An integrated shipment planning and storage capacity decision under uncertainty: a simulation study

Purpose – In transportation and distribution systems, the shipment decisions, fleet capacity, and storage capacity are interrelated in a complex way, especially when the authors take into account uncertainty of the demand rate and shipment lead time. While shipment planning is tactical or operational in nature, increasing storage capacity often requires top management’s authority. The purpose of this paper is to present a new method to integrate both operational and strategic decision parameters, namely shipment planning and storage capacity decision under uncertainty. The ultimate goal is to provide a near optimal solution that leads to a striking balance between the total logistics costs and product availability, critical in maritime logistics of bulk shipment of commodity items. Design/methodology/approach – The authors use simulation as research method. The authors develop a simulation model to investigate the effects of various factors on costs and service levels of a distribution system. The model mimics the transportation and distribution problems of bulk cement in a major cement company in Indonesia consisting of a silo at the port of origin, two silos at two ports of destination, and a number of ships that transport the bulk cement. The authors develop a number of “what-if” scenarios by varying the storage capacity at the port of origin as well as at the ports of destinations, number of ships operated, operating hours of ports, and dispatching rules for the ships. Each scenario is evaluated in terms of costs and service level. A full factorial experiment has been conducted and analysis of variance has been used to analyze the results. Findings – The results suggest that the number of ships deployed, silo capacity, working hours of ports, and the dispatching rules of ships significantly affect both total costs and service level. Interestingly, operating fewer ships enables the company to achieve almost the same service level and gaining substantial cost savings if constraints in other part of the system are alleviated, i.e., storage capacities and working hours of ports are extended. Practical implications – Cost is a competitive factor for bulk items like cement, and thus the proposed scenarios could be implemented by the company to substantially reduce the transportation and distribution costs. Alleviating storage capacity constraint is obviously an idea that needs to be considered when optimizing shipment planning alone could not give significant improvements. Originality/value – Existing research has so far focussed on the optimization of shipment planning/scheduling, and considers shipment planning/scheduling as the objective function while treating the storage capacity as constraints. The simulation model enables “what-if” analyses to be performed and has overcome the difficulties and impracticalities of analytical methods especially when the system incorporates stochastic variables exhibited in the case example. The use of efficient frontier analysis for analyzing the simulation results is a novel idea which has been proven to be effective in screening non-dominated solutions. This has provided the authors with near optimal solutions to trade-off logistics costs and service levels (availability), with minimal experimentation times

Modeling Overstock

Two main problems have been emerging in supply chain management: the increasing pressure to reduce working capital and the growing variety of products. Most of the popular indicators have been developed based on a controlled environment. A new indicator is now proposed, based on the uncertainty of the demand, the flexibility of the supply chains, the evolution of the products lifecycle and the fulfillment of a required service level. The model to support the indicator will be developed within the real options approach.overstock, stock management, real options

Decision support for build-to-order supply chain management through multiobjective optimization

This is the post-print version of the final paper published in International Journal of Production Economics. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2010 Elsevier B.V.This paper aims to identify the gaps in decision-making support based on multiobjective optimization (MOO) for build-to-order supply chain management (BTO-SCM). To this end, it reviews the literature available on modelling build-to-order supply chains (BTO-SC) with the focus on adopting MOO techniques as a decision support tool. The literature has been classified based on the nature of the decisions in different part of the supply chain, and the key decision areas across a typical BTO-SC are discussed in detail. Available software packages suitable for supporting decision making in BTO supply chains are also identified and their related solutions are outlined. The gap between the modelling and optimization techniques developed in the literature and the decision support needed in practice are highlighted. Future research directions to better exploit the decision support capabilities of MOO are proposed. These include: reformulation of the extant optimization models with a MOO perspective, development of decision supports for interfaces not involving manufacturers, development of scenarios around service-based objectives, development of efficient solution tools, considering the interests of each supply chain party as a separate objective to account for fair treatment of their requirements, and applying the existing methodologies on real-life data sets.Brunel Research Initiative and Enterprise Fund (BRIEF

Inventories and the Stockout Constraint in General Equilibrium

We study the implications of a stockout constraint in a dynamic general equilibrium model, which can explain both standard business cycle and inventory facts. Under this constraint, inventories and demand are complements in generating sales, and hence the optimal level of inventories increases in expected demand. We show that the inventory to sales ratio is both persistent and countercyclical because the cost of carrying inventories is mainly determined by the interest rate. We use this model to disentangle output and sales, by matching the key inventory moments, and find that preference and productivity shocks are equally important in the data. Finally, we assess whether improvements in inventory management can explain the Great Moderation. We find that, although improvements in inventory management can reduce the need for inventory holdings, which decreases output volatility relative to sales volatility, lower levels of inventories actually increases sales volatility. Because these two effects offset each other, a change in inventory management does not change output volatility to any great extent

An analysis of spending behaviour under liquidity constraints with an application to financial hedging

Imperial Users onl

Inventory and the Shape of the Earth

How important are local country conditions to firms' operations performance, as revealed in their inventory levels? Under a “flat world” hypothesis, differences in firms' inventory levels are explained more by differences among industries and firms themselves, rather than differences among country conditions (e.g., institutions, infrastructure). In a “round earth” hypothesis, country factors out-weigh firm and industry factors. Using all COMPUSTAT observations for manufacturing firms in 70 countries, covering the years 1994 through 2004, we find little evidence for the “round earth” hypothesis. In our baseline model, country effects explain at most 12.7% of inventory variance, while firm differences explain 35.5%, and industry differences explain 28.5%. This finding is robust to a number of sensitivity tests. Apart from the empirical contribution, this finding can be a useful stylized fact for further theoretical development into the locus of inventory variance. It also has a practical implication - perhaps inventory practices are much more transportable across countries than we have known before.

The cost of being landlocked : logistics costs and supply chain reliability

A large proportion of the least developed countries are landlocked and their access to world markets depends on the availability of a trade corridor and transit systems. Based on empirical evidence from World Bank projects and assessments in Africa, Central Asia, and elsewhere, this paper proposes a microeconomic quantitative description of logistics costs. The paper theoretically and empirically highlights that landlocked economies are primarily affected not only by a high cost of freight services but also by the high degree of unpredictability in transportation time. The main sources of costs are not only physical constraints but widespread rent activities and severe flaws in the implementation of the transit systems, which prevent the emergence of reliable logistics services. The business and donor community should push toward implementation of comprehensive facilitation strategies, primarily at the national level, and the design of robust and resilient transport and transit regimes. A better understanding of the political economy of transit and a review of the implementation successes and failures in this area are needed.Transport Economics Policy&Planning,Transport and Trade Logistics,Common Carriers Industry,Economic Theory&Research,Rural Roads&Transport

Choice of an ordering strategy taking into account of risks about customer service levels and on-hands inventories

This paper investigates the foundations of cooperative identity and how it is constructed by the organisation. More specifically, our research focuses on a financial cooperative in the simultaneously emerging and consolidating cultural sector. The originality of this paper lies in the methodology used—textual analysis. We use the Economies of Worth model developed by Boltanski & Thévenot (2006), which accounts for a plurality of legitimate forms of evaluation used in the processes of critique and justification.GAME THEORY;SUPPLY CHAIN MANAGEMENT;DEICSION ANALYSIS;RISK ANALYSIS;SIMULATION

Amendment of Heuts-Selen's lotsizing and sequencing heuristic for single stage process manufacturing systems

Productivity;Production Scheduling;Manufacturing;production