Risk Pool Game

June 16, 2018 General Studies

Game enables to simultaneously manage two inventory systems: one system with risk pooling (a centralized system) and one system without risk pooling (a decentralized system) by setting options such as a) initial inventories; b) random demand parameters – mean, standard deviation, correlation. C) inventory policy – safety stock policy, weeks of inventory policy; d) costs – holding cost, revenue per item, cost per item. The software records the revenues, COGS, resulting inventory holding costs and pro? ts of both systems, so you can compare the performance through illustrated reports.

Centralized Warehouse. The supply chain consists of one supplier serving a warehouse, which, in turn, serves three retailers. The lead time between the supplier and the warehouse is 2 weeks, whilst the lead time between the warehouse and the retailers is again 2. Inventory decisions at the warehouses and the three retailers are made by s single decision -maker who aims to minimize the system-wide cost. Decentralized Warehouse. The supply chain consists of one supplier serving three retailers directly. The lead time between the supplier and the retailers is 4 weeks.

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Inventory decisions at the three retailers are made by three independent decision-makers whose objective is to minimize his own cost. The demand faced by each retailer is randomly generalized by program. The default value for demand is µ = 25 and ? = 10 which is subject to change. We can control the correlation of demands among different retailers as well as initial inventories. Mandatory constraints include: 1. Each retailer has the same initial inventory level; 2. Inventory-in-transit from the warehouse to the retailer must be the same for each of the retailers; and 3.

Inventory-in-transit from the warehouse to the retailer must be the same for both periods. Scenarios: i. ii. Changing the inventory policy; Changing the standard deviation for demand in both systems. i. After operating the system for 20 weeks with application of default settings and introducing changes into the Default Inventory Policy (which enables to display default order and allocation quantities) has demonstrated the following result: Centralized system showed higher maximization of profits and low holding costs compared to decentralized system.

Demand for both the markets was met with 96% and 97% fulfill rate. The demand variation between retailers was high. 1 SCM HW # 2 by Mitiakova Viktoriia ii. Increase the variability of demand from 10 to 20 whilst the mean of demand remains the same (25) has demonstrated the following: Co-efficient of variation increases as the variability of demand increases. Both centralized and decentralized systems resulted in experiencing loss when the correlation increased.

However, loss from centralized system was lesser than that of decentralized system. To analyze the trade-offs between the centralized and decentralized systems one should take into account the 5 basic factors that affect the general performance: ? Safety stock ? Service level ? Overhead costs ? Customer lead time ? Transportation costs Centralization improves efficiency and reduces costs. Centralization usually means consistent policies and procedures across the enterprise, always a good thing.

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