bdsm-ch17_supply chain and oscillation

8/8/2019 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


2/26

Outline

1.Basic of Oscillation

2.Supply Chain

3.Stock Management Problem4.Origin of Oscillation


3/26

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?


4/26

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)


6/26

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


16/26

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)


17/26

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


18/26

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


19/26

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


20/26

Origin of Oscillations

From previous slide, the system hasdominant negative loops with timedelay

However, the system does notoscillate

What are the causes of oscillations?


21/26

Are this picture familiar toyou?

0 10 20 30

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Team 1

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Team 2

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Team 3

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Team 4

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Team 5

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R

W

D

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0 10 20 30

Team 1

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0 10 20 30

Team 2

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Orders

Ne

t

In

ven

to

ry


22/26

Structure of the Beer Game


23/26

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


24/26

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}


25/26

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

bdsm-ch17_supply chain and oscillation

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