Computer Models in Supply Chain Management

Getting goods and services to market successfully is typically a complex process requiring the interaction and cooperation of numerous organizations and suppliers. This network of organizations involved in the production, delivery, and sale of a product is called the supply chain. Supply chains tend to be both complex and dynamic, making their management a difficult process. To be successful, supply chain management needs to focus on integrating the activities among all the organizations in the supply chain. This requires an approach that is both systematic and flexible to optimize the process for all parties involved. Computer modeling can aid managers and other decision makers in this task. Simulation software is available to support performance analysis of the various subsystems in the process. Although the software is not yet perfect, approaches to supply chain modeling software continue to evolve.

As consumers, we tend to think of the availability of products as a binary concept: the bookstore has the book I am looking for; the grocery store is out of radishes. However, whether or not the book or the radishes are available in the store is the end result of a very complicated and interactive process. Whether or not I can purchase what I want depends not only on whether or not the store in question has ordered or shelved the item, but on layer upon layer of other organizations that provide goods and services, each of which may contain one or more fail points where the process may break down. In the example of the bookstore, I cannot buy the book if the store has not ordered it or if they have not put it on their shelves (or at least know where to find it in the back room). However, the store cannot have the book in stock if the distributor does not have the book available or the transportation company is unable to deliver the book. The transportation company cannot deliver the book if it does not have fuel to run the vehicle that was to deliver the book or if the mechanic who was supposed to repair the vehicle was sick and could not fix it. Even if the mechanic was able to isolate the problem on the vehicle, if she or he does not have the parts necessary to fix the vehicle, the transportation company will be unable to deliver the book. This chain of events and failure points can go back to the parts distributor, the parts manufacturer, the raw material provider, the miners, and their associated transportation agencies. The availability of the book is similarly dependent on whether or not the publisher printed the book on time. This ability requires two chains of events itself: the chain regarding the content of the book (e.g., whether or not the author wrote it and the editor edited it) and the materials chain (e.g., the availability of paper and ink; the printing presses are in good working order).

Even if they are not producing a tangible product, organizations do not act in isolation; they are part of a larger system that includes various subsystems, each of which affects the ability of the other subsystems to efficiently do their jobs. At a minimum, this system includes the customer who buys the organization's product or service and the suppliers who provide the necessary raw materials, parts, or other supplies necessary for the organization to do its work. This system is called the supply chain. It is a network of organizations involved in the production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network. It is essential that the processes within the supply chain be efficiently managed so that each member organization receives the materials, money, or information that it needs to do its part of the work in getting the product or service to the customer in time. This process of managing the flow of materials, information, and money within and between organizations in a supply chain is called supply chain management. Typically, organizations do not just belong to one supply chain, but are also part of a network of supply chains that interact with each other. A simplified schematic of the flow of goods and information within a supply chain and a supply chain network is given in Figure 1. As shown in the figure, each organization belongs to at least one supply chain (i.e., typically has multiple suppliers and customers).

Importance of Supply Chain Management

Supply chain management has always been important. If a business does not receive the raw materials, supplies, or components that it needs to produce its product, it cannot deliver it to the customer on time and cannot remain profitable. Because the supply chain is a system, possible fail points at any point in the system can have a cascading effect and negatively impact other parts of the system. In a simplified example, if Company B does not receive the needed raw materials to make its product from Company A in a timely manner, it will not be able to deliver the product to Company C within the time frame set forth in the contract. If Company C needs to deliver its product or service to Company D, it, too, will fail in its delivery unless it can find another source of the raw materials. Each of these companies runs the risk of having its contract cancelled for nondelivery and of not making a profit.

Challenges of Globalization

In modern commerce, of course, the actuality is much more complex than this simple example. Globalization presents increasing challenges to organizations as they work to receive and deliver goods and services in the international marketplace and materials, goods, and services need to be delivered in a timely manner not only across the city but across the globe. In addition, because of the increasing complexity of many products, it is virtually impossible for any single organization to make, gather, or mine its raw materials, manufacture parts and products, transport and distribute, and sell the products in-house. Even if one could, a supply chain would exist between the various functions within the organization. As a result, most organizations are increasingly concerned with optimizing their supply chains.

Supply chain management can be a complex and difficult process. In many instances, the networks comprise a large number of parties. With improved transportation and communications technologies, the network members no longer need to be geographically close together. In fact, in this age of globalization, facilities of the network members may be widely distributed not only across the country but around the world. In addition, although the supply chain is a system where each subsystem affects the others, not all the parties in the network have the same goals. For example, a book distributor may want to make automatic shipments to retail facilities so that it can keep its inventory down and its sales up. This constant stream of goods to be delivered may work well for the transportation company because it, too, wants a steady, reliable source of business. However, this plan may not be advantageous to the retail bookstore which may not have sufficient storage for the extra products or may want more control over what it orders so that it can better serve its customers.

Dynamic Nature of Supply Chains

In addition, supply chains are not only systems, they are dynamic systems. This means that the needs of the individual parties may change over time. Using the above example, the needs of the retail bookstores may change as the demographics of their markets change or as they try to change their market position. On the other hand, the bookstore may decide to use a different distributor which will have its own set of goals and objectives for the relationship. Similarly, the carrier may decide that it is going to increase its rates for shipments under a certain weight. This may cause both the distributor and the bookstore to rethink the relationship.

Time Constraints

Another reason that supply chain management is so complex is that original equipment manufacturers need to shorten the time that it takes to get their products to market. This is due in part to the fact that in today's high tech marketplace, new and better products are constantly being introduced. The longer the time required for a manufacturer to get its product to market, the greater the risk that the product will arrive too late and another product (or competitor) will have cornered that market niche. As a result, the life cycle of the product from development to demand fulfillment is reduced. This reduced life cycle, in turn, reduces the opportunities for optimizing the supply chain.

Flow of Information

Finally, supply chain management requires not only the flow of products and materials between the parties in the network -- it also requires the flow of information. As has been observed before, however, information is power. Therefore, many businesses are reluctant to share sensitive or confidential information. Although this attitude is understandable from one perspective, it also makes the management of the supply chain more difficult. Supply chain management works best when all the parties cooperate.

Integrated Supply Chains

In order to be successful, supply chain management needs to focus on integrating activities among all the organizations in the supply chain. In an integrated supply chain, the component organizations are coordinated and integrated into an efficient system with the dual purposes of meeting customer demands and improving the competitiveness of the supply chain as a whole. The literature discusses several strategies for facilitating the redesign of supply chains into integrated systems. First, the roles and processes of the supply chain need to be analyzed and redesigned as necessary to make the process more efficient. This may include such activities as reducing the number of parties involved in the supply chain process (e.g., using a supplier who can both provide materials and warehouse them until needed rather than using a supplier and a separate warehouse), reallocating roles (e.g., inventory control), and eliminating those activities that do not add value to the process (e.g., extra layers of management). Another strategy that can be useful in redesigning supply chains is to reduce customer lead times. This may be done through such activities as information and communications technology systems to exchange information and support decisions or increasing manufacturing flexibility. In addition, redesign of supply chains should emphasize information transparency through such activities as establishing an information exchange infrastructure to exchange information and standardize product coding. Redesign often also involves synchronization of the logistical processes of the supply chain with the demands of the customer. This activity may include increasing the frequency of production and delivery or decreasing lot sizes. Supply chain redesign also includes coordinating and simplifying logistical decisions such as the coordination of lot sizes, elimination of human interventions, and standardizing and modularizing of products. These processes are made easier through the use of computer models that allow managers and other decision makers to run "what if" scenarios in an attempt to optimize the supply chain.

Applications

Complexities of Supply Chain Management

Computer Models & Supply Chain Management

The management of such complex systems is in itself a complex process. Supply chain management requires an approach that is both systematic and flexible to optimize the process for all parties involved. To do this by hand would, in many cases, be virtually impossible. However, simulation software is available to support performance analysis of the various subsystems in the process. These application software packages allow supply chain managers to describe the process and explore various alternatives in an attempt to optimize the process. In addition, simulations and models can be used to analyze the activities within the supply chain. The goal of supply chain management software is to make supply chains run more efficiently. With the advances in information technology, however, this goal is often expanded to include the supply chains of the other businesses within the organization's supply chain. This can help organizations to produce or ship only as much or as little of the product as there is a demand such as in the just-in-time manufacturing technique.

However, the use of computer models in supply chain management is not a panacea. In order for the computer model to be useful, three things must be determined. First, it must be determined how the processes in each chain member company should be represented in the simulation. Another determination that must be made in the development of a useful model is how process synchronization and data exchange transactions between the parties of the supply chain should be represented. In addition, it must be determined how the communication mechanisms between the information flow and the material flow are best represented.

In order to be useful, a computer simulation needs to focus on both synchronization and optimization of the supply chain. The model should consider these factors both within the individual organizations as well as between them. In addition, the model should consider material management activities (e.g., receipt, manufacture, storage, shipment, inspection, transportation), order processing activities (e.g., purchasing, operations, shipment, transportation), and information processing activities.

Requirements of Supply Chain Software

To better integrate supply chain systems, a computer modeling software needs to be able to consider several factors. In order to integrate the several components of the supply chain, the model needs to be able to encompass the concepts of actors and their roles, control policies, processes, and flows of materials, information, and products. Another characteristic for supply chain modeling is the control of dynamic effects such as inventory levels or lead times. To be useful, therefore, the timing and execution of decision activities needs to be explicit in the model. This means that the model needs to be able to determine the system state, calculate the values of multiple performance indicators continuously, and allocate these indicators within the appropriate stages in the supply chain.

In addition, an effective modeling tool will allow the active, joint participation of all the supply chain parties in the simulation. If all concerned parties are involved in making the decisions regarding the supply chain design, they are more likely to accept the resultant model. In addition, the involvement of all concerned parties in the model development is more likely to result in the creation of a viable high quality model that takes the needs and restraints of all parties into account. If all parties are involved throughout the model development, they will also be able to test the various scenarios offered and give insight into the model's strengths and weaknesses. To assist the analyst and decision makers in this task, the model software should have a simple, transparent human interface to facilitate the examination of "what if" scenarios. It is also helpful if the modeling software is flexible and permits the reuse of the model when contingencies arise. This may help speed the generation of future models and reduce the associated costs of decision making.

Common Software Modules

Supply chain management software helps businesses coordinate and optimize the supply chain processes. Six modules are common to supply chain modeling software. A capacity requirements planning module matches planned and actual orders with the production capacities of the business as well as tracks production load by order status. A demand planning module determines the needs for goods based on past performance and historical trends. Based on this information, the software can determine specific manufacturing requirements. A manufacturing planning module examines the available facilities and manufacturing resources to determine production capacity. If it is determined at this point that that the organization's resources will not allow it to meet the demands for its product, the software signals decision makers to rectify the situation through adjusting the plans or acquiring additional capacity. A distribution planning module evaluates the ability of the organization to replenish its stock. To do this, the module analyzes the supply of materials, components, or other resources available to the organization to do its job. This module also analyzes inventory to determine if available supplies are adequate for manufacturing purposes. A logistics planning module examines the planning and control aspects of supply chain management, including the forward and reverse flows and storage of goods between the manufacturer and the customer. In addition, a transportation planning module analyzes the process to determine the best way to warehouse and ship products in order to optimize cost/benefit tradeoffs and to be responsive to the needs of the customer.

Continual Evolution of Supply Chain Software

Approaches to supply chain modeling software continue to evolve. New software architectures are entering the market that allow the decision makers to manage the supply chain at both the tactical and operational levels. These newer software modeling tools take into consideration the complexity of the supply chain and its composition of numerous parties headed by intelligent agents, each of whom is responsible for his or her own activities within the supply chain as well as for interacting with other agents in the chain.

Some companies are using cloud-based supply chain management software rather than purchase-and-install software. Cloud computing is the storage of frequently used computer data on servers that can be accessed online. Companies can subscribe to cloud-based supply chain management software that is hosted outside of the company's firewall and is available to users around the clock via the Internet. Benefits of cloud-computer supply chain management software include low startup fees, faster implementation, potential cost savings, and almost unlimited storage space. The Logistics Management 2013 Technology Usage Study reported that 18 percent of logistics professionals responding to the study stated that they have adopted cloud-based supply chain management software, while 37 percent are still weighing the software as a solution, and 13 percent do not view cloud-based software as a solution for their company (McCrea, 2013). Although cloud-based software has advantages, it also has limitations, including: not being as quick and easy as vendors have claimed; not necessarily changing the implementation process; not necessarily being cost-efficient in the long run; and taking away the client's control over infrastructure management and application support.

Terms & Concepts

Fail Point: Those critical points in the service process where the provider has the opportunity to make a serious mistake that can negatively impact the customer's satisfaction with the process or the perception of quality.

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Integrated Supply Chain: A supply chain in which the component organizations are coordinated and integrated into an efficient system with the dual purposes of meeting customer demands and improving the competitiveness of the supply chain as a whole.

Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of JIT include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Also called "lean manufacturing."

Model: A representation of a situation, system, or subsystem. Conceptual models are mental images that describe the situation or system. Mathematical or computer models are mathematical representations of the system or situation being studied.

Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network.

Supply Chain Management: The process of efficiently connecting the parties in a value chain in order to reduce costs, improve customer service, develop the organization's knowledge base, increase efficiency, and create barriers to competitors. Supply management includes managing the flow of materials, information, and money within and between organizations in a supply chain.

Systems Theory: A cornerstone of organizational behavior theory that assumes that the organization comprises multiple subsystems and that the functioning of each affects both the functioning of the others and the organization as a whole.

Trend: The persistent, underlying direction in which something is moving in either the short, intermediate, or long term. Identification of a trend allows one to better meet future needs.

Bibliography

Bandinelli, R., Rapaccini, M., Tucci, M., & Visintin, F. (2006). Using simulation for supply chain analysis: Reviewing and proposing distributed simulation frameworks. Production Planning & Control, 17(2), 167-175. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19821457&site=ehost-live

Daniel, J. S. R., & Rajendran, C. (2005). A simulation-based genetic algorithm for inventory optimization in a serial supply chain. International Transactions in Operational Research, 12(1), 101-127. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=15545724&site=ehost-live

Li, C. (2013). An integrated approach to evaluating the production system in closed-loop supply chains. International Journal of Production Research, 51(13), 4045-4069. Retrieved December 4, 2013 from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=89100651

McCrea, B. (2013). State of cloud computing: Sky's the limit. (cover story). Logistics Management, 52(10), 41-43. Retrieved December 4, 2013 from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=90667009

Senn, J. A. (2004). Information technology: principles, practices, opportunities (3rd ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

Umeda, S. & Zhang, F. (2006). Supply chain simulation: Generic models and application examples. Production Planning & Control, 17(2), 155-166. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19821452&site=ehost-live

Valckenaers, P., Van Brussel, H., Bruyninckx, H., Saint Germain, B., Van Belle, J., & Philips, J. (2011). Predicting the unexpected. Computers in Industry, 62(6), 623-637. Retrieved December 4, 2013 from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=62842588

van der Zee, D. J. & van der Vorst, J. G. A. J. (2005). A modeling framework for supply chain simulation: opportunities for improved decision making. Decision Sciences, 36(1), 65-95. Retrieved 29 May 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=15630949&site=ehost-live

Suggested Reading

Chung, C. (2013). Investigating imperfect process and demand effects on inspection scheduling and supply chain replenishment policy. Computers & Industrial Engineering, 64(1), 31-44. Retrieved December 4, 2013 from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=84573577

McCrea, B. (2006). State of the supply chain software industry. Logistics Management, 45(10), 1S-4S. Retrieved May 31, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23027166&site=ehost-live

Pfohl, H., Gallus, P., & Thomas, D. (2011). Interpretive structural modeling of supply chain risks. International Journal of Physical Distribution & Logistics Management, 41(9), 839-859. Retrieved December 4, 2013 from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=66827529

Venkateswaran, J. & Son, Y. J. (2004). Impact of modeling approximations in supply chain analysis -- an experimental study. International Journal of Production Research, 42(15), 2971-2992. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=14077799&site=ehost-live

Yee, S.-T. (2005). Impact analysis of customized demand information sharing on supply chain performance. International Journal of Production Research, 43(16), 3353-3373. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=17588709&site=ehost-live