The Optimal Model of the Production Planning with Demand Uncertainty for Fast Moving Consumer Goods

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1 Mgag Zeg, Shuag L, Xaofa Zhuag 253 The Optmal Model of the Producto Plag wth Demad Ucertaty for Fast Movg Cosumer Goods Mgag Zeg, Shuag L, Xaofa Zhuag * School of Busess Admstrato South Cha Uversty of Techology, Guagzhou, Guagdog, Cha * lslp23@26.com Abstract: Producto pla s the hub of producto maagemet actvtes, so correct ad effectve producto plag maagemet s the key pot to guaratee the mprovemet of producto effcecy ad ecoomy of the fudametal. Ths paper focuses o fast-movg cosumer goods dustry, ad establsh a dyamc smulato model of producto plag for fast-movg cosumer goods producto plag uder the ucertaty of demad, takg the level of servce ad vetory as the dexes, whch s effectve for the FMCG dustry; through the smulato of 24 dfferet cases of the complex system, the paper acheves the results of the combatos of the adjustmet of 3 factors, whch esure the hgher value of PFR ad lower value of AID. Fally, based o the aalyss ad calculato of a example, the results dcate that the above models ad methods are effectve ad ratoal. Keywords: Producto plag; Dyamc smulato; Demad ucertaty; Fast movg cosumer goods I. Itroducto Supply cha maagemet s becomg creasgly mportat as ecoomc globalzato ad the ever chagg cosumers' demad ad the competto of the market become more ad more severe. Over the years, may of the operatoal lks betwee the upstream ad dowstream are out of touch wth each other. The proft of corporatos s plummetg, but sales have bee rsg all the tme, wth hgh vetory ad hgh possblty of out of stock. Eterprses are facg the problem to predct ad the usatsfactory results to forecast ad the dffculty to pursue a hgher level of servce ad lower vetory levels. The researches of demad forecastg are as follows: () the ucertaty the demad: Forrester [] foud the varace of the demad spreads ad grows alog the supply cha ad preset a way whch s based o system dyamcs model orgazatoal behavor to overcome t. Lee [2] (997) made a major breakthrough the research of ucertaty of the supply cha, ad proposed to study the supply cha as a whole to overcome the ucertaty. Frak Che [3] (2) studed the bullwhp effect from the quattatve pot ad poted out the sze of the bullwhp effect s determed by the chage of market demad ad the legth of order cycle. Rcardo [4] (2) poted out the safety stock vetory leads to the crease amout of the stock ad the tesfcato of the bullwhp effect. SM Dsey [5] (23) proposed to use VMI (Veder Maagemet Ivetory) to maage the vetory, whch ca reduce fluctuatos demad ad suppress the bullwhp effect. Coway (988) [6] studed the use of system smulato of buffer stock to mprove the performace of producto systems. S. Seljuk. Ereguc(999) [7] studed the problems of Producto dstrbuto tegrato schemes the supply cha ad propose to see the supply cha problem as a mult-stage, mult-product, ulmted capacty lear vetory problem. Robt Bhatag (993) [8] studed the vertcally tegrated frms how to coordate the mult-plat producto ad dstrbuto. Wllams (98) [9] took to accout the producto - dstrbuto of the jot program a complex etwork evromet ad proposed usg dyamc programmg method to solve the problem. Blumefeld (987) [] study the ssues of the producto - dstrbuto repleshmet plag of a parts plat. Beetto (Sgorell ad Keskett), Wht [], Lee ad Tag [2] foud that delays producto strateges ad techology uder dfferet codtos ca crease the effect of producto flexblty ad reduce the upper reaches of safety stock ad forecast error. MA Sh-hua et al [3] aalyzed the supply cha evromet, producto plag ad cotrol system whch serves the cocept of expaso. Che Zh-xag et al [4] aalyss the exstg producto plag ad cotrol model ad the deologcal gap betwee the supply cha.gu Xg-sheg (2) [5] gave a descrpto of methods of ucertaty o the producto process. Shuag Bg ad GU Xg-sheg [6] (24) maly studed the problem of a cotuous producto process schedulg. Professor Zhou Qg poted out that Cha's tradtoal chaels of fast movg cosumer goods dustry s effcet ad eed to establsh re -Co-chael mode. Dog u Ch poted out t s mportat to pay atteto to the target market ad the effcecy whe t s to select chael members. Lu ag ad Che Bg-Bg poted out that the eterprses of fast movg cosumer goods dustry the supply cha lack of Collaborato. Despte there s a actve explorato of the ucertaty of supply cha ad producto maagemet, t stll has the followg problems: )there s a great deal of research the demad ucertaty ad producto maagemet, but few studes o fast movg cosumer goods dustres; 2)these researches are The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2

2 254 Mgag Zeg, Shuag L, Xaofa Zhuag ether to solve demad Ucertaty,or mprove forecastg models, or to seek to mmze vetory costs, whle there are few study takg both servce level ad vetory levels as a measure dcato; 3)the curret research o the demad ucertaty of fast movg cosumer goods producto plag s relatvely few. Ths paper wll focus o the demad forecasts the backgroud of fast movg cosumer goods, takg both vetory levels ad servce levels as dcators. Frst of all, troduce the ucertates ad the relevat theores of fast movg cosumer goods; The set up a eterprse producto plag model accordg to the mode of the operato of fast movg cosumer goods, wth the aalyss of varous factors, basg o demad forecasts, takg servce levels ad vetory levels as a dex; Fally, compare the dcators of demad forecasts geerated by dfferet processg methods ad get optmzato of the cotrollable varables ad the summary of model aalyss. II Problem descrptos Descrpto of ucertaty Ucertaty refers the factors whch are out of plag staff's cotrol durg the preparato ad mplemetato process of a pla. It mpacts the producto pla three aspects whch cludes predcto, procuremet ad order fulfllmet. Geeral, the forecast error of 6 weeks s about %, 2-3 weeks up to 4%.Demad ucertaty parameters are dvded to subjectg to uform dstrbuto, ormal dstrbuto ad expoetal dstrbuto of probablty dstrbutos. The probablty dstrbuto of parameters ca be obtaed through the aalyss of hstorcal data ad market forecasts; 2 actual producto, parameters may be located wth a certa rage, whch ca be obtaed through the collato ad aalyss of hstorcal operatg data ad market θ θ, θ m θ max, ad m, forecasts, that s [ ] θ max are the lower ad upper lmt of Possble values for the parameters; 3The demad ucertaty varables are dscrete values whch are the ma falure of equpmet, strumets, strumet falure, or msuse etc. I practce, whe dealg wth dyamc feedback strategy the evet of falure to detect a tmely maer, re-optmze the calculato of the schedulg model, order to esure the optmalty of the schedulg scheme. Descrpto of Fast Movg Cosumer Goods Fast Movg Cosumer Goods(FMCG,),are those wth shorter servce lfe, or (PMCG),ad they focus more o packagg, bradg ad mass, relyg o cosumers' hgh-frequecy repetto use, ad the sze of the market to get the amout of proft. The characterstcs of fast movg cosumer goods determe the habts are smple, rapd, mpulsve, emotoal, whe cosumers buy FMCG. The cosumpto cycle of FMCG s short, ad cosumers eed to complemet the FMCG tmely after cosumpto of the goods. These factors determe that the supply cha must have a fast respose speed ad strog syerges. Thus, combg wth ever chagg cosumer demad, maufacturers eed to collaborate wth each other the supply cha to buld a good supply cha relatoshp. At preset, the domestc FMCG eterprses lack of maagemet of products demad ad the forward sght the supply cha. Furthermore, all aspects of the supply cha lack of two-way commucato wth each other the supply cha. Owg to the asymmetrc formato of the upstream suppler capacty ad vetory, whch leads to stablty of supply ad demad, there are such abormal pheomea that wth costat demad orders, there are stll excess vetory ad hgh rates of out of stock. As the eeds of fast movg cosumer goods ad chage over tme, ths kd of demad ca easly result stablty of the backlog of vetory, or supply shortage. Therefore, there s a badly eed of the mplemetato of dyamc respose to fast movg cosumer goods vetory repleshmet. Producto plag departmet, whe makg a product pla, must also have greater flexblty, ad the fracto of Supply Cha Improvemet s show Fgure Fgure the fracto of Supply Cha Improvemet As s show fgure, t s represeted that the servce ad vetory level are dffcult to mprove smultaeously. If t s to mprove the servce level, the vetory level wll crease. Cosderg evromet factors, such as demad patter, repleshg lead-tme, forecast varace ad so o, t becomes eve harder to get the balace betwee servce level ad vetory level. Factors of producto pla ) Producto pla s to set out producto tasks ad schedulg whch a eterprse should be completed wth the plaed perod. Ad the most mportat thg s syergy ad formato sharg amog the varous departmets dfferet eterprses. Compaes are requred to cotrol producto capacty to meet the chagg eeds of the The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2

3 Mgag Zeg, Shuag L, Xaofa Zhuag 255 producto orders. Predcto whch based o accurate hstorcal ad curret data, wth the use of pror kowledge, experece ad scetfc methods, s to determe the future developmet tred of requremets. The theores ad methods to predct are as follows: extrapolato, correlato, aalytcal method, regresso aalyss, tme seres, eural etwork method, gray theoretcal predcto, Wavelet aalyss ad forecastg, expert systems approach, aalyss ad forecastg law. 2)Geerally, eterprses use vetory or servce level to measure the level of eterprse maagemet, especally the fast movg cosumer goods dustry, these two dcators s partcularly mportat. I ths paper, vetory levels are formulated terms of avalablty days of the suppler ad the level of servce terms of the out of stock rate. Ivetory levels (supply days, SD): SD /S; : the umber of the stock of fshed products at ed of perod; S: average daly sales of fshed products; Servce levels (out of stock rate, OSR): OSR the umber of clets / suppler umber % 3)lead tme(lt), s the tme from the start of a job to the ed, that s to say, operato tme or operatg hours. Lead Tme maagemet s the quattatve form of maagemet of producto operatos ad maagemet operatos. Lead tme s determed by the producto cycle ad producto batch szes. Geerally, the shorter lead tme s the less safety stock to be prepared to deal wth emergecy stuatos s. 4)Producto cycle s the producg terval of each of the fshed products, after balacg all aspects of the costs of a corporate, whch s Maly affected by devce characterstcs, the mpacts of the operatg costs of storage. I order to esure shelf-lfe ad to acheve market share growth, FMCG clets make a regular orders, ad provde rollg forecasts of demad through the ERP systems to commucate wth maufacturers to work together to create better servce.mmum Order Quatty (MOQ)s the umber of the producto of a batch put or produce the same kds of products (parts). MOQ Average demad per week * Cycle III Mathematc Model The assumptos ad codtos of the model I the research of producto plag of the fast movg cosumer goods uder ucertaty eeds, cosderg the characterstcs, assumptos are as follows: ) the producto model s demad-oreted based o forecastg, ad the producto plag s made by forecastg demad. Ad the producto departmet should cotue to supplemet producto access to dstrbuto, durg the marketg perod utl the ext producto cycle bega, ad costatly rollg. Oe of the producto cycles s show Fgure 2. Fgure 2 producto cycles 2)Demad Plag data s provded by the dowstream sectors (such as sales departmet),ad the producto sector to produce accordg to eeds of the producto plas ad to make adjustmet or ot based o the marketg perod; 3)Adequate supply of raw materals, producto equpmet fucto a good codto to produce accordg to pla; 4)Ulmted capacty, ad the product ca be produced at the expected tme ad wll ot tme out; 5)Take a sgle pece satsfacto rate as oe of the measure dcators, ad corporate to a sgle product. Producto plag departmet s resposble for fshed goods dstrbuto etwork the complemet of producto plag. 6)Mult-varety small-batch producto s ot affected by the packers sze, assumg packer sze. The defto of varables Ths model s the smulato of the producto plag process of fast movg cosumer goods dustry, volvg multple put varables ad output varables, as well as the process.) The ma cotrol varables (put varables) of the model, α : Adjustmet factor of demad forecastg; β : Adjustmet factor of the producto pla forecastg based o actual sales 2) The evromet parameters of supply cha system Forecast:Demad forecasts provded by sales departmet; MPQ: M Producto Quatty SpltRate : T the I th dstrbuto rate of dstrbuto ceters. SpltRate Factory Headquarters, 2... The Ith Dstrbuto Ceter LastIv :Plat vetory of the ed of last cycle; LastIv : The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2

4 256 Mgag Zeg, Shuag L, Xaofa Zhuag The vetory of the I th dstrbuto ceters of last cycle, ad, 2 ;Iv :the curret vetory of the plat; Iv : the curret vetory of the I th dstrbuto ceters, ad, I,2...;Ivtotal: all the of the vetory,order(t):the total umber of customer orders T tme perod. T s for a specfed perod of tme, T s the forecast perod, T s the check pot I, Adjust : the adjusted ad determed producto of the dstrbuto ceter I based o the sale of each ceter. I,2, Resplt : The adjustmet of the sale plas based o the sales of the varous dstrbuto ceter I, durg the sales perod. The assg the rest of the vetory to the varous dstrbuto ceters I a certa weght w (),,2,. t: The start of the sales perod, tj the adjustg pot of the producto pla durg the sales perod, t3: The ed of the sales perod, j2. 3) The performace dcators of the Supply cha I ths paper, the process of modelg maly uses vetory level ad servce level as the output dcators. Ad vetory levels are measured terms of AID as a measure dcator of Ivetory levels. Servce Levels are measured terms of PFR (Pece Fulfll Rate) ad Shortage. ShortageDs s used to descrpt the curret volume of shortage of each dstrbuto ceter 4) Other output parameters (termedate parameters) etds : The actual eeds of plaed producto capacty of each dstrbuto ceter ProdQ: The frst post-producto yelds whch s determed after forecastg etreds : The actual eeds of repleshmet of products of each dstrbuto ceter. ReProdQ: The repleshmet of products after AdjustDs. SpltRate() Q Q *α*spltrate() >LastIv() etds()q *α*spltrate() -LastIv()+Order() (etds α Pr odq max (etds ) LastIv, MPQ Order ) > LastIv Iv LastIv + Pr odq Iv LastIv Iv ( t2) Iv ( t) Order ProdQ-Order >Iv (t2) etds()prodq*β*spltrate()- Iv (t2)-order β etds() ProdQ Iv LastIv etds() Smulato model of Producto plag etds Forecast * SpltRate LastIv () T s the forecastg perod ad etds ; max ( etds, ) LastIv whe etds LastIv > Pr odq (2), whe etds LastIv Iv LastIv + LastIv + Pr odq Iv (3) et Re ds, Re Iv whe et ds Iv > Re prodq (4), whe et Re ds Iv Shortage Order( T ) max( forecast, Adjust ) (5) PFR(-Shortage/Order (T))*% (6) LID Ivtotal /(Order/3)*% (7) The model to 7 s used the optmzato of the process. Ad the optmzato dagram of producto plag s show Fgure3. (etds (t2)) > LastIv ( t2) Pr odq 2 max (etds (t2)) LastIv ( t2), MPQ Shortage AID Shortage Iv LastIv + Pr odq shortage ext(t3 t4) Order2 order3 ProdQ2 Iv LastIv Iv ( t2) LastIv ( t2) (Order(t )) Iv ( t ) > (shortage ); Demad (Iv (t ) / Demad; PFR shortage/ Demad (Order ) γ shortage Fgure3 Optmzato dagram of producto plag The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2

5 Mgag Zeg, Shuag L, Xaofa Zhuag 257 the frst -5 days, Q ad β occur 6th-2th days, Q2 ad γ IV umercal Example occur 2st-3th days, Q3 the ed of the perod; tal vetores are, that s LastIv, LastIv (,2,3), Mathematcal smulato Q forecasted by market departmet s.i the calculato Use mathematcal smulato method to smulate the process, by cotuous adjustmet of α, β ad γ, where α process of producto plag based o the model (,), β (,), γ (,2 ),ad Q (chage of orders mpacts assumptos ad Pror kowledge by programmg tools Q),the dcator of vetory levels-aid ad servce of Vsual Basc (VB). FMCG promotos perod s levels-pfr ca be observed the dfferet 24 cases by assumed to be 3 days ad lead tme,q ad α occurs smulato. The correspodg chages of AID ad PFR are show Table. Table The smulato results of mathematcal model Case Quatty α β γ AID PFR Q>Q>Q2>Q % Q>Q>Q3>Q % Q>Q2>Q>Q % Q>Q2>Q3>Q % Q>Q3>Q>Q % Q>Q3>Q2>Q % Q>Q>Q2>Q % Q>Q>Q3>Q % Q>Q2>Q>Q % Q>Q2>Q3>Q % Q>Q3>Q>Q % Q>Q3>Q2>Q % Q2>Q>Q>Q % Q2>Q>Q3>Q % Q2>Q>Q>Q % Q2>Q>Q3>Q % Q2>Q3>Q>Q % Q2>Q3>Q>Q % Q3>Q>Q>Q % Q3>Q>Q2>Q % Q3>Q>Q>Q % Q3>Q>Q2>Q % Q3>Q2>Q>Q % Q3>Q2>Q>Q % As ca be see from Table, the obtaed value of the PFR > 95%, the reaso ot to select % s that the γ values (.5, 2), t s dffcult to guaratee all of the PFR reach %. For example, whe Q, Q 3, Q2 5, Q3 25, the best result s α.3, β.8, γ.9, PFR.84, AID Therefore, the rule to select PFR Table 3 s that frst guarateed PFR>.95, ad the seek the mmum AID from all the cases elgble. Results aalyss )As s show Table, the satsfed combato strategy,a s smaller tha both β ad γ, whle the value of γ s maxmum the three. I the servce levels (PFR of sgle product) values < %, that s out of stock stuato occurs, whle AID s very hgh, whch maly due to the calculato the ed of perod. Ivetores the factory ca ot be shpped to varous dstrbuto ceters, whch results shortage of some ceters ad vetory backlog other ceters. 2)Ay projectos, that s, regardless of whether the predcted value s greater tha actual sales or ot, there wll stll be The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2

6 258 Mgag Zeg, Shuag L, Xaofa Zhuag some cases of whch the value of PFR s smaller the %. Whe dog the data aalyss, ths paper foud that, despte the predcted value s larger tha actual sales, there are some cases PFR<%, whch maly due to calculate AID ad PFR the ed of perod ad the ueve dstrbuto of products. It s hard to replesh the shortage to the dstrbuto ceter at the ed of the sales perod. 3)Draw a dagram wth data Table to fd the relatoshp amog α, β, γ, PFR ad AID. As s show fgurer 4, the relatoshp ca be foud that a spreadsheet of 24 cases, the satsfed combato strategy s value of α s smaller tha the value of β ad γ, whle the actual value of sales forecasts of γ s hgher tha the other two dcators. Ad whe Q devates from the ormal value, as s show Fgurer 5, the value of β ad γ ca reach beyod. Fgurer 4 the tred of α, β ad γ for the optmzato of PFR ad AID of 24 cases ⅤCoclusos Producto pla s the hub of producto maagemet actvtes, so correct ad effectve producto plag maagemet s the key pot to guaratee the mprovemet of producto effcecy ad ecoomy of the fudametal. Ths paper ) Establsh a dyamc smulato model of producto plag for FMCG producto plag uder the ucertaty of demad, takg the level of servce ad vetory as the dexes, whch s effectve for the FMCG dustry; 2) Through the smulato of 24 dfferet cases of the complex system by the combatos of the adjustmet of 3 factors, the result dcates that geeral, α (.3,.5), β (.6,.9), γ (.8,.5); but whe there are greater volatlty of the demad, α (.4,.6), β (.9,.2 ), γ (.5,2) whch ca esure that hgher value of PFR whle lower value of AID. But there are may types of products FMCG wth a log lead tme, ad the demad ca be partcularly volatle, whch has ot yet bee studed deeply ad eed to be studed the ext phase of the research. Ackowledgemets Facal support from project of SFC, project of GDSFC, the Fudametal Research Fuds for the Cetral Uverstes, SCUT ad project 8JA6325 of MOE of P. R. Cha are gratefully ackowledged. Refereces [] []Forrester J W. Idustral Dyamcs [M]. Cambrdge: MIT Press, 96 [2] H.L Lee, V Padmaabha, S.Whag. Bullwhp effect a supply cha, Sloa Maagemet Revew, 997, 38:93-2 [3] Frak Che, Drezer Z, Rya K, Quatfyg the bullwhp effect a smple supply cha: the mpact of forecastg, lead tmes, ad formato, Maagemet Scece, 2, 46(3): [4] Rcardo.E, Barda.K, Evaluato of Supply Cha Structures through Modularzato ad Postpoemet. Europea Joural of Operatoal Research, 2, 24: [5] S.M. Dsey, D.R. Towll. The effect of vedor maaged vetory (VMI) dyamcs o the Bullwhp Effect supply chas, It. J. Producto Ecoomcs,23, 85:99-25 [6] Coway, R, W. Maxjvell, J.O. McCla, ad L.J. Thomas, The Role of WIP Ivetory Seral Producto Les [J].Operatos Research : [7] S.Selcuk Ereguc. A effcet heurstc procedure for practcal desg ad sze capactated warehouse maagemet.decso Scece. 999: [8] Robt Bhatagar. A dua based algorthm for multproduct ucapactated faclty locato. Trasportato Scece (3):98-26 [9] Wllams. A modelg framework for supply cha maagemet uder ucertaty [J].Europea Joural of Operatoal Research. 98. ():4-26.Hh [] Blumefeld etal.reducg the cost of demad ucertaty through accurate respose to early sales.operatos research : [] Wht T M. Ivetory cotrol ad prce theory [J]. Maagemet Scece, 955(2):6-68.H [2] ]Lee Tag HICS.Varablty reducto through operatos reversal [J].Maagemet Scece, 998, 62-72H [3] Che Zhxag, Ma Shhua, Che Rogqu. Producto Plag & Cotrol System Oretated for Supply cha [J]. Hgh Techology Letters, 2.9 [4] Che Zhxag, Wa ufeg, Ma Shhua. Maagemet Mechasm of Suplly Cha Producto Plag ad Cotrol [J].Idustral Egeerg ad Maagemet, 2, 2: [5] Gu Xgsheg. A Survey of Producto Schedulg uder Ucertaty [J]. Joural of East Cha Uversty of Scece ad Techology. 2, 26(5): [6] Shuag Bg, GU Xgsheg. Schedulg for Cotuous Producto Processes wth Demad Ucertaty [J]. Joural of East Cha Uversty of Scece ad Techology, 24,3(2):83-87H [7] Cao Webg, He Jamg. Strategy Aalyss of Cooperato ad Competto [J]. Joural of Idustral Egeerg ad Egeerg Maagemet.22, 6(2):57-59H [8] Lee Tag HICS. Varablty reducto through operatos reversal [J].Maagemet Scece, 998, 62-72H [9] Lu Lwe. Survey o evoluto of SCM theory ad methods [J].Joural of Maagemet Sceces Cha, 23 6(2):8-88 [2] Zhou ogwu. A Quatty Dscout Model for Two-Echelo Supply Cha Coordato uder Stochastc Demad [J].Systems Egeerg-Theory & Practce 26,7:25-32 The 4 th Iteratoal Coferece o Operatos ad Supply Cha Maagemet, Hogkog&Guagzhou, Jul.25 to Jul.3, 2