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					    Supply and Value Chain
 Support Through Scheduling
 and Simulation: Applications
to the Semiconductor Industry
          Dr. James R. Burns, Professor
         College of Business Administration
               Texas Tech University

           Dr. Onur Ulgen, Professor
  Department of Industrial and Systems Engineering
         University of Michigan, Dearborn
            Dearborn, Michigan 48128
              Introduction
• Simulation Tools for Supply Chain
  Inventory Analysis are presented
• Reductions in inventory result in
   • Reductions in cost
   • Reductions in cycle time
   • Improvements in quality
   • Improvements in workflow

                                      2
            Simulation Models
• Through use of IT to produce enterprise-wide
  visibility, simulation models show
   • Significant reductions in uncertainty are possible
   • This leads to reductions in between supplier inventory
   • Which leads to reductions in cycle (lead) time
• The models show reductions in information
  delays through IT investments lead to
  significantly improved performance

                                                              3
    What are stocks and flows??
• A way to characterize systems as stocks and flows
  between stocks
• Stocks are variables that accumulate the affects of
  other variables
• Rates are variables the control the flows of
  material into and out of stocks
• Auxiliaries are variables that modify information
  as it is passed from stocks to rates

                                                        4
    Stock and Flow Notation--
            Quantities
• STOCK             Stock




• RATE               Rate




• Auxiliary    i1
                                o1



              i2    Auxiliary   o2


                                o3
               i3


                                     5
    Stock and Flow Notation--
            Quantities
• Input/Parameter/Lookup
                    i1


                   i2         Auxiliary



                    i3




     • Have no edges directed toward them
• Output
     • Have no edges directed away from them   o1


                                               o2


                                               o3   6
            Inputs and Outputs
                                                           a

• Inputs
• Parameters                  Input/Parameter/Lookup   b


• Lookups
  • Inputs are controllable quantities          c


  • Parameters are environmentally defined quantities over
    which the identified manager cannot exercise any
    control
  • Lookups are TABLES used to modify information as it
    is passed along
• Outputs
  • Have no edges directed away from them                      7
Stock and Flow Notation--edges
• Information

                a       b




• Flow


                    x
                                 8
Basic Model Structure
                           production
                           time

              order rate



        orders in
        process

              prod-trans rate

          actual
       inventory




             sales



                                        9
   A Two-player Supply Chain
            Model
• First player (the supplier) provides product
  to the second player (the firm)
• Second player provides information back to
  the first
• Each player received orders from its
  “customer” and replenishes inventory
  according to its ordering policy

                                                 10
     Inventory Ordering Policy
• Assume continuous replenishment with
  constant demand, fixed order quantity
• Using the Wilson EOQ model, the optimal
  order quantity can be calculated to be 2000
  widgets
• With annual demand of 6 million, 3000
  orders go out every year
• That is an order every 2.9 hours
                                                11
We present first The Two-player
    Supply Chain Model…
•   Without information visibility
•   With discrete ordering policy of ordering
    2000 widgets once every 2.9 hours




                                                12
                                                                                           OIT unit cost
                                                         production time

                  Supplier                  order rate                              OIT Holding Cost
                                                                                        per mo


                                      orders in
                                       transit                              Supplier                 monthly Holding
                                                                           Holding Cos t                 Cost
                                            prod-trans rate

                                        actual                                      AI Holding Cost
                                      inventory                                         per mo


              TOTAL
            INVENTORY                      sales                                            AI unit cost

                                                                            TOTAL HOLDING
                                                                                COST
---------------------------------------------------------------------------------------------------------------
                                                             production                                     OIT unit
                                                                time 0                                       cost 0
                   Firm
                                              order rate
                                                  0                                        Firm's OIT Holding
                                                                                              Cost per mo

                                         orders in
             customer                    transit 0
             purc hases
                 0                                                                  Firm's Holding       Firm's monthly
                                              prod-trans rate 0                         Cost              holding cost


                                         actual
                                       inventory 0
                                                                                            Firm's AI Holding
                        Invent rate                                                            Cost per mo
                                                                       sales rate
                                              sales
                                                0                                                          AI unit cost
                                                                                                               0
                 ACCUM                                                                                                 13
               INVENTORY                                    ACCUM SALES
  The second Two-Player Model
           Assumes ...
• Instantaneous information about end-customer
  purchases all the way up and down the supply
  chain
• orders cost virtually nothing, as opposed to $100
  in the earlier model
• an implied order goes out every time a purchase is
  seen at the customer end
• Otherwise, the two models are identical,
  structurally

                                                   14
                                                                              OIT un it cost
                                            prod uction time


    Supplier                   order rate                             OIT Holding Cos t
                                                                          per mo


                        orders in
                         transit                                 Supplier               mon thly Holding
                                                               Holding Cost                  Cost
                               prod -trans rate

                         actual                                        AI Holding Cost
                       inventory                                           per mo



  TOTAL
                              sales                                            AI unit cost
INVENTORY
                                                               TOTAL HOLDING
                                                                   COST
-------------------------------------------------------------------------------------------------------
                                                prod uction                                   OIT un it
                                                  time 0                                       cost 0
      Firm
                                 order rate
                                     0                                        Firm's OIT Holding
        customer
        pu rc hases                                                              Cost per mo
             0
                            orders in
                            transit 0
                                                                      Firm's Holding       Firm's mon thly
                                 prod -trans rate 0                       Cost              ho lding cost


                              actual
                           inventory 0
                                                                               Firm's AI Holding
             Invent rate
                                                        sales rate                Cost per mo

                                 sales
                                   0
     ACCUM
   INVENTORY                                                                                            15
                                                                                               AI unit cost
                                            ACCUM SALES                                            0
     Comparing the two models
• Instantaneous ordering model exhibits greater
  sales (less missed sales)
• Instantaneous ordering models exhibits
  significantly lower total holding cost--$5,000,000
  vs. $13,000,000.
• Results here are approriate for a supplier making
  product that costs the firm $1000 each and for
  which there is annual demand of 6,000,000 units a
  year
                                                   16
Why the differences with respect
         to inventory?
• In some cases, the discrete ordering policy
  “misses” its threshold and does not order more
  inventory
   • This results in missed sales (there are some time steps
     in which no ordering takes place at all)
   • Beginning at month four, every other time step is
     missed, roughly, so for the last eight months, onl half of
     the monthly demand of 500,000 units is met.
   • Instead of selling 6,000,000 units, only 4,000,000 were
     sold

                                                               17
Why the differences with respect
       to holding cost?
• Overall, the inventory in the pipeline in the
  instantaneous ordering model is significantly less.
• Discrete pipeline approach to upstream
  information dissemination results in larger
  inventories
   • Discrete pipeline scenario starts with much higher
     initial inventories--500,000 versus only 100 for the
     enterprise visibility approach.
   • The high initial inventories are needed to compensate
     for the missed sales and does so until about month four

                                                           18
     Cycle times and Little’s Law
•   According to Little’s Law
•   Cycle time = inventory / throughput
•   Inventory was reduced by 58%
•   Cycle time would be similarly reduced




                                            19
   Reduced inventory leads to...
• reduced cycle (lead) times
• less rework and scrap due to smaller lot
  sizes




                                             20
      What about a large order
            quantity?
• 500,000 once a month would do it
• results are worse that orders of 2000 a
  month




                                            21
             ACCUMULATIVE SALES
8M



4M



 0
     0   1   2     3    4    5    6   7     8   9   10   11    12
                             Time (Month)

Discrete Pipeline Approach
Enterprise Visibility Approach


                                                              22
                 TOTAL HOLDING COST
2M



1M



     0
         0   1   2   3   4    5 6 7 8       9   10   11 12
                             Time (Month)

ENTERPRISE VISIBILITY APPROACH
DISCRETE PIPELINE APPROACH


                                                        23
                                         ACCUMULATIVE SALES
8M




6M




4M




2M




 0
     0        1           2      3   4   5        6    7   8   9   10   11        12
                                             Time
                                             (Month)
Discrete Pipeline 2k run
Discrete Pipeline 500k run
Enterprise Visibility Approach



                                                                             24
                                     TOTAL HOLDING COST
8M




6M




4M




2M




     0
         0     1           2     3     4   5        6    7   8   9   10   11        12
                                               Time
                                               (Month)
Enterprise Visibility Approach
Discrete 500k run
Discrete 2k run



                                                                               25
   A Three-Player Supply Chain
• Each player is modeled as a first-order balancing
  loop structure
• Customer orders run 30 per time steps, but this
  happens randomly in only halfof the time steps.
• This model is looked at in both of two contexts--a
  delayed information approach and the enterprise-
  wide instantaneous information approach


                                                      26
First-order Balancing loop
         structure




                             27
        desired inventory                                   adjustment time


                                        order/ship rate
     First Supplier
                                                                     information
                                                                        delay
                                    actual
                  demand rate     inventory


                                                          adjustment time 0        Delay time
desired inventory 0

                                                                  <adjustment time>
                                        order/ship rate 0
Customer orders
                  Second
                                                                     information
                  Supplier                                             delay 0
                                    actual
               demand rate 0      inventory 0
                                                                       <adjustment time>


    desired inventory 1                                       adjustment time 1



                                              order/ship rate 1

               Firm
                                                                         information
                                                                           delay 1
                                        actual
                  demand rate 1       inventory 1

                                                                                                28
Actual Inventories with one-week information delays
20,000



       0



-20,000
           0    10     20      30     40 50 60       70   80   90   100
                                      Time (Month)

 actual inventory at first supplier
 actual inventory 0 (at second supplier)
 actual inventory 1 (at the firm)

                                                                    29
Actual Inventories with two-week information delays
 40,000



       0



-40,000
           0    10      20     30     40 50 60       70   80   90   100
                                      Time (Month)

 actual inventory at the first supplier
 actual inventory 0 (at the second supplier)
 actual inventory 1 (at the firm)

                                                                    30
Actual Inventories with one-month information delays
 200,000



        0



-200,000
            0     10     20     30     40 50 60       70   80   90   100
                                       Time (Month)

 actual inventory at the first supplier
 actual inventory 0 (at the second supplier)
 actual inventory 1 (at the firm)

                                                                     31
desired inventory                                            adjustment time



            First                          order/ship rate
           Supplier                                                                       Adjustment



                                      actual
                    demand rate     inventory


desired inventory 0                                            adjustment time 0


               Second                      order/ship rate 0
               Supplier
 Customer orders


                                      actual
               demand rate 0        inventory 0



    desired inventory 1                                               adjustment time 1



                                                  order/ship rate 1
               Firm

                                          actual
                                        inventory 1
                    demand rate 1                                                                      32
Actual Inventories Without Information Delays
1,000



 500



    0
        0     10     20      30     40 50 60        70   80   90   100
                                     Time (Month)

 actual inventory of the first supplier
 actual inventory 0 (at the second supplier)
 actual inventory 1 (at the firm)

                                                                   33
             The last figure
• exhibits a rapid ascent to the desired
  inventory on the part of all three players, to
  the desired inventory, with no overshoot--
  very well behaved




                                                   34
These models were created using
       the VENSIM tool
• www.vensim.com
• a product of Ventana Systems, Inc.




                                       35
  Translation of these models to
     commercial simulations
• These models can be setup to be driven by
  flight simulator front ends with sliders and
  dials, meters and such
• Users would decide upon
   • Amount of work in process
   • Ordering policy
   • Ordering parameters (quantity, time between
    reviews, lead time, safety stock, etc.)
                                                   36
                  Summary
• Continuous dynamic simulations explain
  much of the behavior we see in enterprise
  systems and supply chains
• They can be useful tools for deciding
   • What effect IT will have on the supply chain
• The actual structure of the simulation tools
  can be preprogrammed

                                                    37
        Summary, Continued
• The only thing the user has to do is use the
  simulation model to make decisions about
   • Ordering policy
   • Order quantities
   • Order frequency
   • Order lead time
   • Amount of work in process
   • Etc.

                                                 38
   Questions from the
    AUDIENCE???
• Thank you for coming!!!



                            39
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posted:10/27/2011
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