The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010
Comparison Between Two Simulated Models In Pull-Based Supply Chain (Traditional model and Vendor Managed-Inventory) Afsaneh Noori Houshyar 1, Sorush Avakh2, Muriati Mukhtar3, Riza Bin Sulaiman4 University Kebangsaan Malaysia, Malaysia Email:
[email protected] [email protected] [email protected] [email protected]
Abstract - A Supply chain (SC) is defined as a chain in which raw material are procured, items are produced at one or more factories and transferred to the distribution center, shipped to retailers, and finally reaching the customer’s hand. Supply Chain Management (SCM) is the strategic coordination of the core functions and tactics across functions within a specific organization and across its partners within the supply chain for the purposes of improving the long-term performance of the individual organizations and the supply chain as a whole. In recent years, supply chain management has an important role in the business environment. One of the most important issues in supply chain which can easily affect on the chain’s performance is inventory management. Demand at the upstream part of chain depends on the orders which are created at the downstream of chain and because of uncertainties which have been seen in the market, inventory managing becomes very complex issue. This paper has considered two approaches of inventory management for the supply chain such as traditional approach and Vendor Managed Inventory (VMI). Based on the traditional supply chain structure, each member of the chain employs their own inventory policy to optimize organizational performances. Lack of information sharing between members thus, upstream members are unaware of actual customer demand. Nowadays, in the VMI approach for information sharing in supply chain, supplier has the accessibility to the customer’s inventory and demand information via Electronic Data Interchange (EDI). Hence, the customer satisfaction will be increased by employing new approach. This paper examines these two approaches and shows the positive effect of information sharing on supply chain performance by implementing VMI. Moreover, this research uses the Simulation as a useful tool for evaluating and comparing its proposed models. The result of the research demonstrates that performance of system has been improved and the levels of inventory have been decreased by employing VMI approach. Keywords: supply chain management, traditional approach, vendor managed inventory, simulation.
________________________________________ † : A.Noori Houshyar, S.Avakh, M.Mukhtar, R.Sulaiman
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010
1. Introduction
results of two proposed approach. Finally, conclusion comes
Supply Chain (SC) as described by Stevens “A system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together via the feed forward flow of materials and the feedback flow of information”. Supply chain are generally complex and characterized by numerous activities spread over multiple functions
and
organizations,
which
pose
interesting
challenges for effective SC coordination, to meet these challenges, SC member must work and coordinate with each other [ Ping Gan et al 2000] therefore In recent years, supply chain management(SCM) has an important role in the business environment. One of the most important issues in supply chain which can easily affect on the chain‟s performance is inventory management. Demand at the upstream part of chain depends on the orders which are created at the downstream of chain and because of uncertainties which have been seen in the market, inventory managing becomes very complex issue. (Musalem, E.P., R. Dekker. 2005) Another important issue which can affect on the chain‟s performance is information sharing along the chain. There are two different approaches towards the chain for inventory managing which are traditional model and vendor managed inventory (VMI) .These two models will be explained in the next section. This paper chiefly describes two different approaches to the 4- members chain and tries to investigate the effects of information sharing on inventory levels and also chain‟s performance. For this investigation simulation is proposed as a useful tool. Simulation has compared the 4 key performance
in section 6.
2. Supply Chain The Council of Logistics Management (CLM) defines Supply Chain Management as the strategic coordination of the core functions and tactics across these functions within a specific organization and across its partners within the supply chain for the purposes of improving the long-term performance of the individual organizations and the supply chain as a whole. „Supply Chain Management has been defined to explicitly recognize the strategic nature of coordination between trading partners and to explain the dual purpose of Supply Chain Management: to improve the performance of an individual organization and to improve the performance of the whole supply chain (Li et al, 2006). A supply chain is defined as a chain in which raw materials are procured, items are produced at one or more factories and transferred to the distributor center, then shipped to the retailers, and finally into the customer‟s hands. Nowadays
by
considering
globalization
in
business
environment and evolution of present-day market and the change in roles and power within the channel have transformed competition between firms into competition between whole supply chains. Therefore Supply chain management (SCM) becomes very important issue during these years. One of the main objectives of SCM is ,preventing any delay in SC, for instance In manufacturing enterprises a delay in supply chain, can lead to negative effects on chain‟s
indicators which are inventory in the level of distributor,
productivity therefore, SCM tries to focus on demand
manufacturer (material), manufacturer (product) and system
planning, inventory planning and replenishment capabilities
efficiency.
needed to deliver the right products at the right time to the
This paper is organized as follows; section 2 discusses on supply chain, section 3 and 4 explain the traditional and VMI approach towards the chain, section 5 compare the simulation
right customer.(G.Qiao, F.Riddick2004).
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 As Filho et al. explained, the main goal of supply chain is to
chain and because of uncertainties which have been seen in
make the business process more effective and efficient,
the market, inventory managing becomes very complex issue.
reducing costs and inventory levels, improving quality and
This paper has considered two approaches of inventory
creating sustainable competitive advantage to the whole
management for the supply chain such as traditional approach
supply chain.
and
Nowadays one of the most important issues in supply chain
approaches will be explained in the next section.
Vendor
Managed
Inventory (VMI).
These
two
which can easily affect on the chain‟s performance is inventory management. Demand at the upstream part of chain depends on the orders which are created at the downstream of
Supplier
Manufacturer
Distributor
Retailer
Figure 1. Members of Supply Chain
3. Traditional approach to SC
management policy.
Under traditional supply chain model, each member of SC just try to develops their own inventory policy for optimizing their performances. No information is shared among the members, thus upstream members are unaware of actual customer demand. Upstream members use replenishment information from immediate downstream member to forecast demand, to plan for production, and to set inventory
Supplier
Manufacture
As figure 2 shows, the orders come to the system by the retailer which is the final member of our chain, distributor will receive their order. Based on its needs they will order to the next member of chain which is manufacturer, and then manufacturer does the same function as distributor. In this model each member uses its own inventory policy and just tries to maximize its own profit.
Distributor
Retailer
r
Figure 2.Traditional approach to supply chain
4. Vendor Managed Inventory approach to SC Vendor Managed Inventory (VMI) is a recent approach for
suppliers/vendors to access to their customer‟s inventory and
information
demand information. For VMI structure, customer allows its
sharing
in
supply
chain
that
allows
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 supplier to access to its inventory level and its sale data
Traditional model:
(point-of-sale for retailer). In this model the supplier is
Order issue by customer
responsible for inventory management. The supplier will use
Manual system for replenishment like paper or
this information to plan and manage its customer‟s inventory. This means that the supplier will take its customer‟s inventories into account in addition to its own inventories
devices such as fax, tel ,…
High lead times of interface processes
VMI model:
when making its inventory plan and replenishment. Based on
No order issue
the research result of A. F. De Toni, E. Zamolo,2005, the main
Paperless system for more accuracy and timely
differences between VMI and traditional model are as follows:
Short lead times of interface processes
Supplier
Distributor
Retailer
Manufactur er
Figure3.Vendor Managed Inventory approach to supply chain
5. Simulation Result After proposing the two approaches for SC, the conceptual
The simulation results are as follows:
models of these two were built in ARENA Rockwell
System Efficiency:
simulation software. The results of simulation can evaluate
According to the assumed redundancy in simulation
the performance of the models and show that which of them is
environment, the percentage of system efficiency between the
more efficient.
VMI and traditional approach obtained according to figure4.
System efficiency= 97 99 system efficiency 100 90 80 70 60 50 40 30 20 10 0
system efficie… VMI model
Traditional model
Figure 4 Comparison of system efficiency among VMI and traditional models It shows that efficiency is increased at VMI environment
conditions by 2.1%. By the 5 times trial, the number of output
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 by VMI model was calculated by 3578621 as well as for
for VMI model was obtained 3597607 and for Traditional
Traditional model 2045226 where the total number of input
model was 2099865.
Manufacturer Inventory (Material):
condition in both models; the manufacturer inventory is
Likewise, the simulation is replicated 5 times in the same
averagely obtained according to Figure5.
Manufacturer Inverntory (Material) 4.70%
2%
6% 4% 2% 0%
VMI model Traditional model
Manufacturer Inverntory (Material)
Figure5. Comparison of Manufacturer Inventory (Material) among VMI and traditional models In this context, a max inventory replenishment level was
manufacturer‟s warehouse (Material). Figure 3 shows that
proposed for traditional model while remained inventory
Manufacturer inventory (Material) is decreased at VMI
meets Re-Order-Point (ROP) level. However, to design VMI
environment conditions by 1.35%. By the 5 times trial, the
model, maintaining ROP inventory level was employed and
obtained numbers are as follows:
eventually,
it
leads
to
reduce
inventory
level
for
VMI model: Manufacturer inventory (Material):749.98
Number of Input: 3597607
Ratio of Manufacturer inventory (Material): Traditional model: Manufacturer inventory (Material): 999
Number of Input: 2099865
Ration of Manufacturer inventory (Material): Reduction of Inventory VMI versus Traditional model=
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 Manufacturer Inventory (Product):
well
as
for
Traditional
model
2099865
where
the
As in figure 6 has been shown, the inventory level of
manufacturer inventory (Product) for VMI model was
manufacturer (Products) is decreased by 72%. The total
obtained 2002 and for Traditional model was 2002.
number of input by VMI model was calculated by 3597607 as VMI Model: Average Manufacturer inventory (Product):2002
Number of Input: 3597607
Ratio of Manufacturer inventory (Product): Traditional Model: Average Manufacturer inventory (Product): 2002
Number of Input: 2099865
Ration of Manufacturer inventory (Product): Reduction of Inventory VMI versus Traditional model=
Manufacturer Inverntory (Product) 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%
5.50%
9.5%
VMI modelTraditional model
Manufacturer Inverntory (Product)
Figure 6 Comparison of Manufacturer Inventory (Product) among VMI and traditional models
Distributor Inventory:
traditional model was 119456 where the total number of input
Based on the simulation result which has obtained from 5
for VMI system was3597606.80 and traditional model was
trails, figure 6 shows that the distributor inventory decreased
2099865.40, therefore the ratios of distributor inventory are
by 93%.
calculated as follows:
The inventory level of VMI was 106905 and
VMI Model: Average Distributor inventory: 106905
Number of Input: 3597606.80
Ratio of Distributor inventory: Traditional Model: Average Distributor inventory: 117592 Ratio of Distributor inventory:
Number of Input: 2099865.40
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 Reduction of Inventory VMI versus Traditional model=
Distributor Inverntory 5.60%
6.00% 4.00% 2.00% 0.00%
2.97% Distributor Inverntory VMI model Traditional model
Figure 6 Comparison of Distributor inventory among VMI and traditional models
6. Conclusion: Research result released VMI implementation in SC is a suitable and useful strategy for having more information sharing and cooperation among the chain‟s members. System efficiency will be increased and the levels of inventory will be decreased. Therefore we can conclude that this new strategy will be more efficient rather than traditional model.
REFERENCES
study from the household electrical appliances sector, International Journal of Production Economics, 96, 63–79. Qiao, G., Riddick, F. (2004), Modeling Information For Manufacturing-Oriented Supply Chain Simulation, Winter Simulation Conference Proceeding, 1184-1188. Stevens, G. (1989) Integrating the Supply Chain, International Journal of Physical Distribution & Logistics Management, 19, 3 – 8. Li, S., Ragu-Nathan, B., Ragu-Nathan, T.S., Subba Rao S. (2006), The impact of supply chain management practices on competitive advantage and organizational performance, Omega, 34, 107 – 124
Arshinder. Kanda, A., Deshmukh, S. G. (2008) Supply Chain Coordination: Perspectives, Empirical Studies And Research Directions, International Journal of Production Economics, 115, 2, 316-335.
Musalem, E.P., Dekker, R., (2005), Controlling inventories in a supply chain: a case study, International Journal of Production Economics, 93-94, 179-188
Alves Filho, A.G., Rachid, A., Donanone, J.C., Martins, M.F., Truzzi, O., Bento, P., Vanalle, R.M. (2001), modular e seus impactos na cadeia de suprimentos da fábrica de motors VW-São Carlos. Final Report, Thematic Project, FAPESP Process 97/13071-9, Brazil.
AUTHOR BIOGRAPHIES
Ping Gan, B., Liu, L., Jain, S., Turner, S.J., Cai, W., Hsu, W.J. (2000), Distributed Supply Chain Simulation Across Enterprise Boundaries, Winter Simulation Conference Proceedings, Orlando. FL.USA, 2, 1245-1251.
Science and Technology, Universiti Kebangsaan Malaysia,
De Toni, A.F., Zamolo, E. (2005), From a traditional replenishment system to vendor-managed inventory: A case
(Olom Fonon Mazandaran University) in 2008.Her research
Afsaneh Noori Houshyar is a master student of IT in Department of Industrial Computing, Faculty of Information 43600 UKM Bangi, Malaysia. She received her B.Sc in industrial engineering from Iran
The 11th Asia Pacific Industrial Engineering and Management Systems Conference The 14th Asia Pacific Regional Meeting of International Foundation for Production Research Melaka, 7 – 10 December 2010 interests include Supply Chain Management, Supply Chain Simulation, Simulation Analysis and Risk Management.
Riza Sulaiman is an Associate Professor in the Department of Industrial Computing, Faculty of Information Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM
Sorush Avakh is a PHD student in manufacturing,
Bangi, Malaysia.
Engineering Faculty of University Putra Malaysia. He
He holds a PhD in Mechanical Engineering, an MSc in
received his master and B.S in industrial engineering from
Advanced Manufacturing Technology from the University of
Iran.
Chain
Portsmouth and B.Eng. (Hons) in Mechanical Engineering
Management, Supply Chain Simulation, Simulation Analysis
from the University of Sunderland, United Kingdom. His
and Risk Management.
research areas are in CADCAM, Graphics, Visualisation and
His
research
interests
include
Supply
Simulation. He is a member of the Institution of Mechanical Muriati Mukhtar is a senior lecturer with the Department of Industrial Computing, Faculty of Information Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Malaysia. She holds a PhD from the Universiti Teknologi Malaysia. Her main interests are supply chain simulation and researching the relationship between customer values cocreation in the development of e-supply chains.
Engineers (IMechE), United Kingdom and the Board of Engineers Malaysia (BEM).
