DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS

Transcription

1 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS Ro Parga, Clemon Univerit, Chri Jarvi, Clemon Univerit, J. Steve Davi, Clemon Univerit, John C. Peck, Clemon Univerit, Bill Kernodle, Clemon Univerit, Wanbo Luo, Sichuan Univerit, ABSTRACT Militar clothing retailer emlo a traditional Economic Order Quantit (EOQ) trateg, roducing infrequent, large order that caue eriou roduction cheduling and deliver roblem for manufacturer, roducing what i ometime called the bullwhi effect. Thee roblem dela manufacturer reone and caue tock outage at the retailer. Thi aer decribe a deciion uort tem that hel increae roduct viibilit in the ul chain and etablihe a more frequent, regular ordering cheme baed on a forecat of demand. In one ul chain in which thi tem wa deloed tock outage were reduced to near zero and inventorie were reduced b $6 million at retail. In another ul chain the tem imroved roduct viibilit and aited intelligent roduction cheduling b the manufacturer, reulting in imroved deliverie and thu greater atifaction of both manufacturer and retailer. Ke word: Deciion uort tem, otimization, ul chain, ordering and ditribution, militar INTRODUCTION Recruit induction (baic training) center erve a the rimar clothing retailer to the militar. The emlo a traditional Economic Order Quantit (EOQ) trateg, with reorder oint and refill level, roducing infrequent, large order that caue eriou roduction cheduling roblem for manufacturer. Thee roblem in turn increae roduct cot and dicourage manufacturer from eeking additional government contract. Thee roblem furthermore roduce the following ndrome. When the inventor level dro below the reorder oint for a articular tle and ize of garment, the manufacturer receive an unexected, large order for garment of that ingle tle and ize. Keeing enough finihed good inventor for ever tle and ize of garment to atif an order that might arrive would be too cotl for the manufacturer. Therefore the manufacturer mut tart new roduction to atif the quantit of that one ize garment ordered. Conequentl, the manufacturer doe not reond a fat a the cutomer would like, and the cutomer become concerned about running out of tock. (The manager of the clothing iue facilit i ver concerned about avoiding tock outage, becaue dela in iue can adverel affect the timing or the qualit of recruit training.) The cutomer ma react b generating another (erha emergenc) order before the original order arrive. He ma alo attemt to avoid the 357

2 IACIS 2001 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS roblem in the future b increaing the re-order quantit. All of thee reaction reult in keeing more garment on hand than are reall necear and woren the roblem b ordering even more garment of that articular tle and ize the next time the reorder oint i reached. Since the demand attern varie with garment ize, the aforementioned ndrome ticall lead to a ituation where the clothing iue facilit ha huge excee of inventor in ome ize and i imultaneoul exeriencing tock outage in other. The militar ha documented examle in which deteriorated boot from the Korean conflict era are till available and in tock while tock outage occur for more oular ize of the ame boot. Sul chain roblem have a big imact becaue the number of roduct and node in the chain are large. For examle, the DoD clothing oeration involve over 5,000 different clothing and equiment item. It uort 16,595 retail outlet cutomer, including 11 clothing iue facilitie (at recruit training center). Ticall, a ingle clothing iue facilit maintain u to $9 million in inventor and another $12 million i tocked at a ditribution center (militar deot) for that facilit. Although the focu wa on clothing, the roblem and olution we dicu in thi aer ertain to almot all militar eronnel item that var b ome attribute, uch a ize. IMPROVEMENTS AT A RETAIL ORGANIZATION Under contract from the U.S. Defene Logitic Agenc, reearcher at Clemon Aarel Reearch have been working on imrovement in the militar ul chain. A a ilot roject we uorted the effort of one clothing retailer (the U.S. Marine Cor Recruit Training Deot at Parri Iland, South Carolina) to imrove it oeration. The main goal wa to ignificantl reduce inventorie at Parri Iland while minimizing occurrence of tock outage. Before our roject began, the clothing inventor manager emloed the aforementioned (EOQ) trateg. The maintained $9 million in clothing inventor and exerienced frequent tock outage. Previou reearch howed the otential benefit of forecating (3,7,8), minimizing demand ignaling (9) and minimizing order batching (2,9). After tuding Parri Iland oeration a deciion wa made to urue thee trategie to avoid the bullwhi effect (9), a ditortion of required order a one move utream in the ul chain. The focu of the roject wa on lowering inventorie and reducing tock outage at the Parri Iland retail ite while recognizing the conequential benefit of reducing the bullwhi effect for all utream node in the ul chain. Counter-meaure for two of the caue of the bullwhi effect (demand ignaling and order batching) aeared directl relevant to the roblem at hand. To counter the demandignaling roblem the recommended more viibilit of demand and having a ingle control for relenihment. To counter the order-batching roblem the recommended reducing order cot b comuter-aited ordering. A different, novel aroach wa taken in our roject. A deciion uort tem (DSS) that erve a a ingle control for relenihment wa develoed to increae ordering frequenc and etablih a regular ordering interval (weekl). Thi tem conequentl reulted in reduced order g batch ize and imroved viibilit of inventor. A weekl order frequenc wa ued becaue almot all manufacturer chedule on a weekl bai and becaue at thi frequenc order more cloel aroximate the actual demand attern. 358

3 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS IACIS 2001 The deciion uort tem recribe the inventor level for each week for each ize of each garment to meet the anticiated demand for that week while maintaining a uerecified afet level. Becaue demand i eaonal, the forecated inventor level varie from week to week. Primar inut are: 1) the recruit chedule (number, gender, date of arrival), 2) the iue lan (date and quantit of each garment iued), 3) the tariff (ercentage of recruit who fit in each ize of a garment), 4) hitorical order-hi time, and 5) the number of extra da of ul the manager chooe to maintain in inventor. Ticall the recribed inventor level for each week deend uon the exected order-hi time and the manager elected accetable level of rik of encountering a tock outage. The DSS maintain a hitor of order-hi time for each ize and te of clothing item. The uer can acce thi hitor and other available information (uch a knowledge about a roblem with a contract for manufacturing a articular item) when deciding what order-hi time i likel in the future. In chooing the number of da of ul to be held in inventor, the uer ma conider the exected order-hi time and ma chooe a afet level, meaured in number of extra da of ul to be held in inventor. Once the uer elect a number of da of ul, the tem calculate the target inventor level for each week. For examle, uoe the uer etimate that the future order-hi-time will be 7 da, and the uer want to cover an additional 14 da of ul a afet tock, reulting in a target level of 21 da of ul. Given the anticiated demand for a articular ize and te of item, the DSS will calculate the target inventor level hown in Table 1. For each date, the inventor i the quantit to be iued that date lu the amount to be iued during the next 21 da. Thu, at an time, there i enough inventor on hand to lat 21 da without relenihment. Date Quantit to be Iued Target Inventor 10/01/ /08/ /15/ /22/ /29/ (data not avail.) 11/05/ (data not avail.) 11/12/ (data not avail.) Table 1. Baed on the exected demand and the uer choice of 21 da of ul, the DSS calculate thee value for target inventor. The DSS account for the comlete tatu of retail inventor through a grahical dila (Figure 1), including the following quantitie (meaured in da-of-ul): on hand at retail, in tranit to retail, and ordered but not hied. A horizontal line indicate the retail goal. Thi goal in da-of-ul i contant but the correonding quantit (in number of item) could change from week to week becaue it deend uon the forecat of eaonal demand. 359

4 IACIS 2001 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS (Normall the line i traight but it could var if the uer decide on different target level for different ize of a roduct te.) Each week, if the um of (on hand at retail, in tranit to retail, urchaed but not hied) i below the DSS-recribed goal for a articular ize, the DSS recommend ordering enough to boot the um at or above the recribed amount (generall rounded u to the next full cae quantit). In thi wa, the tem hel kee inventor at aroriate level. After uing thi exerimental tem for one ear, the Recruit Training Deot at Parri Iland ha exerienced almot zero tock outage and ha lowered clothing inventorie b more than $6 million to a level of $2.6 million. The new ordering cheme ha reulted in more frequent order of maller quantit, aroximating a flow tem. For examle, there were 298 order with an average quantit of 390 for the men camouflage hirt during the ear before the new tem wa intalled. The next ear there were 547 order having an average quantit of 236. d a 20 Retail Goal To order o f u l 10 Ordered, not hied In tranit Retail on hand 0 Small Med Large Figure 1. The deciion uort tem indicate retail inventor tatu and the quantit of each item to be ordered. In thi examle there hould be an order for item of ize large. The goal in da-of-ul i contant but the correonding quantit (in number of item) could change from week to week becaue it deend uon the forecat of eaonal demand. 360

5 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS IACIS 2001 LOCAL VS. GLOBAL OPTIMIZATION Although retail inventor management wa greatl imroved with the tem decribed above, the iue of efficient ul chain management wa not adequatel addreed. Becaue the major organization involved in the U.S. militar tem for clothing ordering and ditribution (including recruit induction center, deot, defene ul center, and manufacturer) each attemt to locall otimize their own efficienc, their behavior doe not necearil reult in the mot cot-efficient globall otimized tem. For examle, conider the olic dicued earlier in which the militar deot lace a contant handling charge on ever line item of an order roceed, indeendent of the line item quantit. Thi urcharge i ea to adminiter and it cover deot cot; however, it encourage retail ite to order large quantitie to reduce the urcharge er item. If retail ite locall otimized their order quantit, the could quickl exhaut ul chain quantitie and would wate torage ace. Conider another examle. Often the militar etablihe contract with manufacturer ecifing minimum and maximum quantitie to be delivered, where the range of quantitie i large, ticall everal hundred thouand. Thi rocedure imlifie contracting and rovide flexibilit to the ul center, but the uncertaint about order quantitie reult in unreliable deliverie and lead to higher manufacturing cot that are aed on to the militar. From the militar clothing manufacturer erective the EOQ and minimum/maximum ordering olicie have even greater negative imact. Since mot of the roduct made b thee comanie do not have other market (either b law or b demand, e.g. chemical rotective uit cannot be old on the oen market), the comanie mut end emloee home (without a) when order are are and work emloee overtime when order are heav. Reaonabl level order quantitie, with redictable ize ditribution and intelligent buffer management, are critical to reducing global cot and eliminating tock outage. For one militar ul chain we have deigned and imlemented a cooerative ul chain artnerhi between a manufacturer and a retailer that i a te in the direction of global otimization. Such artnerhi have hown benefit in other ituation (4). Thi alication i a mall ul chain coniting of a manufacturer (the factor at Clemon Aarel Reearch, South Carolina) and a retailer (Clothing Iue Facilit at Fort Leonard Wood, Miouri). The manufacturer of the women arm uniform and the retailer have agreed on a goal of maintaining a redetermined level of inventor in the ul chain. We etablihed a deciion uort tem for the manager of the factor that hel imlement thi agreement. Thi tem how the manager on one creen the comlete tatu of the women uniform. (We rovided a deciion uort tem having a imilar dila to the manager of the retail ite.) For examle, Figure 2 how the tatu from the manufacturer erective on a articular date. A horizontal line indicate the target inventor level, in da of ul, agreed uon b the manufacturer and retailer. (Normall the line i traight but could var if the uer decide on different target level for different SKU of a roduct te.) A vertical bar rereent quantitie for a ingle SKU. The total height of each bar, not counting the to make ortion, rereent (for a ingle SKU) the um of the following quantitie, each of which i hown a a ortion of the bar: - on hand at retail, - in tranit to retail, - ending himent (ordered but not et hied), 361

6 IACIS 2001 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS - finihed good at the manufacturer, and - work in roce at the manufacturer. 60 Stem Goal d a o f 40 To make Work in roce Finihed good To hi u l 20 Retail Goal In tranit Retail on hand 0 Small Med Large Figure 2. The deciion uort tem for the manufacturer how the comlete tatu of roduct in the ul chain. If the amount in the chain for a articular item i le than the tem goal, the tem recommend manufacturing enough to meet the goal. The manager can eail determine the health of the ul chain at a glance. One ma think of each bar a a icture of the overall ul chain for an item. One ma imagine that the column reerved for each bar on the chart rereent a icking flow bin. Item can be removed from the bottom of the bar to iue to cutomer while the manufacturer relenihe item at the to of the bar. The inventor manager hould be concerned if the height of the bar become ver mall becaue there i a danger of exeriencing a tock outage. Before thi DSS (that rovide viibilit of the ul chain) wa intalled, inventor manager often did not take an action until the icking flow bin became emt. The tandard remed wa to lace a number of hone call to find out what haened and what could be done. 362

7 DECISION SUPPORT SYSTEM IMPROVES SUPPLY CHAIN OPERATIONS IACIS 2001 The tem alo dila the goal for inventor at retail. Having comlete viibilit of the ul chain allow the manufacturing manager to take action to achieve the goal to which both artie had mutuall agreed. The DSS comute an allocation of available caacit to the SKU that are in hortet ul, thu recommending what to roduce and conequentl increaing the chance of fulfilling order without dela. The manager can initiate a ecial action to remed an alarming ituation. CONCLUSION The deciion uort tem decribed in thi aer heled achieve ignificant aving for the Marine Recruit Training Deot b imroving effectivene of one ite in a ul chain. Even greater aving could be achieved from a holitic aroach targeted at global ul chain otimization. We have begun imlementing a lan to conduct a comrehenive anali of erformance to determine how to imrove the overall tem (1). Our tud emlo a imulation model that hel determine how the individual organization hould behave to achieve bet overall erformance. Thi tud will rovide a foundation for ul chain management algorithm that can be embedded in deciion uort oftware. We exect ongoing reearch to further reduce cot b 1) aiting manufacturer in redicting order baed on the iue rate, 2) aiting inventor manager in tocking aroriate level of the right inventor item at the right deot location and 3) aiting the militar ervice b creating a flow of item into their (much maller) local inventor warehoue that cloel aroximate the flow out of thoe warehoue. A reliminar verion of ome of the technique decribed in thi aer wa reented earlier (5,6). Thi work wa uorted b The National Science Foundation (grant DMI ) and the Defene Logitic Agenc. REFERENCES 1. Beamon, B. (1999). Meauring Sul Chain Performance. International Journal of Oeration & Production Management, (19,3), Cachon, G. (1999). Managing Sul Chain Demand Variabilit With Scheduled Ordering Policie. Management Science,(45,6), Cohen, R. & Dunford, F. (1986). Forecating For Inventor Control: An Examle Of When Simle Mean Better. Interface, (16), Corbett, C., Blackburn, J. & Waenhove, L. (1999). Cae Stud: Partnerhi To Imrove Sul Chain. Sloan Management Review, Summer, Parga, R., Jarvi, C., Davi, J., Peck, J., Kernodle, J. & Luo, W. Deciion Suort for Sul Network Mana gement. Proceeding of SSGRR-2001, L Aquila, Ital, Augut 6-12, Peck, J. & Davi, J. (1999). Otimization In The U.S. Militar Sul Chain. Proceeding of the 10 th International DAAM Smoium, Editor B. Katalinic, ublihed b DAAAM International Vienna, Autria, Gardner, E. (1990). Evaluating Forecat Performance In An Inventor Control Stem. Management Science, (36,4), Lavallee, I. & Ramond, W. (1998). Utilizing Forecat Information To Drive Solutia' Sul Chain. Journal of Buine Forecating Method & Stem, (17,2), Lee, H., Padmanabhan, V. & Whang, S. (1997). Information Ditortion In A Sul Chain: The Bullwhi Effect. Management Science, (43,4),