Supply Chain Design: Guidelines from a Simulation Approach

Abstract

Supply chain management (SCM) is the process of integrating suppliers, manufacturers, warehouses, and retailers in the supply chain, so that goods are produced and delivered in the right quantities, and at the right time, while minimizing costs as well as satisfying customer’s requirements (Cooper et al., 1997). Managing the entire supply chain is a key factor for a successful business. World-class organizations now realize that non-integrated manufacturing processes, non-integrated distribution processes and poor relationships with suppliers and customers are inadequate for their success (Chang & Makatsoris, 2001). A typical supply chain consists of a number of organizations; it starts with suppliers, who provide raw materials to manufacturers, which manufacture products and keep the manufactured goods in the warehouses. Then, products are sent to distribution centres and shipped to retailers. Due to the complexities of supply chain and to the numerous players involved in the product flow, supply chain design is a relevant topic for developing an optimal platform for an effective SCM (Yan et al., 2003). The proper design of a supply chain encompasses a set of decisions, embracing both strategic and tactical levels. Examples of such decisions concern number of echelons required and number of facilities per echelon, reorder policy to be adopted by echelons, assignment of each market region to one or more locations, selection of suppliers for sub-assemblies, components and materials (Chopra & Meindl, 2004; Hammami et al., 2008). At the same time, there are several expected benefits from a proper supply chain configuration, which include better coordination of material and capacity, reduced order cycle time, decrease in inventory cost and bullwhip effect (Lee et al., 2004), transport optimization, and increased customer responsiveness (Chang & Makatsoris, 2001). An analysis of the recent literature shows that the problem of optimizing supply chain design is approached by researchers either with linear programming (operational research) models or through simulation models. Linear programming models are exploited with several aims, which encompass determining the number, location, and capacity of DCs, minimizing the total cost, or maximizing the profit of the supply chain (e.g., Yan et al., 2003; Tiwari et al., 2010; Bashiri & Tabrizi, 2010). Furthermore, problems such as supplier 1