Simulation Models

Towill (1991) and Towill, et. al. (1992) use simulation techniques to evaluate the effects of various supply chain strategies on demand amplification. The strategies investigated are as follows:

• Eliminating the distribution echelon of the supply chain, by including the distribution function in the manufacturing echelon.
• Integrating the flow of information throughout the chain.
• Implementing a Just-In-Time (JIT) inventory policy to reduce time delays.
• Improving the movement of intermediate products and materials by modifying the order quantity procedures.
• Modifying the parameters of the existing order quantity procedures.

The objective of the simulation model is to determine which strategies are the most effective in smoothing the variations in the demand pattern. The just-in-time strategy (strategy above) and the echelon removal strategy (the third strategy above) were observed to be the most effective in smoothing demand variations. Wikner, et. al. (1991) examine five supply chain improvement strategies, then implement these strategies on a three-stage reference supply chain model. The five strategies are

• Fine-tuning the existing decision rules.
• Reducing time delays at and within each stage of the supply chain.
• Eliminating the distribution stage from the supply chain.
• Improving the decision rules at each stage of the supply chain.
• Integrating the flow of information, and separating demands into real orders, which are true market demands, and cover orders, which are orders that bolster safety stocks.

Their reference model includes a single factory (with an on-site warehouse), distribution facilities, and retailers. Thus, it is assumed that every facility within the chain houses some inventory. The implementation of each of the five different strategies is carried out using simulation, the results of which are then used to determine the effects of the various strategies on minimizing demand fluctuations. The authors conclude that the most effective improvement strategy is strategy (5), improving the flow of information at all levels throughout the chain, and separating orders.