impact of information sharing on supply chain
TRANSCRIPT
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Information Sharing
and
Echelon Inventory Managementfor
Supply Chain Excellence
B. Ebenezer1 Vinay V.Panicker2 R.Sridharan3
1Graduate Student, 2Assistant Professor, 3Professor,
Department of Mechanical Engineering
National Institute of Technology Calicut
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Supply Chain
All stages that are involved directly or indirectly in fulfilling a
customer request forms a supply chain.
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Information Sharing
Performance of a supply chain is influenced by many factors.
Information sharing has been cited as one of major means of
improving supply chain performance. It allows companies to
better coordinate their activities with their supply chain
partners and generate improved performance. Baihaqi.(2008).
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Literature Review
S.No Author Year Content1 Bourland et al. 1996 reduction of inventory cost when the
downstream member shares itsdemand information
2 Cachon andFisher
2000 benefits of sharing real timeinformation of demand and
inventory level
3 Zhao et al. 2002 simulated and examined theforecasting and inventoryreplenishment decisions
4 Vieira et al. 2004 development of simulation model fora supply chain
5 Yao et al. 2007 benefits of following VendorManaged Inventory
6 Yu et al. 2010 simulated and analysed the effect of four different information scenarioson supply chain
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Problem Definition
Manufacturer Distributor
customerRetailers
A supply chain consisting of three retailers, one distributor
and a manufacturer has been considered. Each stage meets thedemand raised by its downstream buyer from its on hand
inventory. The inventory level is reviewed and order is placed
to its upstream supplier based on the inventory policy it
follows. Back order is considered only in the retailer level.
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Data Assumptions
Customer inter arrival time
exponentially distributed with mean 0.1 month
Quantity of customer demand (D)
D =
Lead time for order arrival
23 days (0.75 month)
1 with probability 0.1666
2 with probability 0.3333
3 with probability 0.3333
4 with probability 0.1666
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Inventory Policy
Periodic review - Order up to level policy
Each stage of the supply chain reviews its inventorylevel at the starting of every month and places order toits upstream supplier as follows:
OQ= S-IL if IL < s
0 if IL s
where OQ Order Quantity
S - Maximum inventory level for the stage
s - Minimum inventory level for the stage
IL - Inventory level at the stage
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Inventory Policy Parameters
Minimum inventory levels= L * Davg + safety stock
Maximum inventory levelS = (r+L) * Davg + safety stock
Safety stock
= z * Dstd * sqrt (r+L)Where rreview period, Llead time,
z- safety stock factor
Davg ,Dstd Average, standard deviation of demand
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ARENA Model Developed
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ARENA Model Developed
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Conventional Model
Distributor Retailers
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Conventional Model
Distributor
customer
Retailers
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Conventional Model
Distributor
customer
Retailers
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Conventional Model
Distributor
customer
Retailers
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Conventional Model
Distributor
customer
Retailers
C l d l
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Conventional Model
Distributor
customer
Retailers
C ti l M d l
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Conventional Model
Distributor
customer
Retailers
Review period
C ti l M d l
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
C ti l M d l
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
C ti l M d l
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
C ti l M d l
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
Conventional Model
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
Conventional Model
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Conventional Model
Distributor
customer
Retailers
s= L * ROQavg + safety stock
S = (r+L) * ROQavg + safety stock
Review period
ROQ
Conventional Model
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Conventional Model
Distributor
customer
Retailers
Review period
ROQ
Conventional Model
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Conventional Model
Distributor
customer
Retailers
Review period
ROQDOQ
Conventional Model
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Conventional Model
Distributor
customer
Retailers
Review period
ROQDOQ
Orderquantity
TimeTime
Order
quantity
Time
Order
quantity
Bullwhip Effect
Demand Information Sharing
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Demand Information Sharing
Distributor
customer
Retailers
s= L * Davg + safety stock
S = (r+L) * Davg + safety stock
End customer demand information
Inventory Information Sharing
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Inventory Information Sharing
DistributorRetailers
Echelon inventory
management
Echelon Inventory Management System
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Echelon Inventory Management System
Retailer 2Manufacturer Distributor
Retailer 3
Retailer 1
Echelon Inventory Management System
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Echelon Inventory Management System
Retailer 2Manufacturer Distributor
Retailer 3
Retailer 1
Echelon Inventory Management System
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Echelon Inventory Management System
Retailer 2Manufacturer Distributor
Retailer 3
Retailer 1
se= Le * Davg + safety stock
Se = (r+Le) * Davg + safety stock
Where Le is the echelon lead time
Echelon Inventory Management System
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Echelon Inventory Management System
Retailer 2Manufacturer Distributor
Retailer 3
Retailer 1
se= Le * Davg + safety stock
Se = (r+Le) * Davg + safety stock
Where Le is the echelon lead time
Echelon Inventory Management System
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Echelon Inventory Management System
Retailer 2Manufacturer Distributor
Retailer 3
Retailer 1
se= Le * Davg + safety stock
Se = (r+Le) * Davg + safety stock
Where Le is the echelon lead time
Scenarios
Inventory alone
Inventory and Demand
Performance Indices
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Performance Indices
Fill rate
The fraction of customer demand that ismet routinely. i.e., without backorder orlost sales
Demand met / Demand arised
Average total cost of the supply chain
Sum of cost at each stageCost at each stage = Avg holding cost +
avg shortage cost* + avg order cost*shortage cost is considered only in Retailer level
Performance Indices
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Performance Indices
Bullwhip Effect
The increase in demand variability as wetravel up the supply chain.Bullwhip effect is measured by the variance inthe order quantity placed by each stage
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Impact of Information Sharing
Impact on Fill Rate
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Impact on Fill Rate
NIS DIS IIS DIIS
Retailer 1 94.65 92.79 96.32 96.2800
Retailer 2 94.71 92.25 95.95 95.91
Retailer 3 94.69 92.28 96.37 96.4000
90
91
92
93
94
95
96
97
FillRate
Fill Rate
Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
Impact on Total Cost of Supply Chain
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p pp y
0
100
200
300
400
500
600
700
NIS, 94.68% DIS, 92.44% IIS, 96.21% DIIS, 96.20%
Avgtotalcosto
fsupplychain
Information shared, fill rate
Avg total cost vs information shared
Avg total cost
Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
Impact on Inventory Levels
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p y
0
50
100
150
200
250
300
NIS DIS IIS DIIS
Avghold
ingcost
Information sharing scenario
Avg holding cost
Retailer 1
Retailer 2
Retailer 3
Distributor
Manufacturer
Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
Impact on Bullwhip Effect
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p p
No information shared
Standarddeviation Average
COQ 14.711 75.18
ROQ 18.56 117.97
DOQ 34.82 156.92
MOQ 56.43 238.55
Graphs for other scenarios
Impact on Bullwhip Effect
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p p
No information
Demand
Information
Inventory
Information
Demand and
Inventory
information
Standard
deviation Average
Standard
deviation Average
Standard
deviation Average
Standard
deviation Average
Customerorder 14.711 75.18 14.711 75.18 14.711 75.18 14.711 75.18
Retailer
Order 18.56 117.97 23.83 118.58 17.56 109.81 17.37 109.67
Distributor
Order 34.82 156.92 28.5 133.67 26.9 152.84 30.55 118.19
Manufacturer
Order 56.43 238.55 28.83 138.42 29.44 194.10 33.35 124.34
Scope for Future Work
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p
Further experimentation can be carried outfor different inventory policies and different
values of the parameters.
Conclusion
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It is evident from the results obtained thatthe supply chain can perform better when
information is shared between the stages.
Echelon inventory management technique
performs better when both demand and
inventory information are shared to the
upstream stages.
References
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Bourland, K. E., Powell, S. G., and Pyke, D. F. (1996).Exploiting timely demand information to reduceinventories. European Journal of Operational Research,92, 239243.
Cachon, G. P., and Fisher, M. (2000). Supply chain
inventory management and the value of sharedinformation. Management Science, 46, 10321048.
Chen, F., Drezner, Z., Ryan, J. K., & Simchi-Levi, D.(2000a). Quantifying the bullwhip effect in a supplychain: The impact of forecasting, lead times, and
information. Management Science, 46, 436443.
Thonemann, U. W. (2002). Improving supply-chainperformance by sharing advancedemand information.European Journal of Operational Research, 142, 81107.
References
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Yao, Y. Evers, P.T. Dresner, M.E. Supply chain integration
in vendor-managed inventory. Decision Support Systems,43, 663-674.
Yu, M.M. Ting, S. Chen, (2010), M. Evaluating the cross-efficiency of information sharing in supply chains. ExpertSystems with Applications, 37, 2891-2897.
Zhao, X., Xie, J., and Leung, J. (2002). The impact of forecasting model selection on the value of informationsharing in a supply chain. European Journal of OperationalResearch, 142, 321344.
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THANK YOU
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Impact on Bullwhip Effect
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Demand information shared
Standard
deviation Average
COQ 14.711 75.18
ROQ 23.83 118.58
DOQ 28.5 133.67
MOQ 28.83 138.42
Impact on Bullwhip Effect
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Standard
deviation Average
COQ 14.711 75.18
ROQ 17.56 109.81
DOQ 26.9 152.84
MOQ 29.44 194.10
Inventory information shared
Impact on Bullwhip Effect
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Both demand and inventory information shared
Standard
deviation Average
COQ 14.711 75.18
ROQ 17.37 109.67
DOQ 30.55 118.19
MOQ 33.35 124.34
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