The academic version of SCM Globe limits supply chain models to not more than 15 – 20 different Products, and a similar number of Facilities, Vehicles, and Routes. Manage these limits by creating high level models to simulate supply chain operations on a global or regional scale. Then build lower level models of specific sections of a supply chain to simulate those operations in greater detail (see the case study “Disaster Response Supply Chains” for an example of regional level and city level models in the same case).
Manage the level of detail and complexity in your model by how you define the four supply chain entities and how you set your model boundaries and scale. Tips and techniques are shown here to help you create accurate and insightful supply chain models. Also remember, “All Supply Chain Models are Approximations“, so use the best available data and estimates, but do not obsess over excessive levels of precision.
Define a product as a multi-unit case or pallet load of that product. For instance, if Product A is typically shipped in cases of 100 items, then define Product A using the price, weight and volume data for a 100 item case, not an individual item. An exception to this rule is if your product is already a large item such as an automobile or a big machine of some type. Otherwise, your supply chain model should track products at the multi-unit case or pallet load level, or even at the 40 foot shipping container level. There is no need to define the cost, weight and volume for an individual product item unless you are doing low level modeling of a part of a supply chain in great detail.
It is also useful at times to group similar products together under a single product category or “kit” (in manufacturing a kit is also known as an “assembly” or “sub-assembly”). For instance, a product labeled “Furniture C” could be a collection of similar furniture items all shipped together in a single 40 foot container. In that case you would define the Furniture C product using the price, weight; and volume numbers for an entire cargo container loaded with the product. Another product called “Home Hardware” could be a collection of related products (such as nuts, screws, hinges, door knobs, etc.) that are typically shipped together in a single standard package or kit (in automobile manufacturing an assembly might be a seat, a sub-assembly might be the instrument panel for the car). You would define this product using price, weight and volume numbers for the entire package or kit. Often it is best to define product price, weight and volume to correspond to standard sized shipping containers in which a product or a related mix of products is normally shipped. Standard shipping containers are typically 20 foot or 40 foot containers. Do a web search on “standard shipping container size” for more information.
When you open new facilities, you generally want to have a week or 10 days of products on-hand at the facilities to meet daily demand. As a practice, most companies have a bit more on-hand inventory at new facilities than they actually expect to need, but this extra amount acts as a buffer against uncertainty. After all the analysis is done, a new facility is still a new facility with no history, so there is uncertainty. On-hand amounts can always be adjusted later in simulations for following planning cycles (scroll down to TIMELINE to see more about sales and operations planning, or S&OP, cycles).
There must be at least two days of product on-hand to meet demand at any facility (new or existing). One day is needed for new supplies to reach a facility, and at least one day’s supply of product will be consumed in the “Day 0” calculations that start all simulations (scroll down to “DAY 0″ CALCULATIONS AND ADJUSTMENTS” to see more about these calculations).
Learn more about how to reduce inventory and operating costs in the section titled “Cutting Inventory and Operating Costs”
When placing facilities on the map it is best to put facilities in their actual locations if they are real facilities, and in realistic locations if they are proposed facilities. To find the location of real facilities you can type the facility address into the “Search Location” box in the upper left corner of the Edit screen and it will take you to that location. Or you can click the “Satellite” button under the Search Location box and zoom in to see the actual location in a satellite picture or street view. To find realistic locations, go to the city where you want to locate a facility and type a search phrase in the Search Location box. For instance, if you are going to open a sporting good store in Kansas City, go to Kansas City on the map and type in “sporting goods” in the search location. It will suggest various sporting goods stores in Kansas City and you can pick one.
Or turn on the Satellite view and zoom in to find industrial parks for factories and warehouses and shopping districts for stores. In the satellite view you can also locate actual harbors, airports and distribution centers for placing proposed facilities of these types. And of course you can also place facilities where none currently exist if you propose to build new facilities in such locations.
Depending on the level of detail of your model, you can have one facility stand for a group of facilities in the same geographical area, or there can be a different facility created in the model for each actual facility. For instance, if you are modeling a retail supply chain on a national or regional level, it works best to simply create one store in each city and have that one store represent all the individual stores in the city. If you are modeling a local supply chain in one city then you can create facilities in the model for all the stores in that city.
When one facility stands for a group of facilities, define that facility as having the combined storage capacities, production rates, demands, and costs of all the facilities it represents.
Assign on-hand inventory to each facility as it should be at the start of your simulation. Then as the simulation plays out, you will see how on-hand inventory changes. Assign production per day to facilities that make products (such as factories), and assign demand per day to facilities that consume or sell products (such as stores). Do not assign demand to facilities where products are only stored for delivery elsewhere (such as warehouses) because the on-hand inventory will be reduced as vehicles take products from those facilities and deliver them elsewhere. Also see “DAY 0″ CALCULATIONS AND ADJUSTMENTS section below to understand how on-hand inventory at some facilities may be adjusted at the start of a simulation.
Many individual costs associated with facilities such as: inventory carrying costs; cost of utilities, cost of insurance, cost of maintenance, cost of labor, etc. are not recorded as separate costs. Instead, they are included in the two main aggregate costs assigned to every facility. Those two main costs are Daily Rent Cost and Daily Operating Cost. Other costs such as inventory carrying costs are themselves aggregate numbers composed of costs such as: cost of capital invested in inventory; cost of rent; cost of utilities; cost of taxes; cost of handling etc. Therefore, make estimates of inventory carrying cost and other relevant costs when you calculate the Daily Operating Cost for a facility. In different 30-day periods those costs may vary so, run different simulations with those variations as you explore their effects in different 30-day periods.
At factories, daily production rates can vary. So therefore in 30-day simulations experiment with different production levels and observe what results occur. Set safety stock levels based on simulation results that reflect your best forecast of what daily production rates will actually be.
To focus your model on a supply chain that begins with a certain facility such as a factory or warehouse, you do not need to show the supplier facilities and routes that deliver products to that beginning facility. Instead, you show those incoming products as being produced at that beginning facility. Show the products as being produced at a daily rate equal to the average daily delivery of those products over a 30 day period. Relevant costs associated with the delivery or procurement of these products should be added to the daily operating cost for that facility.
The same is also true for a facility where a supply chain model ends. If you are modeling the supply chain of a manufacturer or a distributor, then the supply chain model may well end with a warehouse. In that case, show product demand at the warehouse as equal to deliveries made to retailers who get their products from that warehouse.
A template for commercial supply chains is available in the library of case studies. This template comes with a set of default products and facilities. Go to the library and scroll down to “Commercial Supply Chain Template” and import a copy into your account. You can rename and redefine the products as needed or add new products. Any extra products in the template just leave alone. Drag and drop facilities to the locations where you want them. Then rename and redefine the facilities as needed. Delete any extra products assigned to those facilities and delete facilities in the template that you don’t use. Then add vehicles and routes as needed to complete your model.
A template for disaster response / humanitarian supply chains is also in the library. This template comes with 10 predefined products, each product stands for a pallet-size container of one of the 10 classes of humanitarian supplies. These are the 10 classes of supplies defined by the World Food Program (WFP), the United Nations (UN) and other disaster response and humanitarian organizations. The icons used for the predefined facilities are the standard facility icons used by the WFP and the UN. And some of the facilities also have default vehicles assigned to them. Drag and drop facilities to place them in desired locations, add/change/delete the entities as needed. Add delivery routes for vehicles and you quickly have a supply chain model ready to simulate.
You define your vehicle as one of four types of vehicles: Airplane; Ship; Train; or Truck. This determines the kind of route that will be drawn for the vehicle when you use it in a supply chain model. Airplanes and ships will create routes that are straight lines between starting and ending facilities. Trains and trucks will create routes that follow the largest roads between starting and ending facilities. All initially drawn routes can be changed as needed using drag/drop to select other routes (see more below in Routes).
One vehicle may stand for a group of vehicles, for instance, if a fleet of 10 trucks is required to deliver products to a given facility, then simply create one vehicle that represents 10 trucks. Define that vehicle as having the combined cargo volume and weight capacities and costs of all the vehicles it represents. This vehicle will then have one route that all the represented vehicles will follow. For more detailed and lower level models you can create separate vehicles for each individual truck.
Delay Between Departures is how you set departure frequencies for a vehicle. For example, if you set the delay between departures to eight hours, it means the vehicle will travel its delivery route, return to its starting facility, and then wait for eight hours after returning before departing on its next delivery route. It is important to understand why vehicles sometimes miss deliveries, and how you can compensate for that if you wish – see more about this in Deliveries Do Not Always Work Perfectly.
Make a vehicle wait before departing on its first delivery route. In the Academic Version all vehicles depart on their routes at the start of a simulation; vehicles cannot be scheduled to wait before departing. But there is a workaround. Adjust the amount of inventory that would be added or subtracted from on-hand amounts at a facility if a vehicle did wait for some number of hours or days before departing. For instance, if daily production at a factory is 350 units per day (24 hrs) and a vehicle moving products from the factory to a warehouse waited for 72 hrs before its first departure from the factory that would allow for 350 x 3 = 1,050 extra units to build up in on-hand inventory. So add an extra 1,050 to the beginning amount of product on-hand to model a 72 hour delay. Alternatively, if demand at a store is 15 and you want to model the effect of a delivery waiting for two days from the start of the simulation, then subtract 2 x 15 = 30 units from the on-hand amount at that store at the start of the simulation.
Make a one-time delivery or pickup of products at a facility, add a vehicle that can carry the required volume and weight, and set its delay between departures to be 1,000 hours. This will cause the vehicle to depart once at the start of the simulation and deliver or pick up products to facilities specified on its route.Then it will return to its starting facility and wait 1,000 hours before departing again. That means it won’t depart again until after a 30-day simulation period is over.
When the vehicle is a ship you may want to consider special ways to model some delivery schedules. For instance: if the route a ship travels has a round trip time of two or three weeks (at average ship speeds of 30 km/hr) but you want to show shipments being made and received once a week or every few days, then increase speed of the ship vehicle so the round trip time is reduced to the time you want and set the delay between departures to be a small number such as 0.1 hrs. Now the model will record a stream of shipments leaving every week or every few days from an originating facility and arriving every week or few days at a destination facility. When you do this, be sure to set vehicle operating cost to half of normal cost to accurately model the cost of one-way shipments instead of round-trip costs.
Model shipments using a third party logistics provider (3PL), or one-way shipment of products with any kind of vehicle by reducing the shipping cost per km by one half. Use this technique when you only pay for one-way and not round-trip costs. You would not do this when modeling the use of company owned delivery trucks, or vehicles where full round trip costs are paid for.
When modeling pipeline networks (oil and gas, or water pipelines etc.) create a vehicle with a carry volume equal to the hourly or daily volume of the pipeline (for example 100 m3 per hour, or 2400 m3 per day). Name this vehicle Pipe1, Pipe2, etc. and assign it to the starting facility of the pipeline. Then draw in a route for the pipeline (use same technique as for a ship or barge route shown in the Route section below). Set the speed and delay between departure for the vehicle so it makes one trip per hour if using hourly volumes, or one trip per day if using daily volumes.
For trains, airplanes and ships you are usually working with shipping containers that are carried by these vehicles. For instance, you define a vehicle used to deliver products across an ocean as a ship, and the cargo capacity is determined by the number of shipping containers you use on that ship. If you use one standard 40-foot or 20-foot shipping container then the volume and weight of products you can ship are determined by the capacity of that container. If you need more capacity then add more containers. For instance, you can define a vehicle as being ten 40 ft. shipping containers, and this vehicle would have ten times the capacity and cost of a single 40 ft. container. Cargo carriers will tell you the cost of different sizes of containers so use that to calculate the operating cost of the vehicle you create.
Roll-on/Roll-off (RORO) is used for shipping wheeled vehicles such as cars and trucks. If you want to create a supply chain model using RORO then define the container size to be the same as the size of one or more wheeled vehicles. If you are using a RORO vessel and want to ship 100 cars and each car is 9 cubic meters in size, then define a container of 900 cubic meters and it will accommodate those cars. Cargo carriers using RORO will tell you shipping costs per vehicle so use that to calculate the operating cost for this 900 cubic meter container.
Vehicle speed equals average speed over the length of a route. This means the vehicle speed is not just the top speed a vehicle can travel. Speed is dependent on factors such as the condition of the roads on the route, the amount of traffic on the route, and the time it takes to load and unload products at stops where products are picked up or delivered. For instance, suppose a medium size truck with a top speed of 130 km/hr (about 80 mph) travels on a 100 km delivery route where some roads are in bad repair, one is a dirt road, and there are 5 stops with an average time per stop of 15 minutes. First estimate how road conditions affect speed. The truck could travel at different speeds on different sections of the route, but you might estimate the overall average speed on these roads will be 64 km/hr (about 40 mph). This means it would take 1.56 hours for a truck traveling 64 km/hr to travel the 100 km route. Then add in the time for loading and unloading products at the five stops: 5 x 15 mins = 75 minutes or 1.25 hours. Add 1.25 to 1.56 hours = 2.81 hours to complete the route.
Now you can calculate the average speed of the vehicle on this route: 100 km / 2.81 hrs = 35.59 km/hr
[When entering this data into your supply chain model it is best to round it to the nearest single decimal place. You can use two decimal places but it implies a degree of control and precision which is unrealistic for supply chains in the real world. See more about this in “All Supply Chain Models are Approximations“]
A given percentage of missed deliveries can be modeled by reducing the storage capacity of a vehicle. For instance if you want to model the effect of a 20 percent missed delivery rate over a 30-day period, then reduce the storage capacity of the vehicle by 20 percent. That means delivery amounts will also need to be reduced so that vehicle will deliver 20 percent less product on its delivery routes. This models the average effect over a 30 or 60 day period without specifying the exact days when deliveries are missed. To make up for the percentage reduction in product delivered, you will need to compensate by either making larger shipment amounts or making more frequent shipments or some combination of the two, just as you would in the real world.
A fixed cost component is added to the operating cost for each vehicle. See the “DAY 0″ CALCULATIONS AND ADJUSTMENTS section below to understand how total vehicle operating costs are adjusted at the start of a simulation.
In a supply chain model built at a global or national level, the exact path taken by a route does not have to be precisely accurate. As you create lower level models at the region or city level, it is more important to have a route follow more closely to the exact route taken in the real world. Zoom in on the map when creating the route and adjust it as needed to get this extra accuracy.
When you model the route of a ship or barge that travels up and down a river or canal or on an ocean, you start with the route shown as a straight line drawn between the originating facility and the destination facility. You will see small white globes placed at intervals along the route line. Drag and drop those small white globes as needed to make the route line segments better follow the actual path of the river or canal. When you model the route of a ship across the ocean you do the same to guide the route around land and keep it on water.
An airplane route also draws as a straight line between origin and destination facilities. As with ship routes, there are white globes displayed along the length of the route and you can drag and drop those globes to move route segments so as to route around closed airspace or make any other airplane route adjustments you wish.
If you create a truck route across water or land where there are no roads the route will also be drawn as a straight line with small white globes to drag and drop to adjust route segments to follow a proposed route. You can explore what would happen if trucks could travel such a route (perhaps you are proposing an underwater tunnel or a new bridge or road etc). People can easily see that no roads currently exist on the route you have drawn so it is up to you to explain your reasons.
When you create a railroad route it will follow the nearest road because usually the roads and railroads run close enough together. However there are times when that is not the case and you want a more accurate path for a railroad route. In that case, define the vehicle as a ship or airplane and the route will draw as a straight line between the origin and destination facilities. Then you can drag and drop the white globes along the route line to adjust the route to follow the actual rail lines more closely. When you save the route, then go back and reset the vehicle type to a train and adjust cost and operating numbers as needed.
SCM Globe allows you to designate any route to be a rail or a ship route even if there is no rail or waterway on the route because you may wish to explore the effect of a rail or water route to that destination. It is up to you to be realistic. People can easily zoom in and see for themselves if a route is really what you designate it to be. If you decide to have a train travel a route where there is no rail, or a ship travel a route where there is no water it is up to you to explain why.
Replenish product safety stock at facilities by setting product drop quantities on routes that service those facilities to be slightly higher than product demand. This practice of replenishing safety stock produces a saw-tooth pattern in the on-hand inventory graphs for products at facilities. That is because on-hand inventory starts to build up and then gets drawn down again when a missed delivery occurs and the accumulated safety stock is consumed to cover that missed delivery (learn more about interpreting patterns produced by on-hand inventory graphs in “Analyzing Simulation Data“).
Products can be picked up and dropped off at facilities. For each stop on a delivery route you can both drop off and pick up products. For instance, a vehicle may drop off X units of product A at a stop and pick up Y units of any other product at the facility where the stop is made. In this way you can model delivery routes where vehicles deliver all the products they carry to the stops on their route and return to their start location empty, or they can just deliver a portion of their products and pick up other products at the facilities where they make stops. Products in a vehicle when it returns from traveling its route will be added to the on-hand amounts for those products at the facility where the vehicle is based. The software will check to make sure you do not pickup or drop off more products than a vehicle can carry. You can also increase frequencies of product deliveries and pickups by decreasing the delay between departures for the vehicle assigned to a product delivery route.
Estimate the amount of product to deliver to a facility by using the Economic Order Quantity (EOQ). This formula is a way to estimate the best amount of product to order and when to place the order given the demand for the product at a facility. Set product delivery amounts (drop qty) at facilities to the EOQ amounts for the product at that facility (assume the EOQ amount is what the facility orders). Divide EOQ by daily demand for a product at a facility to estimate how often deliveries should be made. There is a complete explanation and example of how to use data available in SCM Globe supply chain models to calculate EOQ- see the section “Lowering Inventory and Operating Costs” — scroll down to the heading “Use Economic Order Quantity (EOQ) for Delivery Amounts and Frequencies”
[NOTE: Sometimes there is a bug in displaying route distances and travel times. For new routes, the distances and times show ROUND-TRIP, but sometimes on existing routes they show ONE-WAY numbers. This is a display problem only. The distances and times used in the simulations for new and existing routes are always ROUND-TRIP so simulation results are accurate.]
MODEL BOUNDARIES AND SCALE
Pick supply chain boundaries that best fit the needs of a project. For instance, we may decide that for our analysis a supply chain model will start with a certain factory even though that factory is supplied with raw material or component parts by other factories (the Cincinnati Seasonings supply chain is an example of this). We can just model the products produced by the factory and not worry about what was supplied to the factory to make those products. We just add the daily cost of purchasing products from suppliers to the daily operating cost for that factory.
If we are creating a more detailed model of a section of a supply chain, we may begin with a warehouse that receives products from sources outside the model. In that case, just define a daily production rate for those products at the warehouse. This models the daily delivery of those products to the warehouse without having to show where they came from. The price assigned to those products will also be recorded as an expense in the simulation data. Read more about the level of precision and the margin of error in supply chain models and simulations in All Supply Chain Models are Approximations.
When modeling sections of a supply chain we may be interested only in the part that connects factories and warehouses and not wish to show stores where the products are ultimately delivered. We can handle this by placing demand for those products at a warehouse. In this way we model the daily consumption of products without having to show where they were delivered.
When the model does include the stores that a warehouse makes deliveries to, then do not define any daily demand for products at the warehouse. Inventory levels will be reflected by the daily deliveries of products to the warehouse and shipments from that warehouse on routes starting at that warehouse. Those deliveries and shipments will determine on-hand amounts at the warehouse. If demand numbers for those products were entered at the warehouse, it would result in a double counting of the actual demand.
The time unit used by SCM Globe simulations is the hour. And results are aggregated into 24-hour days for display in the simulations. If you want to model and simulate periods longer than 30 – 60 days, you can scale the timeline. For instance, in your model one day could represent two days, or one week, or one month instead of just a day. To use this technique, adjust your model so that daily operating costs become two-day, or weekly or monthly costs. Set production and demand rates equal to two-day, weekly or monthly rates as well. And vehicle speeds also increase by a factor equal to the number of days represented by a single day in your model. For example, if you want one day to equal a week (7 days), then increase vehicle speeds by a factor of 7. See the Ancient Silk Road supply chain case study and model for an example of a supply chain model where one day equals a week.
The reverse will also work. You can make one day of a simulation equal half a day (12 hrs), or a quarter day (6 hrs), down to one hour. To do this you decrease demand and production rates, plus daily costs and vehicle speeds accordingly. For instance, if you want to model a supply chain in half day increments then then divide vehicle speeds by 2, and also divide production, demand and cost numbers by 2. To model in quarter day increments, divide these numbers by 4, and to model hour by hour then divide these numbers by 24.
Simulations are typically focused on 30-day periods, not 6-month or annual periods. This is because most supply chain professional organizations recommend a 30-day sales and operations planning (S&OP) cycle. In the S&OP process companies forecast product demand for a 30-day period because 30-day forecasts are inherently more accurate than 90-day or 1-year forecasts. High rates of change and unpredictable events in the global economy make it difficult to create accurate forecasts for periods beyond 30 days. This means companies navigate their way through an uncertain world by using 30-day forecast and planning windows.
You may wish to simulate an entire year by using a sequence of 30-day or 90-day simulations that cover a 12 month period. Do that by setting the production and demand levels in each monthly or quarterly simulation equal to what you expect those levels to be at that time of year. Set daily demand higher in times of expected higher demand and set daily demand lower in times of expected lower demand. To simulate unexpected disruptions at given times in a year or month, pick a month and run simulations with different levels of demand or production or product on-hand amounts at certain facilities and see what happens.
For instance, if you are simulating a supply chain to handle gardening products, you know demand will be higher in summer months and lower in winter months. To see how such a supply chain performs at different times of the year, set product demand at facilities to be what you expect in a typical summer month. To see how the supply performs in winter months, set product demand at facilities to expected winter levels. Or set product demand levels higher than expected for a winter month and see what happens. Adjustments each month to entities in the supply chain (products, facilities, vehicles and routes) are needed to make the supply chain run well in a high demand period versus a low demand period.
“DAY 0” CALCULATIONS AND ADJUSTMENTS
Once you create or update a supply chain model, you bring in the SCM Globe simulation engine to drive that model and see how well it performs. There are some initial calculations made by the simulation engine that affect beginning amounts of on-hand inventory for some products at some facilities. These initial calculations create the “Day 0” starting point for the supply chain at the beginning of a simulation:
- On Day 0 the facilities that have daily demand for a product have that daily demand amount subtracted from their on-hand inventory of that product.
- Vehicles leave their facilities on Day 0 with their delivery quantities which are subtracted from on-hand inventory amounts at the facility.
- If there are routes originating at a facility where products are picked up from other facilities and returned to the that facility, then the amount(s) of picked up product(s) are added to on-hand inventory at that facility.
- Monthly fixed operating costs are assigned to each vehicle at each facility.
Day 0 calculations add a fixed cost component to vehicle operating costs. This fixed cost component reflects costs such as maintenance and repairs, insurance, taxes and other administrative overhead. Fixed cost is calculated as a percentage of variable costs. Variable Cost is cost per kilometer times the number of kilometers traveled each day. The lower the cost per kilometer, the lower will be the fixed overhead cost.
Fixed costs for vehicles are front loaded at the start of each simulation. This means that over a short simulation time span such as 1 – 7 days it amounts to approximately 50 % of total vehicle costs. Over periods from 7 – 15 days, fixed cost drops to around 30 % of total vehicle cost. And by 30 days and beyond, fixed cost drops to approximately 25 % of total cost. This method of calculating transportation costs is conservative and cost estimates are more realistic than if we were to use variable costs alone.
These adjustments on Day 0 reflect the fact that, in most cases, supply chains are on-going operations that are already in motion. This means the supply chain model must make a running start into the simulation and not simply act as if all operations began on day one of the simulation. These running start adjustments do not change the overall supply chain patterns, trends or performance levels shown in the simulations. Most of the time in most supply chain models it is not worth worrying about these things.
However, in some cases you may wish to compensate for these Day 0 calculations. You can do this by adding an extra day’s amount of on-hand inventory for product demand at affected facilities. And you can subtract pickup amounts from on-hand amounts of products at affected facilities. For vehicles, you can reduce operating cost per km on selected vehicles by 25% or some other appropriate percentage. Or if you wish, you can remove the row of Day 0 data from the downloaded simulation data, and use Day 1 to Day 31 for your P&L and KPIs report.
MODELING AND SIMULATION SERVICES
Supply chain modeling & simulation, training, optimization, and risk assessment services are available through us and our consulting partners. We can work with you online or in person. Find out more by inquiring at firstname.lastname@example.org
SAVE BACKUP COPIES of your supply chain model from time to time as you make changes. There is no “undo”, but if a change doesn’t work out, you can restore from a saved copy. Also, sometimes supply chain model files (json files) become damaged and they no longer work. So you want backup copies of your supply chain to restore from when that happens.