Design and Modelling the Global Supply Chain | Echelons | Alison
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Hello and welcome to “Modeling and Analytics for Supply Chain Management”! As you all know, we are in the final week of this module and our agenda is to design the global supply chain. As part to this agenda, we had decomposed this particular section, this is very important and decomposed particular section into various units which helps us in designing the supply chain. We took the tax one, tax advantage issues; we went into the transshipment issues; we went into flexibility issues in supply chain; and then the total cost. With all these knowledge today finally, we are designing the entire supply chain. Right from the supplier base to the end customer, we are designing the supply chain. (1:10) Now, if you see; if you see this as we call it as echelons. Now, echelons means the different layers of supply chain level 1, level 2, level 3. What is level 1? Level 1 is the supplier; level 2, the manufacturer; level 3, the wholesaler; distributor; retailer. So, in this way the levels go on. (1:38) Now, if you look at it, we are looking at these echelons as a single period supply chain model and a multi period supply chain model. If you look at supply chain all over, all around the, all over the world all around you, the there are two types of supply chain models. One is single period model and the other is a multi-period model. What is a single period model? A single period model is the, say; let us, let us stick to this slide, what is the single period model? A single period model is that my raw material till the end customer is 1 period and the supply chain ends with that period. Let me repeat what it is; my raw material starting point that is suppliers till the end customer, the retailer or the end customer, wherever we stopped the supply chain till the end customer, this is completed in 1 period. What do you mean by that? Let us take the example of a fish consumption market. Where is the supply starting? If you look at it some of you will say that the supply of fish is starting in the lakes and the ponds where fishermen are breeding the fish. But no, we will not consider up to that level that extreme level wherein it takes 3, 4 months for a fish to be grown to its natural size. We will take it say from these local fish ponds and huge lakes where fish is cultivated in a larger scale from there at midnight, at midnight the fish is brought out, put into trucks, put into vehicles and by 2 or 3am in the morning they should come to the fish wholesale market and the fish wholesale market within 1, 1 and a half hours so by 3:30 in the morning or in the midnight so it will reach the market at 2 in the midnight and by 3:30 in the midnight or if you want to say early morning, whatever. So, within 1 and a half hours, all sales are done, it has to close and by 3:30 the sub wholesalers, the sub dealers, they will pick up the fish and they will catch the first local train or the early local train which will start at 3:30 or 4 in the morning; and by 5 o'clock or 6 o'clock they will reach a local point where again it is sold to small-small retailers. So, that will end at 6:30 in the morning. So, by 7, the fish vendors are out in the fish market waiting with the fish. So, basically if you look at it, the fish supply chain starts from the fish growers but not from the point when the small-small planktons have are put into cultivation, no not from the point but from the point when the fish is caught in the net. Simply from the point when the fish is harvested if you look at it from that angle. So, right from the point the fish is caught in a mass scale in the net that will be around late night. So, right from that point till morning 7, so, basically 8 to 9 hours is your fish supply chain. Within 8 to 9 hours the fish supply chain ends, the moment it reaches the market it ends. What will happen to the leftover fish means the fish market which starts at 7am and people like you and me go to the fish market and buy fish by 10 o'clock that market also all the sales are over. After 10 o'clock people go to offices for work so nobody is there in the market to buy fish. There will be some buyers but I am not going into that. Why I am smiling is some buyers will buy these fish and will then if there is lack of control, quality control issues these will come out to you as fish fry or fish chop and as a delicacy in the roadside hotels and restaurants, so those customers will be there after 10 o'clock but we are not going into that that is a quality issue, that is a another dimension, that is a administrative dimension is there. So, we are not going into that. What we are saying is the fish, so in the sense what we are saying is the fish supply chain starts at 12 or 8 or 9pm in the night and ends by 3:30am, 4am maximum 6:30am. So, this short duration question is by 10 o'clock the retailers have sold the fish what will happen to the leftover fish this is where we what we come to the single period model. The fish supply chain ends at 6:30am with the fish being sold to the retailers, retailers will sell and whatever is leftover, that cannot be stored. They are stored in some ice cartons, but that storage time is only 1 or 2 days not more than that. After that, the fish will start rotting. So, basically in a nutshell what we want to say is once a fish is unsold, that is gone dead stock, nothing can be done with it. So, that is why it is called as a single period supply chain. This is what is meant by a single period supply chain. There is no leftover, there is no stock with which you are continuing or you are beginning the second level of supply chain, the second day supply chain. It is a unique supply chain that starts with the product and ends with, that starts with the growing of the product and ends with the consumption of the product finished. No leftover, no stock. Let us take another example, flowers. They are grown in extensively in South India, particularly Karnataka. These flowers, they are then taken to via Amsterdam, we have discussed 1 day that then via Amsterdam they are taken to countries in Europe and US. Now, what will happen to the leftover flowers? Will they again come back to Bangalore? No, they will have to be thrown away, because with time they are wilted, they are wilted and they have no market so, they will be thrown away. So, this period for which the flowers were taken from Bangalore till it reached a US departmental store in Waltham, Boston city, Massachusetts State, this is the supply chain, it ends there, next cycle is a different one, it is difference against, against the separate supply chain. This is called as a single period supply chain, no stock, no leftover. The second one is the multi period supply chain multi period means there is a leftover, there is a stock leftover. So, look at the previous situation the fish cycle or the flower cycle it is 1 production run, 1 production run, no leftover supply chain ends. Next time a second production run may be a different type of fish is cultivated; may be different type of flower is cultivated. May be not the same suppliers again, same fisherman is not supplying you the fish. May be they have gone home; another set of fishermen is supplying the fish. Similarly, the same flower growers may not grow the flowers next time or maybe the flowers are very different. So, what we see is what we try to say is that every supply chain, every cycle, every such period is unique it is a single period no leftover no stock, the supply chain itself sometimes changes, the configurations change this is taken care of in the multi period model, this is taken care of in the multi period model. What is multi-period model? It simply says that there will be stock that is leftover at the end of period 1 and that stock has to come up as an opening stock for the second period of supply chain. Let us take an example what do you mean by this. Let us take the example of soap manufacturing by Hindustan Lever or PNG, HUL or PNG whatever company. One production run, x quantity of soap is produced and that soap, it goes to the market. When has the production run started? This has started let us say in January 1. I am making things very simple it is not the case in reality, but this production run started on January 1, 1st January and the next production run will start on 1st February. Now, what will happen is in this 1 month all the products that have been manufactured in the first cycle will not be sold, will not be sold off. All the products that have been manufactured in cycle 1 will not be sold off. But February cycle, first of February another production run is ready. Another production run is ready. So, what will happen to the products that are left over in cycle one? They are your closing stock but remember the fish supply chain, we were throwing away the rotten fish right into the streets or in the fields. Here we are not throwing up because it is a non- perishable product. The soaps and shampoos form the opening stock for cycle 2; closing stock of cycle 1 is the opening stock for cycle 2. So, what is the basic difference between the first type of supply chain and the second type of supply chain, the single period supply chain and the multi period supply chain? Means in February again the products will pass January. What is multi period? January the products are passing through a particular supply chain, particular manner. February the products will pass through the supply chain in the same manner. March again same manner they will pass, April again the same manner they will pass. So, this is a multi-period, the same activity is getting repeated time and again time and again time and again; so, multi-period supply chain. Remember the fish supply chain; the fish and the flower versus this soap; every month soap is being manufactured but actually it is every day, every day, soap is being manufactured. So, what is the difference between a single period supply chain and the multi period supply chain? The basic difference is a single between a single period supply chain and a multi period supply chain is, multi period supply chain incorporates closing stock and opening stock that is it, multi period supply chain incorporates stock, stock. That is the only difference between a single period supply chain and a multi period supply chain. It has a stock, so stock if we model stock in the supply chain. It is very easy to model a multi period supply chain. Let us go ahead and see what we have in store for us. (13:57) As we said the basic difference between a single period and a multi period model is the way you model the inventory part that is nothing else. (14:05) A single period model will assume that there is no inventory at the end of the cycle. Example; fish, flower and any supply chain for perishable goods you have just mentioned. (14:17) Multi period assumes that there is inventory left over at the end of 1 cycle and the same will be used or carried over to the next cycle. As we mentioned, soaps and shampoos will be sold in February, January soap will be sold in February. That is why you see the manufacturing date and expiry date and the day when you are first looking at the product in the store. Those are, those have a time gap. So, you can imagine multi-period stock, stock keeping etc. that could be happening. Examples; any FMCG, FMCD like soaps, shampoos, TV, refrigerator, to some extent products in cold storage also form part of this model, not the products that are in cold storage for 2 or 3 days but products those stay in the cold storage for quite a long time; common examples are the vegetables. (15:07) We will model the single period model first, single period model first. Let us do this in the most simple manner possible. (15:29) What we say is, see all we have done it is now basically just winding up by doing the supply chain design; these were my suppliers, remember these were my suppliers; how did we select these suppliers? Let us recall, let us have a recap, how did we select the suppliers? We had supplier selection models LP model, rating model, ranking model, borda count, then there are other MCDM techniques like AHP. So, these were the methods that we used for supplier selection, from then we came to warehouse location models. We use the mixed integer linear programming to decide on whether to have a warehouse or not whether to have a big warehouse or small warehouse. Then we took the transportation part. In transportation part also what we did, we did the maximum flow problem. The min max means I want to have a, how many number of trucks can maximum go through this route? What is the shortest distance in this route? So, these types of transportation modeling we did and now after that again the warehouse location models, there again we use mixed integer linear program. From there we took again the transportation models and in this process we did risk, we did inventory, inter inventory planning, we did warehouse, space calculation, etc, etc, so, so, many things we did in between. Now, look at the diagram very-very carefully, look at the diagram very-very carefully. What do you want to say? These are; then these are your retailers; retailer 1, retailer 2, retailer 3, retailer 4. What? Now just, just by looking at the diagram you know what modeling you should do; no rocket science; just by looking at the diagram you know what modeling you should do? What is the model? Two things; minimize total cost subject to how did we have, how we arrived at the suppliers by different methods, and how we arrived at these two locations by different methods? Now, you just model; the simple mathematical modeling that we had done; demand and supply models. A, B, C, D, E, F, these were the costs 5, 6, 1, 8, 3, 2, 10, 2, 3, your demand was given; sorry, your supply was given and your demand was given. Demand was given, your supply was given. So, based on that we found out; which suppliers to allocate, which location to allocate; so, which suppliers to allocate, which location to allocate again. So, for each of these boxes we know which suppliers to allocate, which locations to allocate plus which suppliers to, remember which suppliers to allocate, which locations to allocate we have already learned. Plus, plus what we should do? We should add one more equation, here material in is equal to material out, material in is equal to material out, material in is equal to material out, material in is equal to material out. So, summation of material-in should be equal to summation of material-out for each of these nodes. For each of these nodes, summation of material-in is equal to summation of material-out so; this is our first modeling. So, what we what we want to say is that these location models were there and material in is equal to material out, that is our first model, that is our first model. So, our objective was minimize total cost min TC, min TC is what, we have just now learned min TC is equal to quantity produced into transportation costs, quantity produced in a transportation cost, quantity transferred into transportation cost, quantity transferred into transportation cost. Quantity produced transportation, quantity produced transportation, quantity transfer, transfer. So, this min TC model remains what we need to add as a constraint material in is equal to material out, that one single constraint completes your. We have already done the modeling for this, we have already done the modeling for this min TC model, we have also done the transshipment model which was essentially a 0 inventory model that is material in is equal to material out. So, we have already done these two earlier. What we are now doing is we are combining both of them. The min TC or the min total cost model and add it, add the constraints to it that is material in is equal to material out, material in is equal to material out. That completes your single period inventory models. It is very-very simple, single period inventory model; there is no stock because it is a perishable product. So, that completes your single period inventory model. (22:01) Now, how do you take care of the multi-period inventory models? How do you take care of the multi-period inventory models? How to add the single period model to the multi-period model? Let us see. (22:11) You see the same model, we will take nothing else; only thing is you remember these were my supplier list right; S1, S2, S3, S4. These were my manufacturing facilities; these were my warehouse 1, warehouse 2, warehouse 3, and warehouse 4; these were my distributor 1, distributor 2, distributor 3, and distributor 4. Now, first we model it as a single period model. And see at the end of the entire period, how much stock is lying at each of these, how much stock is lying at each of these places? How much stock is lying at each of these places? In the next phase, we have to just add a simple thing that material in is equal to material out, whatever was there remember material in, remember this that equation that we did for transshipment, material in is equal to material out. Here your material in from the factory let us say was 100 and material out was also 100 that is the way we modeled the warehouse location, etc. Now, we are saying that material-in is equal to 100 plus there was a closing stock of 20 units. So, what should move out? Material should move out is equal to 120. We are just saying that the material in is (eq); now, the material-in is 120, material-out is 120; we have to add the closing stock of the previous cycle, we have added the closing stock of the previous cycle, nothing else, this is it. Then what will happen in the third cycle? At the end of the third cycle, we have let us say 30 units as closing stock, in the third cycle we will add instead of 20 you will make it as 30. So, in the model itself that material in is equal to material out is equal to material out, material in plus let us say z1, that, that z component is basically the closing stock. So, right at the beginning the simplest way is beat the inventory, beat the single period model or beat the multi period model, add a component z. For a single period model that z is 0, for a multi-period model it takes whatever stock is coming there. It is the most simplest way to model a multi-period chain. There are of course complex models which again are a part of „advanced supply chain analytics‟ and all definitely there are complex models that take care of the probabilistic functions, the risk interdependencies, etc, etc. But if you want to keep things simple, this is a simple multi-period model that is possible. Why we took this? You see many medium scale enterprises cannot employ people who can model complex things. So, they want something which is understandable by their employees which they can themselves model in either excel or any other things. That is why we did this multi period model. Now, you see, we have over time now. So, now let us wrap up. Today we are at the end of week 12 and as you know, week 12 is the last week of your paper, of your course “Modeling and Analytics for Supply Chain Management” What have we learned? What was the objective, what is the learning outcome? Over these 12 weeks, Professor Kunal Ghosh and myself Anupam Ghosh have taken you through the entire journey of supply chain and in that process, we have told you, where in the supply chain, you can apply modeling; what are the modeling techniques? And where with those modeling techniques, you can analyze situations and take supply chain decisions. Analytics basically means analyzing data as per or building in models, building in mathematical models, analyzing data as per models or by building new mathematical models. What does analytics help? Analytics help to take urgent, timely and long term decisions that will help to have a very, very agile, responsive and adaptive supply chain. So, if you see what we did, if you now visualize what we did, we have first exposed you to the entire diagram of a supply chain, how a supply chain looks like, which Professor Kunal Ghosh right at the beginning started off with. And then we took up the mathematical models relevant at each of these stages of supply chain, that was the modeling part of it and then we showed you how we can modify these things for our business decisions and with modeling with numbers, we can analyze situations for business purposes. That was the analytics part of it. Basically (mod), that is why we did not segregate the modeling and the analytics into two separate sections or two separate courses, because modeling and analytics go hand in hand. Analytics without the modeling part of it also is a bit problematic is a bit difficult. So, modeling and analytics with that, we took the entire supply chain each and every component of the supply chain we underlined and showed you all the mathematical models that we can apply, all the types of mathematical models that we can apply for supply chain business decisions, some not from supply chain, some from other disciplines we have used and showed you all the mathematical models and what is the objective, end objective is to have minimized total cost, minimize total risk and to have a global multi period multi echelon supply chain. This is what we did today and with this we end this program on “Modeling and Analytics for Supply Chain Management”. From Professor Kunal Ghosh's side and from myself, Anupam Ghosh's side, we thank you for joining this program and we hope that this course will help you to understand how the business world functions and will help you to have an analytic flavor and help the corporates and the government whom you will serve in future. Thank you from both of us! Thank you!

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