DESIGNING TWO-ECHELON SUPPLY CHAIN USING SIMULATION AND PRICING STRATEGY

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1 DESIGIG TWO-ECHELO SUPPLY CHAI USIG SIULATIO AD PRICIG STRATEGY Seyed ohammad ahd Kazem (a), Peyman Tak (b), Seyed ohamad kazem (c) (a) Department of ndustral engneerng, Damavand Branch, Islamc Azad Unvesty, Tehran, Iran (b) Department of ndustral engneerng, Damavand Branch, Islamc Azad Unvesty, Tehran, Iran (c) Department of ndustral engneerng, Lenan Branch, Islamc Azad Unvesty, Isfahan, Iran (a) (b) (c) ABSTRACT In ths paper a two- echelon supply chan, ncludng manufacturers and retalers have been consdered. We have opened centers for manufacturers and retalers to set; we also consdered how to determne the allocaton of supplers to retalers and the order amount of each retaler to maxmze the whole proft of the supply chan. Our strategy n ths paper s to determne the proft consderng the unt prce and revenue sharng; we also used smulaton to estmate the transportaton cost n the supply chan. Transportaton cost for each vehcle s regarded wth dfferent costs durng the loadng, unloadng and ourney events accordng to dscrete event smulaton. Defned model for supply chan has been solved by smulatng annealng (SA) algorthm. Keywords: Supply chan, Dscrete-event smulaton, Smulated Annealng, Prcng. ITRODUCTIO A supply chan (SC) conssts of all companes nvolved n the procurement, producton, dstrbuton and delvery of a product to a customer. Because dfferent economc enttes partcpate n the SC, t s sgnfcantly more complcated to manage than a sngle organzaton (Chaharsoogh and Heydar). From an operatonal perspectve, SC s to effectvely ntegrate supplers, manufacturers, warehouses, and stores, so that merchandse s produced and dstrbuted at the rght quanttes, to the rght locatons, and at the rght tme, n order to mnmze system wde cost whle satsfyng servce requrements (Smch-Lev, Kamnsky et al. 2003).Revenue management s the use of prcng to ncrease the proft generated from a lmted supply of supply chan assets. To ncrease the total margn earned from these assets, managers must use all avalable levers, ncludng prce. Revenue management adusts the prcng and avalable supply of assets to maxmze profts. Revenue management has a sgnfcant mpact on supply chan proftablty when one or more of the followng four condtons exst:. The value of the product vares n dfferent market segments. 2. The product s hghly pershable or product wastage occurs. 3. Demand has seasonal and other peaks. 4. The product s sold both n bulk and on the spot market (Sunl 200). As supply chan members are often separate and ndependent economc enttes, a key ssue n SC s to develop mechansms that can algn ther obectves and coordnate ther actvtes so as to optmze system performance (L and Wang 2007). Coordnaton wthn a supply chan s a strategc response to the problems that arse from nterorganzatonal dependences wthn the chan. A coordnaton mechansm s a set of methods used to manage nterdependence between organzatons. Gven the ncreasng mportance of hghperformance supply, and the advantages to be ganed through supply chan coordnaton, the challenge to an organzaton s how to select the approprate coordnaton mechansm to manage organzatonal nterdependences (Fugate, Sahn et al. 2006; u and Beamon 2006). Supply chan coordnaton mproves f all stages of the chan take actons that together ncrease total supply chan profts. Supply chan coordnaton requres each stage of the supply chan to take nto account the mpact ts actons have on other stages. A lack of coordnaton ether occurs because dfferent stages of the supply chan have obectves that conflct or because nformaton movng between stages s delayed and dstorted. Dfferent stages of a supply chan may have conflctng obectves f each stage has a dfferent owner. As a result, each stage tres to maxmze ts own profts, resultng n actons that often dmnsh total supply chan profts (Sunl 200). Today, n many papers lke another paper of same authors n varous areas the smulaton s used(kazem and Tak 202; Tak and Kazem 202). One of the powerful tools s dscrete-event smulaton (DES) model. Companes and manufacturers can use t to perform analyses to estmate the mpact of ther decsons performance on the overall before they made any real system changes(kazem and Tak 202). Proceedngs of the Internatonal Conference on Harbor artme and ultmodal Logstcs &S, 202 ISB ; Bruzzone, Gronalt, erkuryev, Pera, Talley Eds. 70

2 2. PROPOSED ODEL 2.. Problem defnton Consder a two-echelon supply chan, ncludng supplers and retalers; there are some predefned place to set up Supplers and retalers, suppler (manufacturer) produces the product nternally under capacty lmts. We have one knd of product and all vehcles are the same, The average cost of transportaton depends on travel tme, mean of watng tme, and the servce of loadng and unloadng queues. In our smulatons, we solve the followng four events:. The event of travelng from suppler to retaler 2. The event of travelng from retaler to suppler 3. End of unloadng event for 4. End of loadng event for 2.2. Equatons, Fgures and Tables Each open retaler can only connect to one suppler. Demand s a functon of prce and vares for each retaler lnearly. The product unt sales prce s the same for the entre chan. Determnng whch of and are open and ther relatonshp. Determnng the product unt prce Determnng the order amount of any to. Table : otatons Index anufacturer s Index (,2,,) anufacturer s Index (,2,,) Parameters D(P) C h A Qr B E CAP Decson Varables U V Demand functon of each retaler Unt producton cost of producng product Inventory costs per unt of product for retaler Fxed orderng cost retaler axmum capacty of transportaton Fxed setup cost of manufacturer Fxed setup cost of retaler Producton capacty of Exstence or nonexstence of communcaton between manufacturer and retaler anufacturer s open or closed ( f t s open, otherwse 0) Retaler s open or closed ( f t s open, otherwse 0) P Q Product unt sales prce (fxed value for the entre chan) Order of each retaler The transportaton costs per unt for transportaton from manufacturer to retaler (It s obtaned by DES) Demand s a functon dependng on the prce and defned for each retaler as: α β P 0 P α / β D = 0 P α / β () Obectve Functon. axf = = = D A V Q EV = Subect to: = U PD( PV ) V = = = Q D CD UV UV = = Qr Q =, Q h V 2 BU There s relatonshp between and f they are open, t means Each retaler can only be connected to a suppler but the suppler can be connected to multple retalers. = Q V, U P,Q, 0 U V CAP { 0,}, It should be noted that the amount of Q s determned due to Economcal order Quantty (EOQ). The frst term of obectve functon s the amount of sales, the second s producton costs n manufacturer open centers, the thrd s nventory costs n open retaler centers, the forth s order cost for any open retaler, The 5 th s Total transportaton cost, the 6 th s The cost of settng up manufacturng stes and the last s the cost of settng up retalers. functon for every manufacturer and retaler s obtaned from dscrete event smulaton. (2) (3) (4) Proceedngs of the Internatonal Conference on Harbor artme and ultmodal Logstcs &S, 202 ISB ; Bruzzone, Gronalt, erkuryev, Pera, Talley Eds. 7

3 Fg. Flowchart of the smulaton model for end of loadng event To obtan : Loadng tme n all the manufacturers are the same and have normal dstrbuton wth mean of 20 mnutes and varance of 5 mnutes. Unloadng tme n all the retalers are the same and have normal dstrbuton wth mean of 5 mnutes and varance of 3 mnutes. Travelng tme wll be dvded nto fve groups wth unform dstrbuton: -U(20 mn,50 mn) -U(00 mn,30 mn) -U(70 mn,90 mn) -U(30 mn,50 mn) -U(90 mn,0 mn) Fg.2 Flowchart of the smulaton model for end of unloadng event 3. RESULTS We use SA algorthm to obtan an optmum soluton of the obectve functon. The fnal result for the frst obectve was As can be seen the stable soluton s reached. To ensure an accurate answer, we compare the optmal soluton wth Genetc Algorthm(GA). As you see n Fg 2, the optmzng trend Proceedngs of the Internatonal Conference on Harbor artme and ultmodal Logstcs &S, 202 ISB ; Bruzzone, Gronalt, erkuryev, Pera, Talley Eds. 72

4 Fg. 6 The Comparson of SA algorthm soluton wth the Genetc Algorthm soluton Fg.3 Flowchart of the smulaton model for end of travelng event from to Fg.4 Flowchart of the smulaton model for end of travelng event from to Fg.5 The results of usng SA to fnd optmum soluton 4. COCLUSIO owadays, many cases such as dsrupton, dsasters, Pershable materals problem and some other topcs are mportant for supply chan and prcng. In hs paper, a two echelon supply chan has been desgn wth regards to a assgnment-order-prcng model. It has been consdered that transportaton cost for each vehcle s not a parameter. Therefore, dscrete event smulaton s used to evaluate the cost. Due to the mportant role of rsk n supply chan, t s recommended to add rsk mnmzaton as an obectve functon. For next researches, we suggest to use the mult-obectve models consderng rsk as an obectve functon. REFERECES Chaharsoogh, S. K. and J. Heydar "Strategc Ft n Supply Chan anagement: A Coordnaton Perspectve." Fugate, B., F. Sahn, et al. (2006). "Supply chan management coordnaton mechansms." Journal of Busness Logstcs 27(2): Kazem, S... and P. Tak (202). Dscrete event smulaton of Packed groceres logstcs supply system th Internatonal Conference on Computer odelng and Smulaton (ICCS 202). HongKong, IPCSIT. 22. L,. and Q. Wang (2007). "Coordnaton mechansms of supply chan systems." European Journal of Operatonal Research 79(): -6. Smch-Lev, D., P. Kamnsky, et al. (2003). Desgnng and managng the supply chan: concepts, strateges, and case studes, Irwn/cGraw-Hll. Sunl, C. (200). Supply Chan anagement, 4/E, Pearson Educaton Inda. Tak, P. and S... Kazem (202). A THREE ECHELO SUPPLY SYSTE: A DISCRETE EVET SIULATIO th Internatonal Conference on Computer odelng and Smulaton (ICCS 202). HongKong, IPCSIT. 22. Proceedngs of the Internatonal Conference on Harbor artme and ultmodal Logstcs &S, 202 ISB ; Bruzzone, Gronalt, erkuryev, Pera, Talley Eds. 73

5 u, L. and B.. Beamon (2006). "Supply Chan Coordnaton and Cooperaton echansms: An AttrbuteBased Approach." Journal of Supply Chan anagement 42(): 4-2. AUTHORS BIOGRAPHY Seyed ohammad ahd Kazem was born n Tehran, Iran and went to the Iran Unversty of Scence and Technology, where he s studng Industral Eng as PHD Canddate. Hs e-mal address s :mo.kazem@gmal.com Payman Tak was born n Esfahan, Iran and went to the Iran Unversty of Scence and Technology, where he s studng Industral Eng as PHD Canddate. Hs e- mal address s. Proceedngs of the Internatonal Conference on Harbor artme and ultmodal Logstcs &S, 202 ISB ; Bruzzone, Gronalt, erkuryev, Pera, Talley Eds. 74