BDSM-CH17_supply Chain and Oscillation
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Transcript of BDSM-CH17_supply Chain and Oscillation
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Business Dynamics and System
ModelingChapter 17: Supply Chains
and the Origin of Oscillations
Pard Teekasap
Southern New HampshireUniversity
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Outline
1.Basic of Oscillation
2.Supply Chain
3.Stock Management Problem4.Origin of Oscillation
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Basic of Oscillation
Oscillation requires
time delays in the negative feedbacksregulating the state of a system
Decision makers fail to account forthese delays
Where do oscillations come from in
the beer game?
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Supply Chain
Supply chain is the set of structuresand processes an organization usesto deliver an output to a customer
Supply chain consists of
Stock and flow structures for theacquisition of the inputs to the
process Management policies governing the
various flows
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Oscillation is common in supplychain
0
30
60
90
120
150
1950 1960 1970 1980 1990 2000
USI
ndustrialProduction
(1992=
100)
80
90
100
110
120
1950 1960 1970 1980 1990 2000
IndustrialProduction
RelativetoTrend(trend=100)
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Amplitude of fluctuationincreases along the supply line
with time lag
80
90
100
110
120
130
1950 1960 1970 1980 1990 2000
Ind
ustrialProduction
RelativetoTrend(tren
d=100)
Consumer Goods
Materials
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Amplification is huge in someindustries
-40
-20
0
20
40
1970 1975 1980 1985 1990 1995 2000
Fractiona
lGrowthRate(%/year)
Oil and GasWell Drilling
Oil and Gas
ProductionPetroleumConsumption
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Machine tool industry
-60
-40
-20
0
20
40
60
80
1970 1975 1980 1985 1990 1995
FractionalGrowthRate(%/year) Machine Tool
Orders
MotorVehicleSales
GDP
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Semiconductor industry
-20
0
20
40
60
1960 1965 1970 1975 1980 1985 1990 1995 2000
Fraction
alGrowthRate
(%/year) Semiconductors
Industrial Production
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Stock Management Problem
Manager seeks to maintain a stock ata particular level
Manager sets the inflow rate to offsetfor losses and usage and tocounteract disturbances that pushstock away from target
However, there are lags between theinitiation of a control action and itseffect and lags between a change
in the stock and the perception of
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Structure for managing stockwith no acquisition delays
S = INT(AR LR, St0)
LR = f(S,X,U)
AR = MAX(0,DAR)DAR = EL + ASEL = LR
AS = (S* - S)/SAT
Wh t if t d l t
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What if expected losses are notconsidered when ordering
(Only look at the stock) Assume a firms sets its productiontarget based on the gap betweendesired inventory and actual
inventory Production = (Desired Inventory
Inventory)/Inventory Adjustment
TimeAt equilibrium
Production = Shipment
Inventory = Desired Inventory
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With considering theordering rate
Production = Average Order Rate +(Desired Inventory Inventory)/Inventory Adj Time
In equilibrium, production = orderrate, Desired inventory = inventory
However, you can not include a
formulation into a model justbecause it make sense. You musthave an evidence that peopleactually do make decisions that
way
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Behavior of simple stockmanagement structure
100
110
120
0 2 4 6 8 10
Units
Years
Desired Stock
Stock
10
12
14
16
18
20
0 2 4 6 8 10
Units/Year
Years
Acquisition Rate
Loss Rate
Adjustmentfor Stock
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Amplification Ratio
Desired stock increased by 20%
Acquisition rate increases by amaximum of more than 52%
Amplification ratio is 53%/20% =2.65
However, amplification is temporary.In the long run, a 1% increase indesired stock leads to a 1%increase in the acquisition rate
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Stock Management Structurewith Acquisition Delays
SL=INT(ORAR, SLto)\
AR = L(SL,AL)
AL = f(SL,X,U)OR = Max(0,IO)IO = DAR + ASL
ASL = (SL*-SL)/SLATDAR =Max(0,EL+AS)
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Desired Supply Line
Based on Littles Law: SL* = EAL *DAR
However, Littles Law is toosophisticated for decision makers
Managers usually base the desiredsupply line on their estimate of
long-run throughput requirement:SL* = EAL * EL
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Formulation Checklist
Formulation is robust: orders remainnon-negative
Information not available to realdecision makers is not utilized
The ordering decision rule isgrounded in well-established
knowledge of decision-makingbehavior
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Behavior of stock managementstructure
100
110
120
0 2 4 6 8 10
Units
Years
Desired Stock
Stock
12
20
28
36
0 2 4 6 8 10
Units/Year
Years
Acquisition Rate
Loss Rate
Order Rate
10
12
14
16
18
20
0 2 4 6 8 10
Units/Year
Years
Acquisition Rate
Desired Acquisition Rate
12
20
28
36
0 2 4 6 8 10
Un
its/Year
Years
DesiredAcquisition Rate
Loss Rate
Order Rate
Adjustment forSupply Line
Adjustment forStock
Average Life of Capital = 8.0 years, Average Acquisition lag = 1.5 yearsStock Adjustment time = 3.0 years, Supply Line Time = 0.75 years
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Origin of Oscillations
From previous slide, the system hasdominant negative loops with timedelay
However, the system does notoscillate
What are the causes of oscillations?
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Are this picture familiar toyou?
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Orders
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ven
to
ry
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Structure of the Beer Game
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Behavior when ignoring thesupply line
Oscillation
arises notfrom thetime delayalone butbecausethe
managerplacesorder
without
0
200
400
600
800
1000
1200
0 5 10 15 20 25 30 35 40
Units
InventorySupply Line
0
100
200
300
400
0 5 10 15 20 25 30 35 40
Units/Week
DeliveryRate
ShipmentRate
OrderRate
Weeks
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Role of supply line
OR = Max{0,IO} =Max{0,EL+AS+ASL}
= Max{0,EL+(S*-S)/SAT+(SL*-
SL)/SLAT}Weight on supply line (WSL) =
SAT/SLATOR = Max{0,EL +(S*-S)/SAT + WSL *
(SL*-SL)/SAT}OR = Max{0,EL+[S*+WSL*SL* -
(S+WSL*SL)]/SAT}
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Estimated VS ActualBehavior
Parameters: Smoothing time for forecast of customer orders, 1.82 weeks;desired total stock on hand and on order, 9 cases; stock adjustment timeSAT, 1.25 weeks; weight on supply line WSL, 0.
0
10
20
30
40
0 5 10 15 20 25 30 35
Cases/
Week
Simulated
ActualFactory Orders
(R2 = 0.87)
Weeks
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Oscillation in real estate