The Supply Chain Management

Introduction

Links Simulation is the supply chain management simulation.  Procuring raw materials, transforming the raw materials to finished goods and then transporting them to customers, all these activities come under supply chain management. Supply chain management is managing, controlling and executing suppliers, warehouses, factories, outlet stores, delivery centers to manufacture and distribute the good to the end customers. 

This simulation includes all the main modules related to the supply chain:  Product development, procurement, manufacturing, distribution, transportation and forecasting. Throughout the simulation we have to take decisions regarding various aspects of supply chain from product development, supplier selection, raw material purchasing, forecasting sales, production to generating demand.

Our company’s name is Tuk Tuk manufacturing. It produces and sells the setup boxes and provide post sales service to the customers. It produces two type of setup boxes hyperware and metaware. We have the market for the setup boxes in three regions North America, Europe and Pacific. We have a manufacturing plant and a distribution center in North America and only the distribution center in Europe and Pacific regions. The distribution centers have the finished goods for the sales in the respective markets and they also carry some of the raw materials required for the replacement parts and to provide customer service.

We had to take decisions from month 4 to month 10. We started by analysing the past results including the operational, financials KPI’s and market performance. The we planned what was our target for next month and made the improvements where we lacked in the previous months. Then we implemented our plan and after that when the results were announced for the current month, we made sure to evaluate our results to see did it go as planned and where we lacked so that we could improve. This was our overall approach throughout the simulation.

The main goals of our simulation were:

  • To increase our profits
  • To have a prominent market share
  • To increase the forecasting accuracy
  • To provide good customer service

To fulfil our goals our main strategies were to reduce the unfulfilled orders, offer the products at affordable price to our customers and to reduce or failure rate.

 To provide the detailed analysis of the simulation we will discuss each module

Procurement

In this module we had to select the suppliers for the raw materials required for the sub assembly parts. The raw material Epsilon was required for both types of products we manufacture, and it could be procured from supplier "D", "E", "F", or "G". Gamma was required for hyperware and delta for metaware products they could be procured from the suppliers "A", "B", "C", or "D” and "B", "C", "D", "E", or "F" respectively. All the suppliers have different costs and failure rates.

Supplier decisions for distribution center in region 1:

Month

Supplier

Inventory ordered

Reason

4

D

39,000-Gamma, 30,000-Delta, 60,000-Epsilon

We ordered some of the inventory through air, which increased our transportation costs. We ordered a little more inventory then required, but it helped to reduce our unfilled order from 2214 (month 3) to 945 (month 4). overall, the procurement decisions went good for this month.

5

B, D, E

41,000-Gamma, 37,000-Delta, 70,000-Epsilon

We did a very big mistake by changing suppliers in month 5. We were trying to reduce are procurement costs by choosing cheaper suppliers but that turned out against us. No doubt the suppliers we chose were cheaper, but we have increased our unfilled orders to 18,568.

6

D

45,000-Gamma, 15,000-Delta, 63,000-Epsilon

We learnt from our mistakes and did a proper evaluation of the last months decisions. We ordered inventory from supplier D. This month we ordered the required inventory and managed to have zero unfilled orders this month. Our performance in this month improved incredibly. We had the required amount of inventory in stock and were able to fulfil demand and able to increase our profit.

7

D

55,000-Gamma, 35,000-Delta, 86,000-Epsilon

We continued using supplier D and ordered the required amount of inventory according our forecasting. We were able to maintain our position in the industry and our unfulfilled orders were zero. This was a big achievement to maintain unfulfilled orders to zero.

8

D

83,000-Gamma, 41,000-Delta, 80,000-Epsilon

We continued to order the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

9

D

27,500-Gamma, 41,500-Delta, 64,000-Epsilon

We ordered the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

10

D

17,000-Gamma, 31,500-Delta, 33,000-Epsilon

We ordered the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory. This was a big achievement that we made since month 6 and maintained it till the end. We were able to keep fulfilling all our orders while keeping our profits to the maximum and having the right amount of inventory.

Supplier decisions for distribution center in region 2:

Month

Supplier

Inventory ordered

Reason

4

D

0-Gamma, 0-Delta, 0-Epsilon

We did not order any of the raw materials for region 3 because we had enough inventory to fulfil the replacement orders.

5

B, D, E

500-Gamma, 800-Delta, 900-Epsilon

We changed the suppliers for month 5, this proved to be a mistake. We were trying to reduce are procurement costs by choosing cheaper suppliers but that turned out against us. No doubt the suppliers we chose were cheaper, but we have increased our unfilled orders because the suppliers had a large failure rate.

6

D

1000-Gamma, 1000-Delta, 1000-Epsilon

We learnt from our mistakes and did a proper evaluation of the last months decisions. We decided to select supplier D as it was the supplier with the least failure rates. We forecasted the inventory required for the replacement parts and ordered accordingly. This time it was a successful decision and we were able to reduce the unfulfilled orders to zero.

7

D

800-Gamma, 1050-Delta, 1400-Epsilon

We continued using supplier D and ordered the required amount of inventory according our forecasting. We were able to maintain our position in the industry and our unfulfilled orders were zero.

8

D

200-Gamma, 750-Delta, 1150-Epsilon

We continued to order the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

9

D

250-Gamma, 650-Delta, 650-Epsilon

We ordered the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

10

D

200-Gamma, 500-Delta, 0-Epsilon

We ordered the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory. This was a big achievement that we made since month 6 and maintained it till the end. We were able to keep fulfilling all our orders while keeping our profits to the maximum and having the right amount of inventory.

Supplier decisions for distribution center in region 3:

Month

Supplier

Inventory ordered

Reason

4

D

0-Gamma, 0-Delta, 0-Epsilon

We had enough inventory on hand for fulfilling the replacement orders, therefore we did not order inventory for this month.

5

B, D, E

100-Gamma, 210-Delta, 200-Epsilon

We were going well but we wanted to increase our revenue, so we decide to save some money we spend on procurement. Therefore, we changed the suppliers for month 5 and this proved to be a mistake. No doubt the suppliers we chose were cheaper, but we have increased our unfilled orders because the suppliers had a large failure rate.

6

D

500-Gamma, 500-Delta, 600-Epsilon

We did the proper evaluation of the past month to find out the supplier with the least failure rate. We selected supplier D as it was the supplier with the least failure rates. We forecasted the inventory required for the replacement parts and ordered accordingly. This time it was a successful decision and we were able to reduce the unfulfilled orders to zero and were able to have a safety stock also.

7

D

700-Gamma, 600-Delta, 600-Epsilon

We continued to use supplier D and ordered the required amount of inventory according our forecasting. We were able to maintain our position in the industry and our unfulfilled orders were zero.

8

D

400-Gamma, 400-Delta, 400-Epsilon

We continued to order the inventory according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

9

D

350-Gamma, 436-Delta, 0-Epsilon

We had enough stock of Epsilon to fulfil orders there fore we did not order any of it in this month. We ordered the inventory for other two raw materials according to the forecast and were able to maintain the unfulfilled orders to zero without having the overstock of the inventory.

10

D

0-Gamma, 0-Delta, 0-Epsilon

We had enough inventory for the replacement orders. Therefore, we did not order anything in this month. We had enough inventory in stock to fulfil the orders and still have the safety stock.

From the above decisions we can conclude that we did mistake of changing the suppliers in month 5. E selected the cheap suppliers, but they had large failure rates due to which our unfulfilled orders increased to 18,568 which was a huge loss both in terms of money and customer satisfaction. But we learnt from our mistake and came out even stronger. We did proper research of the suppliers and selected supplier D which had the least failure rate and ordered the inventory according to the forecasted sales. We did incredibly well in month 6 and reduced our unfulfilled orders to zero. We did maintain this level till month 10, which was a great achievement. Since month 6 we collaborated with the same supplier and were able to get our raw materials on time, helping us to fulfil orders and keep earning money.

Manufacturing

In this module we had to plan the amount of production need to be done according to the demand forecasts every month, to meet the end customer demands. We have to make production decisions very carefully because we don’t want to overproduce goods or leave the orders unfulfilled. The production take place at the plant in region 1 and the finished goods are transported to other regions according to the demand. There is a product called product zero, if we produce product-0 we could use it in case of shortage of any product. It is kind of safety stock to fulfill the product demand in case we run out of any of the two products. We took the production decisions after forecasting the proper demand of the two products. During month 4, we did produce according to the demand forecast and we did not produce product zero. Thus, we had 945 unfulfilled orders. Though we were able to reduce the unfulfilled order from month 3 but we were not able to completely reduce them to zero.

In month 5, we planned production according to the demand forecasts only but we have changed the suppliers in this month. We had selected cheap suppliers with large failure rates, with a plan that it will reduce our procurement cost. Rather than reducing the cost this decision created a havoc. We did not have the right amount of raw materials required for the production. Due to this, our unfulfilled orders increased drastically from 945 to 18,568. This was a huge loss for our company.

We did a proper analysis before jumping in to take decisions for month 6. First of all, we selected the supplier with the least failure rate so that we could get the ordered inventory on time for production to occur. We did plan the production of the two products according to the demand forecast and we also started production of product-0. This month was a huge success, we reduced our unfulfilled orders drastically from 18,568 to 0. This was a great accomplishment; we were able to increase our revenue from approximately $4 million to $20 million.

As shown in the graph, because of our wrong decision our net income to revenue was the lowest of the industry in month 5, but we learnt from our mistake and came out to be the strongest and for month 6 our net income to revenue was the industry best.

After month 6, our production routine came on the right track and for the rest of the months till month 10, we did the planning of production according to the demand forecasts and were able to main the unfulfilled orders to zero. Our production decisions went right, and we were able to have 100% fill rate from month 6 to month 10 as shown in the graph below.

Distribution

In this module we had to take decisions whether we want to have a distribution center other than our home country that is region 1. The distribution centers in other regions help to sell the end products to the customers and meets the replacement part demands in their respective regions. We always have distribution center in region 1 and we decided to outsource the distribution center in region 2 and 3 as well, because we had a considerable amount of demand in those two regions also.

Another decision to be made in this module is regarding the RFID system. Nowadays, RFID tags have replaced the barcodes and they carry considerable amount of information related to products. It is easy to locate and keep track of products using the RFID systems. We decided to outsource the RFIS application for all our distribution centers. It was the cheaper option because if we bought the RFID system it costs $3.5 million and it has zero resale value. So, if in future we have to close the distribution center in any region this money is completely lost. Therefore, after doing a proper research we decided that outsourcing the RFIS system would be more cost effective.

Emergency carriers are used to transport products from plant in region 1 to other distribution center. We chose emergency carrier N for the emergency shipments as it had the least failure rates.

Transportation

In this module we had to make decision regarding the transportation of the finished good from the plant to the distribution centers. We have to decide what amount of the finished goods do we need to send to the different distribution centers to be able to meet their demand. A proper forecast is done before sending the finished goods to the distribution centers.

Supplier decisions for distribution center in region 2:

Month

Carrier

Inventory ordered

Reason

4

N

8,800- Product 1, 4,025 - Product 2

We selected this amount of the finished goods to be transported to the distribution center at region 2 based on the demand forecast. We chose carrier N as it had more reliable delivery. We chose the delivery over surface to reduce the transportation costs.

5

M

9,488- Product 1, 2,728 - Product 2

We changed the carrier from N to M because it had lower price and we chose to deliver over air as it had 100% reliability that the finished good would be delivered in the same month as required. The inventory of finished goods we planned to transport was based on the demand forecast.

6

M

12,998- Product 1, 7,908 - Product 2

We kept on using carrier M as it had reliable delivery service and we were able to fulfil the demand of the customers. Our unfulfilled orders were zero in this month because we tried to keep safety stock at the distribution centre.

Final Reflection:

Overall, we learnt a lot from this simulation. As it taught us to implement our theoretical knowledge in the real business scenario. In our opinion we are satisfied with our performance, as we improved a lot with every passing month. For example, in month 5 due to our poor decisions, our performance declined drastically. But after this we researched more intensively and took decision which helped us to increase our net income from $0.4 million to $2million, which was above the industry average. This result got us the recognition and placed our firm in the “Global Top 10” position of links simulation. The other thing we are satisfied is that we even improved our forecasting accuracy and were able to reduce our failure rate to zero for five consecutive months. We were also successful in reducing our transportation expenses to the minimum.

In our opinion, the areas we could have improved is the customer satisfaction. The reason behind this could be that we focused on increasing market revenue by decreasing amount spent in the market expenditures. We also lacked in increasing the market share and we should have also reduced our buffer inventory in the last month.

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