planning Problem
• We seek to find values for the production and overtime levels, such
that the solution meets the demand and minimizes cost. We can
formally state the problem as follows:
• “Given a demand forecast for each period in the planning horizon,
determine the production level, inventory level, and the capacity level for
each period that maximizes the firm’s profit over the planning horizon.”
 Aggregate Planning Problem
Inventory is allowed to be carried from one period to another, but at a
cost. There is a cost of adding a worker (factory) and a cost for
overtime.

The objective function is the sum of the

various costs

Production Material Inventory Hiring Layoff Stock out Overtime

cost cost carry cost cost cost cost cost
Solution to Aggregate Planning
Aggregate Planning can be solved with standard Linear Programming
(LP) techniques. For example, you can set up the following decision
variables:
• Production in each time period
• Carry over in each time period
• Number of workers added in each time period
• Number of workers laid off in each time period
• Overtime hours in each time period
 Specific Supply-Demand Matching
Sales and Operations Planning, or Demand Planning, a different kind of
model is needed for Production Scheduling, or Manufacturing
Planning. In this case, we are scheduling the specific manufacturing
assignments for the products, matching each unit of demand to a specific
manufacturing activity.
 Specific Supply-Demand Matching
There are a number of different objectives that can be used in a planning
problem. Typically, the goal is to maximize, minimize, or satisfy
something, such as:
• profits or margins
• costs or cycle times
• customer service levels
• production through put
Applying Heuristics
• Heuristics are guidelines that stem from practical knowledge and
can be used to direct the search so that it doesn’t explore as many
non-feasible solutions.
• For instance, in a supply chain planning solution where distance
leads to additional costs, one might ignore all solutions that try to
source products from distant locations, in favour of solutions
involving closer locations.
 Heuristics in manufacturing operations
• The critical ratio is derived by dividing the time to scheduled
completion by the time expected to finish it
• Assign steps by critical ratio, which is an index used to determine how
much a task is on schedule. A value of 1.0 is “on schedule.” A value
less than 1.0 is behind, and larger than 1.0 is ahead of schedule.
• Assign steps by First-in First-out, which is to complete each task in the
order that it was started or assigned
• Assign steps by Earliest Due Date
• Assign steps by Shortest Processing Time First

Scheduled time
Critical ratio =
Time taken
Approach Based on Theory of Constraints
Think of your plant not as a collection of resources existing in isolation,
but as a chain of resources required to perform in tandem towards
common objectives. Just as its weakest link determines the strength of a
chain, only a few critical resources constrain the performance of a plant.
TOC is a systematic approach to identify such constraints and maximize
their effectiveness.
 Approach Based on Theory of Constraints
The heuristics focus on finding the critical constraints more than they
emphasis finding the next possible assignment to make in the search. At
a conceptual level, the process is as follows:
1. Identify the constraint (the thing that prevents the organization from
obtaining more of the goal)
2. Decide how to exploit the constraint (make sure the constraint is
doing things that the constraint uniquely does, and not doing things
that it should not do)
3. Subordinate all other processes to the above decision (align all other
processes to the decision made above)
4. Elevate the constraint (if required, permanently increase capacity of
the constraint; “buy more”)
5. If, as a result of these steps, the constraint has moved, return to Step
1.
 Approach Based on Theory of Constraints
Within the supply chain planning space, the planning engine would
carry out phases of determining the most important constraint (often by
increasing production through each resource until the limiting one is
found), then continue to move on to the next resource. At all times, the
algorithm is maintaining a list of the critical constraints and adding
production within them.
Repair-Based Solution to Specific Matching
• Repair-based search algorithms start with an initial solution and
attempt to improve it by iteratively applying repair operators.
• Such algorithms can often handle large-scale problems that may be
difficult for systematic search algorithms, as repair-based
scheduling is a high performance scheduling technology that takes
into account global optimization factors over a longer timescale,
providing powerful advantages over pure dispatching approaches.
 Repair-Based Solution to Specific Matching
• In the case of supply chain planning, we would start by assigning all
demand units to an activity, and then determine which activities are
causing conflicts.
Other Algorithms

Approaches

Simulated
Generic Algorithm
annealing
Simulated Annealing
This is a class of probabilistic algorithms for the global optimization
problem, that tries to find solutions by randomly generating solutions at
different points in the search tree, rather than exhaustively evaluating all
of them.
Genetic Algorithm
This is related to the repair-based approach, in that a partial solution is
being improved on iteratively, but it takes to approach of maintaining a
“population” of partial solutions and trying to combine them to form a
full solution. This is called an evolutionary computation approach in that
it mimics how genetic changes occur in real populations, using ideas of
mutation, selection, and crossover.
Bibliography
Bibliography
• http://newweb.management.ntu.edu.tw/chinese/im/theses/r92/R917250
50.pdf
• http://www.eecs.harvard.edu/tada04/buffett2.pdf
• https://serus.wordpress.com/2007/12/12/supply-chain-planning-
algorithms/
• http://www.scdigest.com/assets/On_Target/07-12-19-4.php