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• Demonstration Models

Logistics/Supply Chain

			H2O Water Supply Company
			IBM PC Company Supply Chain
			Supply Chain Model Description
			Inventory Model Description

H2O Water Supply Company

H2O is a local water supply and delivery company. It owns a fleet of 30 tank trucks for delivering water to customers. There are three sizes of the truck tanks

• A = 12 cubic meters - 9 trucks
• B = 18 cubic meters - 12 trucks
• C = 28 cubic meters - 9 trucks

To place order a customer

1. Comes to the H2O office
2. Pays for the size truck ordered
3. Receives a copy of the receipt
4. Proceeds to the water station operator
5. Hands him the receipt copy
6. Waits in the waiting area until a tank truck of the required size is filled with water at any of the available pumps

There were seven pumps installed at H2O. When the truck is ready the customer's name is called and he leaves the station escorted by his truck. After the truck empties its water tank at the customer's location it returns to the station and becomes available for new orders.

Problems were reported in this system when no trucks of the size requested by a customer were available. In this case the customer would have to wait until at least one truck of the size desired returned and was filled with water again. These delays were often very long and it was common that customers either got frustrated and left after getting their money back or closing time came before any truck of the requested size had arrived.

Goal

Given past operational data, H2O management wanted to determine how many trucks of each tank size it should maintain in order to reduce the average delay time before a customer's order was satisfied (Davg) to less than 15 minutes, given the current number of installed pumps. It was also desired to know the required number of pumping stations to maintain in order to reduce (Davg) below 15 minutes, given the current number of trucks in the company's fleet. The management would then decide whether it was cheaper to meet its goal of limiting (Davg) by buying more trucks or by installing more pumps.

Assumptions

• Customer inter-arrival times are exponentially distributed with 10 minutes between 2 PM and 8 PM and with mean 20 minutes between 8 AM (opening time) and 2 PM and between 8 PM and 10 PM (closing time)
• Truck filling times are exponentially distributed with means of 10 minutes, 12 minutes and 20 minutes for tank sizes A, B and C, respectively
• Truck delivery time is normally distributed with mean 35 minutes and standard deviation 2 minutes
• The order processing time is uniformly distributed from 3-5 minutes. Assume a FIFO queue is formed in case of congestion.
• Ignore fueling and maintenance operation of trucks and pumps
• The probability that a customer will request a size A truck = 0.3, a size B truck = 0.4 and a size C truck = 0.3
• Increasing the number of trucks will follow the same ratio as the probability that a customer will request a size - 0.3 for truck A, 0.4 for truck B and 0.3 for truck C

Demonstration Model - (H2O.spm)

HTML - Output of the Model

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IBM PC Company Supply Chain

Background

In the early 1990s IBM PC Company in Europe faced a number of challenges, such as frequent price cuts, rapid customer order response times and a steady arrival of new products and features, by increasingly agile and aggressive competitors which were eroding IBM's market share. Also, poor forecasting caused critical shortages of popular products and excess supplies of others.

Primary Goals

• Reduce operational costs
• Increase customer responsiveness

The purpose of the modeling and simulation study was to evaluate various demand and supply planning alternatives and analyze the impact on inventory costs and customer service levels. The alternatives evaluated were either Build-to-Order or Local Customization and Build-to-Plan.

Solution

Using SIMPROCESS products and support, the IBM analysts developed a supply chain simulation model that allowed detailed modeling of various business processes of a manufacturing and distribution supply chain. The team defined the supply chain in terms of seven major process objects

1. Customer
2. Manufacturing
3. Distribution
4. Transportation
5. Inventory Planning
6. Forecasting
7. Supply Planning

Creating a model of the European PC operations was then a matter of integrating these objects into a network that represented all the relevant business processes and their interactions. The next step was to collect appropriate data that would drive the simulation. Once the model was validated a number of experiments were performed to evaluate alternatives under different market scenarios. To analyze the output of the simulation model statistics were collected on these performance measures

• Cycle time
• Serviceability
• Shipments
• Inventory
• Fill Rate
• Stockout Rate
• Resource Costs and Utilization

Results

• Reduced Distribution Costs by $40M per year
• Improved Customer Service Level

Ultimately, the simulation analysis led to significant changes in both manufacturing and distribution, including

• Adoption of a build to order (BTO) manufacturing strategy
• Direct ship distribution process that bypassed costly country distribution centers
• Rejection of a popular idea that proved to be cost-inefficient - the introduction of a new late customization (LC) assembly plant on the European continent

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Demonstration Model for IBM - Supply Chain (Supply.spm)

For an industrial enterprise one of key business processes is the supply chain process. The primary goals of supply chain management are to maintain high service levels while minimizing costs. The key problem in supply chain management is how to balance inventory. Variability in demand and process times, complexity of the supply chain objects and system dynamics create uncertainty that can only be modeled and analyzed with a tool like SIMPROCESS.

This demonstration model represents a typical supply chain for an industrial enterprise with four factories, three suppliers and four customers (distributors) in the U.S. This high level model of the supply chain demonstrates how SIMPROCESS can help define the major processes, resources and entities involved in providing products to customers.

The model also demonstrates the power of the hierarchical simulation capability of SIMPROCESS. To view the power of hierarchical modeling drill down into the West Coast factory (F1). Below is a brief description of the model elements.

Customers

Customers demand products from the factories. The customer process defines the frequency and quantity of demand from the factories.

Suppliers

Suppliers supply raw materials (supplies or components) to the factories. Each supplier produces different types of raw materials and ships to each factory.

Factories

Factories assemble the components, package the goods (inventory) and ship them to customers. A factory typically ships to customers in its geographic region. For example, the West Coast factory receives 80% of its orders from the West Coast customer and 20% of its orders from the southwest customer.

Such a model of a supply chain can be enhanced to answer questions such as

• What if the demand for certain products from the east coast supplier doubles?
• What if the West Coast supplier is having manufacturing problems with a product line?
• What if we use alternative transportation carriers to deliver products to customers?
• What if we outsource the assembly process?

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Inventory Model Description

1. Warehouse
2. Assembly
3. Component 1 Vendor and Component 2 Vendor
4. Raw Material Vendor

Inventory is pulled only when it is needed - there is insufficient stock to fill the order or the reorder point has been reached.

The process begins with a customer order of random size. The warehouse first attempts to fill the order from its inventory. If the customer order can't be filled more finished product is pulled from assembly (based on the reorder quantity) and the customer order is placed on backorder. If the customer order can be filled from warehouse inventory the model will fill the order and check to see if the reorder point has been reached as a result of that order. If the reorder point has been reached more inventory will be pulled from assembly.

The assembly and component vendor steps work in a similar fashion. After each order is received the model checks to see if any reorder points have been reached and pulls more inventory if necessary. In the manufacturing sub-processes each item in the customer order is manufactured one at a time. The raw material vendor was not being modeled in detail because it was not a focus of this study. A delay was simply used to model the effect on the component vendors.

Using the model parameters dialog that appears when you run the model you can experiment with different reorder points and quantities to evaluate their effect on the system (inventory levels and the delay to the customer). The goal is to minimize the amount of inventory held without impacting the customer negatively (increase order cycle time). Finding the optimal reorder point and quantities for each node in the supply chain is the goal. Real time plots can be used to view inventory levels and the effect of a change in a reorder point or quantity.

Demonstration Model - Inventory (Inventory.spm)

HTML - Output of the Model

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