Global Production Supply Chain

Engineering
Management Final
Assignment

Prof. Dr. Dr. habil. Dmitry Ivanov

TEAM #
Hasmed XXXX “el Italias” Castro 4#####
Mario XXXXX Pedas XXX 4#####
Francisco Renihary Aguirre Cisneros 405357
17. Jan. 2020
Supply Chain Management Final Assignment

Table of Content
1. Introduction......................................................................................................................................... 3

2. Objective Statement and Actual Situation .......................................................................................... 3

2.1 Objective: ...................................................................................................................................... 4

3. Analysis and improvements ................................................................................................................ 5

3.1 Greenfield Analysis (GFA) .............................................................................................................. 6

a) What are the optimal coordinates of the new DCs? ............................................................... 6
b) What is the maximum distance from an optimal DC location to a customer? ....................... 6
c) What are the total costs of the SC?......................................................................................... 6
d) Compare the data in statistics “Flows” and table “Demand”. Do we satisfy all customer
demand from the optimal DC locations? ........................................................................................ 7
e) Which costs, relevant for choosing an optimal DC location, were not considered in this GFA
analysis? .......................................................................................................................................... 7
3.2 Network Optimization (NO) .......................................................................................................... 7
a) What is the most profitable SC design? .................................................................................. 8
b) Is demand for all customers satisfied? .................................................................................... 8
c) What is total profit of the most profitable SC? ....................................................................... 9
d) Compare the optimal SC design as computed in the NO and the initial SC design (factory
and DC in Germany) in terms of profit. ........................................................................................... 9
e) What other costs should be considered when redesigning the SC according to NO results? 9
f) What other factors, apart from costs, should be considered when redesigning the SC
according to the results of the NO? .............................................................................................. 10
3.3 Simulation.................................................................................................................................... 10
3.3.1 KPI and Dashboard of simulation ............................................................................................. 10
a) What are the profit, revenue, and costs of the SC? Does this result match with the NO
results? .......................................................................................................................................... 10
a) Is demand for all customers satisfied? .................................................................................. 11
b) What is your judgment on the inventory dynamics in the SC? ............................................. 11
3.4 Risk Analysis: Two-month disruption at one of the DC´s ............................................................ 12
a) What are the profit, revenue, and costs of the SC for the two different network design
scenarios? ...................................................................................................................................... 12
b) Is demand for all customers satisfied? .................................................................................. 13
c) What is your judgment on the inventory dynamics in the SC? ............................................. 13
3.5 Comparison Experiments. ........................................................................................................... 14
a) What are the profit, service level, average inventory and total costs in each of the three
scenarios? ...................................................................................................................................... 14
b) What’s the relationship between the Simulation and Comparison experiments? ................... 15
3.6 Variation Experiment .................................................................................................................. 15

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Supply Chain Management Final Assignment

a) What is the profit, service levels and inventory for different reorder points? Table 15 ...... 15
b) Why do the KPIs change as the reorder point changes?....................................................... 15
c) Is the simulation model sensitive?.......................................................................................... 15
4. Conclusions and Recommendations ................................................................................................. 16

5. References ......................................................................................................................................... 16

Table of figures
Table 1 Bill of Material per crate according to: ....................................................................................... 4
Table 2 Current financial performance acc. to BERLIN BREWERY........................................................... 5
Table 3 Coordinates of new DC´s optimal locations ............................................................................... 6
Table 4 Distance from proposed DC´s to actual customer locations ...................................................... 6
Table 5 Cost of the SC with new DC´s locations ...................................................................................... 7
Table 6 Costs information per site .......................................................................................................... 8
Table 7 Current calculated profit per iteration ....................................................................................... 8
Table 8 Demand Satisfaction data........................................................................................................... 9
Table 9 Overall stats of iteration profit ................................................................................................... 9
Table 10 Parameters for simulation model ........................................................................................... 10
Table 11 Dashboard with Profit, Revenue and total cost ..................................................................... 10
Table 12 Dashboard of 1 DC scenario ................................................................................................... 12
Table 13 Dashboard of 2 DCs Scenario.................................................................................................. 13
Table 14 Dashboard of comparison experiments ................................................................................. 14
Table 15 Profit, Service levels and Inventory for reorder points .......................................................... 15

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Supply Chain Management Final Assignment

1. Introduction

During the development of this case study, a systematic approach for the analysis for the
Supply Chain Network Design and Operational planning for the case study given was applied
with the objective of development a technical competence as well as critical thinking skills in
Supply Chain Design and optimizing analysis.

AnyLogistics software was used in order to make an analysis of the supply chain of the BERLIN
BREWERY company. “BERLIN BREWERY is a Berlin beer brand well-known for its small,
traditional, handmade beer. Currently, they have one brewery (Factory) and one DC in Berlin.
Although they have been in business a short time, they already have 50 Customers in 8
countries. Nevertheless, they face several problems which need to be solved, … To expand
their distribution network and reduce costs by inventory management improvements, a
simulation and optimization analysis must be performed to evaluate their current SC
performance and develop suggestions for its improvement.” (D., 2019)

2. Objective Statement and Actual Situation

BERLIN BREWERY have 5 tanks (Capacity of 20hl) with the possibility of increasing the number
of tanks. The process from the original brewery to the final product is between 4 and 6 weeks.
The beer to cover the Berlin demand (highest demand) is stored in the DC Berlin.

 Suppliers Location:
o Empty bottles / Crates (20 Bottles) – Germany (close to Nurenberg)
o Hops – Germany (Koblenz)
o Malt – Germany (close to Dresden)
 Customers Location:
o Germany (Berlin-highest demand), Switzerland, Austria, Sweden, Norway,
France, Italy, and Spain.
 Costs:
o One-off acquisition costs: €300,000
o Maintenance costs per factory: €80,000/Month
o Detailed costs BOM:
BOM Usage per Beer crate Costs per beer crate in Euro (€)
Hops 7.92 gr. 0.32
Malt 1390 gr. 2.22

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Supply Chain Management Final Assignment

Crate 20 Bottles 6.00

Production Processing Costs 1.46

Total 20 Bottles 10.00

Table 1 Bill of Material per crate according to:

o Carrying costs (including wharehosing costs, handling and inventory): €0.005 per
beer crate (40 crates per pallet) per day.
o Transportation costs from Factory to DC´s: €0.00175 per km/beer crate (€0.07 per
pallet). Transportation of raw material is covered by the suppliers.
o Outbound costs: €0.66 per crate (€26.40 per pallet)
o Inbound costs: €1 per crate (40 per pallet)

*Note: Hops and Malt are delivered in one-kilo packaging (one pallet of malt or hops=40kg.)

2.1 Objective:
Expand BERLIN BREWERY´s distribution network, increase its sales and increase profit through
efficiency improvements.

The current data regarding the precise location of the 50 customers and suppliers are included in the
Excel sheet data.

Assumptions to be taken into account:

 All prices and costs are shown and calculated in Euro.

 All processes are considered in terms of beer crates or pallet specifications, rather than
bottles. The sales of the BREWERY are always done by crates (20 bottles of .33 liters).
 1 pallet = 40 beer crates = 800 bottles
 The recycling deposit on bottles is not considered
 Transportations costs from factory to all DC´s are the same.
 Transportation/Handling costs from the DC´s to the customers are adapted to the price level
of the actual country.
 One year consists of two periods:
 Summer period: 01.05.2018 – 31.10.2018 / Demand: 58% of total sales (warm months)
 Winter period: 01.11.2018 – 30.04.2019 / Demand: 42% of total sales.
 Orders are received every seven days
 Transportation speed is 80km/h, the capacity of a truck is 1,320 crates, 33 pallets.
 Price per crate for customer: €60.00

According to the forecasts the sales will be (detail in Figure 1) :

Summer period: 151,035 crates / Wister period: 109,370 crates

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Supply Chain Management Final Assignment

Berlin: 32,807 crates

Figure 1 Sales forecast for BERLIN BREWERY per county and period

The wholesalers (one per city) take the responsibility of the storage costs once is delivered
to them. The handling and transportation of the beers is done by a logistics provider. Last
financial performance report is showed in table 2:

KPI €
Transportation cost 346,991
Other cost 996,450
Inbound processing cost 905,117
Outbound processing cost 348,895
Inventory Purchases 2,282,011
Production 390,133
Revenue 15,684,866
Profit 10,407,351
Table 2 Current financial performance acc. to BERLIN BREWERY

must then analyze create a system to transport a body from a table to the target zone, based
on given materials. The transport body has to be moved from one table into the target zone
on another.

3. Analysis and improvements

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Supply Chain Management Final Assignment

3.1 Greenfield Analysis (GFA)

Making a planning for the new possible DC´s, Green Field Analysis was used to define the best
option to ubicate the DC´s taking into account the Customers included in the given data.

Through GFA (Green Field Analysis) in anyLogistics the results for our case study were:

a) What are the optimal coordinates of the new DCs?

The DC´s coordinates appear in the table 3 after system evaluation.

Table 3 Coordinates of new DC´s optimal locations

b) What is the maximum distance from an optimal DC location to a customer?

According with the system´s result, the maximum distance is 533 km to DC Bergen in Norway
as shown in table 4.

Table 4 Distance from proposed DC´s to actual customer locations

c) What are the total costs of the SC?

After defining the DC´s optimal locations, we observe the cost of the SC. The independent
values of this calculation are shown in table 5, and the total cost of the SC is $39,633,013.287

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Supply Chain Management Final Assignment

Table 5 Cost of the SC with new DC´s locations

d) Compare the data in statistics “Flows” and table “Demand”. Do we satisfy all customer
demand from the optimal DC locations?

All the demand is satisfied according to customer requirements

e) Which costs, relevant for choosing an optimal DC location, were not considered in this GFA
analysis?

Fixed facility costs, inventory holding costs and processing costs were not considered.

3.2 Network Optimization (NO)

In order to optimize the Supply chain of our current scenario, the network optimization tool
from the system was used. This evaluation was based on the proposed DC´s locations above
adding a couple of factors to be as precise as possible to take the correct desitions.

As expected, some desitions can be changed based on new factors not taken into account
before

Data to add:

 Inventory capacity of DC´s: min. 5,800 crates – max. 11,600 crates and one
week inventory range
 Brewery capacity: 10,000 crates and minimum inventory of 5,000 crates

The information regarding costs are included in table 6.

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Supply Chain Management Final Assignment

Sites / Costs in Other costs Carrying cost Outbound Inbound Transportation

Euro per day per day and shipment shipment costs per beer
beer pallet processing processing pallet, from
costs per beer costs per beer DC´s to
pallet pallet customers and
from Brewery
to DC´s.
DC Austria 120 0.20 0.66 1.00 0.07
DC Spain 70 0.10 0.33 0.5 0.035
DC Sweden 310 0.40 1.02 1.55 0.108
DC Bochum 120 0.20 0.68 1.07 0.07
DC Switzerland 146 0.20 0.96 1.46 0.102
DC Italy 90 0.20 0.33 0.5 0.05
DC Berlin 100 0.20 0.66 1.00 0.07
Factory Berlin 2,630 0.005 0.66 (beer) 40.00 0.07
(beer) (Ingredients)
Table 6 Costs information per site

a) What is the most profitable SC design?

After running of the NO analysis, one single DC in Berlin is the most profitable option
($10’938.659,138) as shown in table 7.

Table 7 Current calculated profit per iteration

b) Is demand for all customers satisfied?

Yes, according to results generated, 100% demand satisfaction was achieved (table 8) .

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Supply Chain Management Final Assignment

Table 8 Demand Satisfaction data

c) What is total profit of the most profitable SC?

Most profitable SC generates $10,938,659.138 (Table 9).

Table 9 Overall stats of iteration profit

d) Compare the optimal SC design as computed in the NO and the initial SC design (factory and
DC in Germany) in terms of profit.

Once performed the NO analysis and being compared to all given costs, it’s noticeable that
having one DC in Berlin is the most profitable scenario.

e) What other costs should be considered when redesigning the SC according to NO results?

Opening and closure costs.

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Supply Chain Management Final Assignment

f) What other factors, apart from costs, should be considered when redesigning the SC
according to the results of the NO?

Workforce qualification and know-how, disruption risks, future market trends, changes in
supplier structures; risks of outsourcing.

3.3 Simulation

In order to foresee the consequences of possible disruptions along the Supply chain we used
the simulation tool based of the obtained information in the NO analysis and a three days lead
time is added as well as new sourcing policies:

 DC´s choose the closest dynamic source, only one factory and customer should choose the
fastest dynamic source to receive orders as soon as possible.

The following features were added to the simulation, parameters shown in table 10:

 We transit from flows to orders i.e., the customer demand is no more considered as
an aggregated flow during a period but it is now generated as orders in certain
intervals, e.g., 10 crates per day.
 We introduce sourcing inventory control to manage ordering processes.
 We introduce sourcing policy to manage replenishment processes
 We introduce shipment control (LTL/FTL) to manage shipment processes

Object Inventory Policy Sourcing policy Transportation

Min Max policy
Factory German 2000 5000 Closest dynamic LTL
(beer)
Factory German On demand LTL
(ingredients)
DC Germany 1800 11600 Closest dynamic LTL
DC Spain 1800 11600 Closest dynamic LTL
Customers Closest dynamic LTL
Table 10 Parameters for simulation model

3.3.1 KPI and Dashboard of simulation

a) What are the profit, revenue, and costs of the SC? Does this result match with the NO results?
Data included in table 11.

Table 11 Dashboard with Profit, Revenue and total cost

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Supply Chain Management Final Assignment

Generated results from NO and Simulation are quite similar. This gives a notion of how well
designed the simulation model is, as despite intrinsic differences of methodology (NO is a
static method, while simulation is a dynamic one), the gap between their results is not
significant. Therefore, results can be cataloged as valid and further simulations might take
place.

a) Is demand for all customers satisfied?

Giving a look to the Service Level graph on our Dashboard, this depicts a 100% service level as
shown in figure 2.

Figure 2 Service Level for the simulation

b) What is your judgment on the inventory dynamics in the SC?

Explain the change in inventory dynamics in the second part of the simulation period.

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Supply Chain Management Final Assignment

Figure 3 Graph of available inventory of beer

According to the Available Inventory graph, there is no occurrence of backlog, showing a stable
inventory behaviour. However, it’s an appreciable change of the dynamic during the second
part of the simulation period owing to lower demand. At the same time, this led to less
frequent replenishment from DCs to factories (Figure 3).

3.4 Risk Analysis: Two-month disruption at one of the DC´s

The evaluation of the following disruption was done taking into account one or two DC´s in
Berlin (information is included in excel data sheet given.

a) What are the profit, revenue, and costs of the SC for the two different network design
scenarios?

Supply Chain with 1 DC:

Table 12 Dashboard of 1 DC scenario

SC with 2 DC:

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Supply Chain Management Final Assignment

Table 13 Dashboard of 2 DCs Scenario

The 2 DCs scenario is the most profitable one. Therefore, in case of any eventuality or
disruption occurs, the DC in Spain can work as a backup, serving all the customers.
b) Is demand for all customers satisfied?

Graphs of Scenarios with 1 DC (Figure 4) and 2 DCs (Figure 5) are included below:

Figure 4 Service level graph from scenario with 1 DC

Figure 5 Service level graph from scenario with 2 DCs

The scenario with only 1 DC depicts an important drop in service level during the disruption.
On the other side, in the scenario with 2 DCs, the SC design handles better the disruption, the
difference indicates that the second evaluated scenario is more robust arrangement.

c) What is your judgment on the inventory dynamics in the SC?

Graphs of Scenarios with 1 DC (Figure 6) and 2 DCs (Figure 7) are included below:

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Supply Chain Management Final Assignment

Figure 6 Inventory level graph from scenario with 1 DC

Figure 7 Inventory level graph from scenario with 2 DCs

For both scenarios, there is presence of backlogs. No deliveries made from Berlin DC during
disruption. These orders are processed after the event, causing higher demand and thus,
increasing backlogs.

3.5 Comparison Experiments.

In order to simplify a comparison of two considered simulation scenarios, we run a comparison

experiment
a) What are the profit, service level, average inventory and total costs in each of the three
scenarios?

Table 14 Dashboard of comparison experiments

The first iteration describes the ideal scenario, where the greatest profit and 100% service
level are achieved. On the counterpart, the iteration 2 shows the lowest performance

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Supply Chain Management Final Assignment

regarding the before mentioned KPIs. Finally, the 3rd iteration corresponds to the supply
design with two DC (Berlin and Spain), depicting a hearty performance while the disruption.
Naturally there is a slight decrease in service level, accompanied with a huge increase in costs,
mainly due to the longer transportation distances to be covered. Despite this, in case of
disruptions, results to be quite convenient having a backup DC.

b) What’s the relationship between the Simulation and Comparison experiments?

The comparison experiment serves as a tool where multiple simulation scenarios are run. In
case, the research goal involves analysing common KPIs among scenarios, the less consuming
resource alternative is to run those scenarios simultaneously through a comparison
experiment.

3.6 Variation Experiment

a) What is the profit, service levels and inventory for different reorder points? Table 15

Table 15 Profit, Service levels and Inventory for reorder points

b) Why do the KPIs change as the reorder point changes?

Our SC performance is influenced by the reorder point. Reorder points under 1,300 units result
in a decrease in service level. Increasing the reorder point increases profit. This is because of
the synergy between the order intervals, demand, reorder point (MIN), and target inventory
level (MAX). As such, further analysis of different combinations of order interval, demand,
reorder point (MIN), and target inventory level (MAX) could be useful.

c) Is the simulation model sensitive?

It results to be highly sensitive as variables such as profit, service level and inventory considerably
change.

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Supply Chain Management Final Assignment

4. Conclusions and Recommendations

Given the results of all the analyses, the recommendations that could be given to BERLIN
BREWERY must take into account the service level they want to have and the expectations of
the growing of its business. Based on the current studies generated to the company, a new DC
could be enough in order to increase profit and keeping the costs low, but the service level
could be affected by common disruptions and therefore the image of the company with the
customer. By varying inventory control policy parameters, we could achieve significant
improvements in profit and service level and maintaining a sufficient safety stock in
warehouse. A second DC would give BERLIN BREWERY safety for any disruption in the Supply
chain and open the opportunity of managing a bigger Supply chain with new customers (or
more volume) without affecting the service level of the SC. Third, the variation analysis
showed that service level could be also affected with a low Quantity reorder point, adjustment
of inventory control policies should be considered in order to cope with unexpected
disruptions.

5. References

1. Ivanov. D. (2019): Supply chain simulation and optimization with anyLogistix: Teaching notes.
2. Ivanov D. (2019). Exercises in Supply Chain Optimization and Simulation using anyLogistix,
Berlin School of Economics and Law, 2nd , updated edition

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