University of Wollongong

IACT 422 CASE STUDIES IN IT

(Spring Session)

SUPPLY CHAIN SIMULATION

FOR 4th PARTY LOGISTICS

Version 1.0

Last Updated:
Tuesday, 30 May 2006

Prepared By:
Nurhazman Abdul Aziz 2666182
Bachelor in Information & Communication Technology
1
Table of Contents

1. Executive Summary
............................................................................................................................................. 3
2. Introduction..................................................................................................................... 3
3. Philosophy of Supply Chain Management
............................................................................................................................................. 4
4. The Existing of 4th Party Logistic
............................................................................................................................................. 7
5. The Target Company: Toyota & Linfox
........................................................................................................................................... 10
6. Supply Chain Simulation Framework
........................................................................................................................................... 11
6.1 Identification of Classes in a Supply Chain Network......................................... 12
6.2 Establishment of Nodes & Its Inherit Specialised Nodes ................................... 13
6.3 The Establishment of Relationships between the Nodes .................................... 14
6.4 The Robustness of a Facility (Node) .................................................................. 15
6.6 The Facility and Inventory System ..................................................................... 18
6.7 Relationship of a Product.................................................................................... 21
6.8 Relationships of Order and Demand................................................................... 22
7. Supply Chain Simulation Architecture
........................................................................................................................................... 23
7.1 Simulation Interface............................................................................................ 25
7.2 Simulation as a Decision Support System .......................................................... 27
7.3 Multi-Agent Programming in the Simulation ..................................................... 29
8. Tools & Technology
........................................................................................................................................... 30
9. The Challenges and Feasibility
........................................................................................................................................... 31
9.1 Financial Challenges........................................................................................... 31
9.2 Organisation Challenges ..................................................................................... 32
10. Recommendation
........................................................................................................................................... 33
11. Conclusion .................................................................................................................. 34
12. References................................................................................................................... 35

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1. Executive Summary

The purpose of this paper is to investigate a generic framework to build up a supply chain
simulation application, based on an object-orientated environment. In this paper, the
discussion will be based on the design an object-oriented framework, and developing it
into a simulation based decision support for a supply chain logistic as an overall view.
This solution is to be implemented by a fourth party logistic into one of its clients to aid
the operation of supply chain logistic planning. This is due to the complexity of planning
of supply chain logistic. Poor planning may result in a system instability that may
seriously influence the ability to satisfy its customers. Thus, accurate, precise decision
has to be made to optimize the performance of the system. Moreover, it is a vital issue
that right information is transferred to the right entities that needs the right information.
Apart from that, a brief explanation of supply chain management and fourth party logistic
are explained in this paper, together with the challenges faced in implementing this
supply chain simulation system.

2. Introduction
The basic supply chain management (SCM) aims to produce and distribute products to
customers in the right quantities, locations, and schedule, with minimized system-wide
costs while fulfilling service level requirements. Nevertheless the complexities of supply
chain make it hard to accomplish the objective. This includes the logistic planning. The
modelling, analysis and optimisation of a logistic supply chain has become increasingly
important as the advent of internet commerce forces changes within the industry.

The main objective of this research paper is to analyse a framework that is designed for a
prototype objective oriented supply chain simulation to be implemented into a
manufacturing plant with the support service from a fourth party logistic. Furthermore, as
the framework will be identified and analysed with all the related entities and relationship,
the framework will be placed into simulation architecture of the system to build up the

3
decision support system. With this implementation, the challenges issues on financial and
organisation will be discussed briefly.

In short, with the advent of the information and communication technology, all logistic
activities, such as customers’ demands, warehousing, inventory and transportation
information can be available electronically through the supply chain network. This
allows the possibility for logistic activities to be streamlined and optimised across the
organisation boundaries. To achieve this vision, manufacturing company with the
existing third party logistic provider will need to form an alliance, which is managed by a
fourth party logistic provider. The fourth part logistic provider’s role is to provide
optimised plans and schedules for the companies.

Furthermore, providing optimised plans and schedule is not an easy task. It involves a
sum of costing either in terms of financial or time. Therefore, deigning a simulation to act
as a decision support system will give a number of benefits to the planning of the logistic
stage in the supply chain management.

3. Philosophy of Supply Chain Management

Traditionally, the supply chain operations operate independently in any typical

organisation or industry. These operations’ components include marketing, distributions,
planning, manufacturing and purchasing, considering that the realistic supply chain have
multiple end products with shared components, facilities and capacities.1 On top of that,
the supply chain management (SCM) serves as an oversight of materials, information and
finances as the process covers the generic supply chain networks.

1
Ganeshan, R., Harrison T. An Introduction to Supply Chain Management, [online], available:
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html, last accessed: October 21, 2005
4
 Figure 3.1: The Generic Supply Chain

Upstream Internal Downstream

2nd Tier Distributor

st Assembly/
1 Tiers Manufacturing/
nd
2 Tier Packaging
Retailers
2nd Tier
Customer
nd
2 Tier

On the other hand, supply chain management is also the combination of art and science
that goes into improving the way the organisation find the raw components required to
produce a product or service, manufactures that product or service and delivers it to
customers, as paraphrased by Christopher Koch in his article on the ABCs of Supply
Chain Management. 2 In addition, he also identified five basic components for the supply
chain management; Plan, Source, Make and Deliver and Return.

1. Plan – refers to the strategic potion of the supply chain management,

which manages all the resource allocations, meeting the customers’
demands. Thus, this is done through developing a set of metrics to monitor
the efficiency of the process. Therefore, resulting in cost savings, high
quality deliveries and value to the customers.

2. Source – involves the selection of suppliers that will deliver the goods and
services at a set of pricing, delivery, payment process and also creating
metrics for monitoring and improving the relationships. These include the
management of inventory of goods and services which consists of the

2
Koch, C. The ABCs of Supply Chain Management, [online], available:
http://www.cio.com/research/scm/edit/012202_scm.html, last accessed: October 21, 2005
5
 receiving shipments, verifying and transferring into the manufacturing
facilities.

3. Make – refers to the manufacturing process, which consists of the

scheduling activities for production, testing, packing and preparation for
delivery. This is the most metric intensive components of the supply chain
management, measuring the quality levels, production output and
productivity.

4. Deliver – also known as the logistics coordinates the receipt of orders

from the customers, which consists of the network of warehousing, pick
up vehicles to transfer the product to the customers, including an invoicing
system that handles the revenue of the operation.

5. Return – is an avenue channel that handles defective and excess products

back from the customers with the delivered products.

From these five basic components, Koch is able to structure the hierarchical formats of
supply chain management, focusing the top level of management which has been
mentioned before earlier, such as the operation components. 3 Basically, in the main
activities of supply chain management, two types of flows have been identified before
through the supply chain cycle.4 The initial follow is the material flow, which consists of
acquiring raw materials, manufacturing, transportation and delivery to the customer. The
following flow is the information flow which provides and determines the data of the
material when certain activities of the material flow are executed. This flow consists of
the activities triggered by receiving order from customers.

3
Ibid.
4
Supplychain consultants, Sales and Operations Planning Basics, [Online], Available:
http://www.supplychain.com/Downloads/sandop.pdf, Last Accessed: October 21, 2005
6
In general, the core elements of the supply chain management’s philosophy are based on
a number of issues. The customer demands will drive the whole inter-company supply
network, such as the synchronisation, built-to-order, built-to-stock, etc. A built-to-order
product occurs when an order intersect the material flow before manufacturing because
the product can be manufactured with the order in hand. 5 In contrast, if the order
intersects the material flow at the completed good level, it is known as built-to-stock.
This is because the material has to be completed and ready for delivery. In addition, with
these scenarios, the supply chain gradually demands in an increase in the reaction speed
and flexibility of the network, where multi-tier concepts are enabled and applicable.

Most of the companies have the desire own a visibility and transparency in their supply
chain management. Thus, integrated inter-company processes are required to share their
relevant data across the network. This leads to the need in quick responses of relevant
information or decision making in an appropriate period. Ideally, in the supply chain
management, a simulated scenario can be a beneficial solution to find the root causes in
the complexity rather than cure of the symptoms. This will also enable a win-win
partnership between the tiers due to the global availability of information.

4. The Existing of 4th Party Logistic

The fourth party logistics service provider (4PL) exists and participates in a supply chain
co-ordination due to providing more than just the operational logistics and fulfillment
6
services, like a traditional third party logistic provider (3PL). Primarily, the
implementation of 4PL model is constructed towards more into an integral involvement
in the customers supply chain, with greater impact on the customer supply chain
performance and strategy. Furthermore, in the 4PL model, it will essentially elevate the
3PL to a coordinator of the flow of goods, and not just an operator in the physical

5
Turban, T., King, D., Lee, J., Viehland, D., 2004, Electronic Commerce: A Managerial Perspective, Ed 3,
Pearson Education, Inc., Upper Saddle River, New Jersey.
6
Prof Hoek R., UPS Logistiic to mocve towards 4PL –or Not, [online], Avaiilable:
http://www.cscmp.org/Downloads/Education/04LECREMKO.pdf, Last accessed: October 21, 2005
7
movement of goods, which is seen in the 3PL model.7 More importantly, this method will
contribute to higher value-added activities in the supply chain than the traditional
warehousing and transport services have to offer.

Figure 4.1 A Complete Logistic Service.

In the 4PL model, the 4PL is actually the integration of all companies involved in the
supply chain. It is the planning, steering, controlling of all the logistic procedures by one
service provider with a long term strategic objectives. These logistic procedures are the
flow of information, material and capital. On top of that, there are a number of potential
benefits existing for some organisations to adopt 4PL. PA Consulting Group has
summarised there would be a huge saving on the cost of a supply chain or distribution
management department, giving the coverage and management of the supply chain over a
wider geographic area, or providing total independence.8

7
Hoyer, 3PL/4PL, [Online], Available: http://www.hoyer-group.com/logistikE/html/3pl4pl.html, Last
accessed: October 21, 2005
8
PA Consulting, Forth Party Logistic (4PL), [Online] Available:
http://www.paconsulting.com/insights/supply_chain/4pl/, Last Accessed: October 21, 2005
8
In the evaluation of a 3PL framework, the information technology (IT) is able to act as a
leading logistic provider, which is known as 4PL. 9 The adoption of IT concepts and
solutions allow the 3PL provider to expedite the movement of goods and information in
the organisation’s supply chain. Furthermore, the significant of IT improvements can lead
to lower transaction cost and allow all the supply chain to manage complexity, as
discussed earlier.

The difference between 3PL and 4PL found in the understating the role and competencies
of each entity, where the truly appreciated kind of “hyper value” is created in both
providers.10 Many 3PL offers integrated or total logistic solution, but only succeeded with
inability to understand the complexity and competency required. In many 4PL providers,
they are able to offer more strategic management objectives, raising the concerns over
live operation, implementation and execution expertise.

In short, 4PL providers are able to deal with complex task as the existing supply chain
process are to be reviewed and changed, if necessary. This is done through an emphasis
on the optimization of total logistic costs and a continual improvement of the entire
process to remain competitive. In order to enhance the existing technology that a 4PL
provider has in their system, a simulation has to be created in order to align their
organisational activities and their IT activities. Following that, this will lead up to the
planning stage, where both alignment of organisation and IT strategic plan concern in
achieving this major goal.

First and foremost, the idea to implement a simulation system will focus on a
collaboration of two target companies, such as manufacturing plant (organisation) and
fourth party logistic solution. Following that a generic framework will be drawn out to set
the direction of the architecture of the desired supply chain simulation system.

9
Vaidyanathan, G., (2005) A Frameworks for Evaluating Third Party Logistics, Published 2005,
Communication of the ACM
10
YCH, (2002), The Definitive Supplychain Revolution, [Online], Available:
http://www.tliap.nus.edu.sg/tliap/Media_Events/E19Feb2002/4%20Presentation%20-
%20Robert%20Yap.pdf, Last Accessed: October 21, 2005
9
5. The Target Company: Toyota & Linfox

The two target companies, which would be the ideal cases to implement this system are
Toyota and Linfox. Toyota is a leading automotive manufacturer in Australia. It has a
number of manufacturing plants operating all around Australia, unlike in Japan, where all
the suppliers of Toyota are located within a certain radius. These would allow a milk run
system to take place effectively and efficiently.11

Linfox is a logistic solution provider which handles the provision of warehousing,

transportation and supply chain management in Australia. As an efficient supply chain
provider, most of the solutions are tailored made by Linfox herself. 12 The solution
focuses on three tiers of service depending on the customer requirements:

ƒ Tier 1 – Logistics Service Provider

ƒ Tier 2 – Lead Logistics Provider
ƒ Tier 3 – Supply Chain Solutions Provider

One of the solutions that are focused between the Toyota and Linfox is the fourth party
logistic management. This is where the proposed simulation will add onto the current
supply chain management system of Toyota Manufacturing plant. Here, a two
collaboration organisation is established in order to keep the supplies moving on through
the supply chain network.

In short, the staffs of Toyota will plan using the simulation on certain issues of their
products or machines initially, setting up all the requirements information. The system
will simulate the plans for the supply chain logistic using the system and at the same time

11
Toyota Motor Corporation Australia, (2005), ‘History’, [Online], Available:
http://www.toyota.com.au/corporate/articles/0,2862,subId%253D922%2526sectionId%253D880 [Accessed
15 August 2005].
12
Linfox, (2005), Solutions, [Online], Available: http://www.linfox.com/Linfox/Solutions/, Last Accessed :
October 21, 2005
10
acknowledging the suppliers on the quantities of the supplies of raw materials or part of
the machines. As these suppliers received the orders, another note (quote) will be sent to
the transport company. This case it will be Linfox since Linfox provides the
transportation, as well as the solution. Furthermore, Linfox is also able to provide the
warehouse storage. But, this only happens in a simulated environment for the staffs of
Toyota to make a critical decision. At the same time, the simulation will act as a decision
support based system.

In order to make this simulation carry out in a real physical environment, multi-agents are
connected to the web interface of the simulation. Once the decision is made based on the
information given, an agent will be activated by a click of button if this decision is to be
carried out in the physical environment. Thus, by activating this, the whole operation will
be initialised.

6. Supply Chain Simulation Framework

Before designing the simulation software for the solution, an object-oriented framework
will be developed to guide the whole system process. This will be a generic framework
that will be present in any part of the system that is represented by a set of abstract
classes and the way their instances interact. These classes represent some operations,
which are the implementations of a service in the supply chain network. An alternative
approach that illustrates a particular system domain deep into the object level is by using
object-oriented modeling. This is because object-oriented system can be organised to
build hierarchy of objects and reusable as they are usually composed of many objects.13
In addition, it allows these objects to have many relationships within a system. Thus, the
resulting application will be efficient, easy to maintain and reliable, in order to construct
a robust supply chain framework. This core framework will be taken from the research of

13
Pundoor G, Herrmann J, A Hierarchical approach to supply chain simulation moddlelling using Supply
Chain Operation Reference Model, [Online] Avalaible:
http://www.isr.umd.edu/Labs/CIM/SC_Simulation/IJSPM.pdf Last Accessible October 21, 2005
11
Rossetti and Chain’s articles.14 From their framework, the development of the simulation
will be built into a decision support system.

6.1 Identification of Classes in a Supply Chain Network

In a current generic simulation framework, a total of 29 classes have been identified by
Rossetti and Chan in their prototype object-oriented supply chain simulation
framework. 15 These classes represent various elements within a supply chain, as
illustrated in the Table 1. In addition, these elements are commonly used terms in the
supply chain’s activities, creating part of the information flow in the network. Based on
these elements, a prototype for the supply chain simulation framework, which is used in
the logistic operation, can be built as close as a real physical operation.

Container ProductFamily Order

ContinuousReorderQuantity Product OrderGenerator
PeriodicReorderPoint StorageLocation StorageLocation
Container Parameter Relationship Facility
ContinuousReorderUpToLevel RelationshipNetwork Parameter
Continuous Review Shipment PeriodicRecoderPoint
Periodic Review Shipper ProductReview
Demand Region DemandGenerator
Inventory Facility DistributionCenter
InventoryPolicy Order Generator
Location Variable
ManufacturingCenter Warehouse
Node TransportationCenter

Table 6.1: Classes are representing various elements within a supply chain

14
Rossetti M, Chan HT, A prototype object-oriented supply chain simulation framework, [Online],
Available: www.informs-sim.org/wsc03papers/205.pdf Last Accessible October 21, 2005
15
Ibid
12
6.2 Establishment of Nodes & Its Inherit Specialised Nodes
Similar to physical supply chain network, the complexity of the network has to be
addressed and focused too. Every single complexity in the network will tend to have a
relationship among them, which is the bond between the two entities Here, in order to
illustrate the complexity, the bond (also known as the relationship) between each entities
have to be identified. Therefore, in the framework illustrated by Rossetti and Chan, a
customer or supplier in a supply chain network is represented by a Node, which is not a
physical location in the network.16 The Node can be derived further down into three types
of specialised entities, where they can inherit the Node’s attributes and operation. Thus,
each type of Node will inherit the send and received shipments method of Node. These
three specialised Nodes are known as Facility, Order Generator and Region.(See figure
6.1)

Figure 6.1: The Classification of Nodes

These classifications can be explained below in the tabulated format in detail. Each
specialisation plays a vital role to build up the simulation framework to represent to the
real scenario’s activities in the supply chain network closely.

16
ibid
13
 Table 2: Details of the Classification of Nodes

Type of Nodes Roles Responsible

Facility A Provider of products or To manufacture and distribute
services product, consolidate and deliver
the shipment
OrderGenerator Act as a single or a set of To make order of the product and
comprehensive customers update the inventory
Region A composite Pattern Indicates a group/single of types of
Nodes, which can present of an
entire area (such as postal code)

In addition, the facility has been characterised to learn the situation, either to receive
orders or send ships to the customer intelligently. As a result, the facilities in the
simulated network are able to perform a number of roles, such as ManufacturingCenter,
DistributionCenter, TransportationCenter, Shipper and Contractor. Overall, these will
form a just like a real physical supply chain network, with all the related entities being
assigned into each Node.

6.3 The Establishment of Relationships between the Nodes

The idea of designing the characteristics of the Node first is to match the simulation as
closely as possible, just like a real supply chain network. In a network, bond (also known
as Relationship) is established between two entities. Similarly, in this framework, the
Relationships between two Nodes have been considered as a need to construct the whole
conceptual network with a full set of Nodes and Relationships. In short, the two entities
will be known as RelationshipNetwork, where it acts as a complex system of
interconnected network nodes. Here, the exchanges of materials and information flow
will be established in order to provide materials, products or related information (such as
services) to the end users. In other words, a customer or supplier is able to obtain
detailed information on who are their suppliers and customers, allowing them to know
who to send orders to their suppliers and to send shipments to their suppliers. This will
allow the whole simulation to be a robust system.

14
 Figure 6.2: The Conceptual Relation Network

6.4 The Robustness of a Facility (Node)

The facility is able to play a number of roles and have been identified before into five
different concepts in the framework design. The table below illustrates the
responsibilities which the facility holds and plays in the framework.
Table 3: The roles that Facility (Node) able to play

Facilities (Default) Characteristic (Default)

ManufacturingCenter ƒ Manufacturing finished Products or unfinished
Products from raw materials.
ƒ Product will be make to meet the market demand
within the network
DistributionCenter ƒ Provide inventory replenishment and Product delivery
to other facilities
ƒ Primarily act as holding points and do not
manufacture Products from raw materials
TransportationCenter ƒ A place where shipments of customers orders can be
consolidated to obtain efficiencies in transportation
ƒ Able to hold an inventory for a short period of time,
but do not directly supply other facilities.
Shipper ƒ Responsible for the delivery of shipments to customer
ƒ Able to know how, when and where to pick up the
shipment from the TransportationCenter and
shipments to the customers
Contractor ƒ Has an infinite supply material, such that a contractor
supplies the materials after a lead time delay

15
In a graphical illustration, the facility is set as a robust system. The related company or
user of the system is able to further declare this Node accordingly to their specifications
and desire in their simulated supply chain network. Most importantly, they should be able
to know the main characteristics of each facility in order to avoid conflict in the system.
Basically, the types of facilities in the above table and below figure are the commonly
used facilities in any average physical supply chain network. Therefore, the simulation
will launch its initial model according to the default generic supply chain network.

Figure 6.3: Types of Facility

Basically, the above discussions have settled in an upstream of supply chain activities,
where a Product order is being made, the system will trigger the contractor to send the
supplies to the ManufacturingCenter. Here, in the ManufacturingCenter the Product will
be manufactured according to the demand of the market, before sending to the
distribution centre for proper distribution to be done. The proper distribution is done and
managed by the TransportationCenter through a shipper. The Shipper will send all the
shipment to the customer, listed down accordingly by the Transportation Center.

16
 Order Enter

Contractor Manufacturing Distribution Transportation Shipper

Center Center Center

Customers

Figure 6.4: Flow Chart of Pre-Define Supply Chain Network

in the Simulation Framework when an order is made

The unique feature about this framework is the models are able to work reversely for an
organisation’s requirement in the supply chain network. Instead of the
ManufacturingCentre sending out the Product, the ManufacturingCenter will hunt for the
desired raw materials in the Distribution Center as it requires manufacturing the Product.
If the Product is available, it will inform the TransportationCenter to send the shipment
through a shipper. If not, it will inform and request the contractor for more supplies.
Concurrently, the TransportationCenter will also be activating its Shipper to pick up the
supplies and send back either to the DistributionCenter or direct to the
ManufacturingCenter.

17
 Order Enter

Manufacturing Distribution Transportation Shipper Contractor

Center Center Center

Order More
Supplies

Figure 6.4: Reverse - Flow Chart of Pre-Define Supply Chain Network

in the Simulation Framework when supplies is limited

Overall, the advantage of this conceptual simulation framework is the flexibility of the
system. It can be set as bi-directional way to determine the flexibility and robustness of
the supply change network. This simulation can be used to add on to any existing supply
chain management system or enterprise resource planning system, in order to plan the
physical network of the desired company’s supply chain network. With the aid of this
generic framework, companies are now able to simulate and focus if the planning is
accurate, flexible and most importantly, the reliability.

6.6 The Facility and Inventory System

The above discussions are only to regard on the top level planning of the supply chain
network. In short, it only able to establish the topologies of the supply chain network.
Next, the discussion will be briefly focused on activities framework in each facility.
Likewise, in each facility, a number of activities are in operation in order to produce a
Product. This is case a Warehouse’s activity will be selected as one of the types of
facilities. A warehouse is a facility, where a number of finished Products are being stored
and ready for to be distributed according to the schedule and location set. Basically, in
physical, this warehouse is actually managed by a person called the Warehouse Manager.

18
Similarly, in this simulation framework, a warehouse manager can design it with the
desired attributes, controlling the Inventory. Hence, each Inventory keeps a track of
Product status in every transaction, as defined by Rossetti and Chan.17

Figure 6.5: Facility and Inventory System

In a typical warehouse, there are number of several important operations that administrate
the daily functionability of the warehouse structure. These operations are known as
checkInventory(), makeReplenishment() and updateInventory(), which are set to maintain
the Product information.

17
Ibid.
19
 Order
Received
Inventory sent to
TransportCenter for
Shipment
checkInventory() Inventory check to
checks every check for status of
demand the demand Product

updateInventory()
will update the
New shipment arrived from update and previous
Manufacturing order

Figure 6.6: A Flow Diagram of a Typical Inventory Operation

With the inventory system keeping track of each product at a facility full of many
difference types of products, there is a need to build an InventoryPolicy. This Inventory
Policy will allow the encapsulation of rules to control associated inventory, as each
Inventory as an unique information (variables), such as onHand, onOrder, type of cost
and others. In order to build a strategy that governs the reordering behavior for the
inventory of a certain type at a particular facility, the InventoryPolicy can distinguish
each Product’s information by the PolicyType, recorderPoint and recorderQTY.
Therefore, this will aid the determination on the schedule and quantities to order from the
ManufacturingCenter.

20
 Figure 6.8: Inventory and Inventory Policies

6.7 Relationship of a Product

As the Facility and Inventory system have been discussed, one of the most important
issues to make the whole framework work is the Product itself. Without the product, the
whole simulation framework will be static since the Product carries a number of
information with it as it is traveling through the flow in the supply chain network. Here,
the discussion will lead more towards the investigation between the Product and Nodes.

On top of that, the illustration below will give a brief illustration that the Product does not
only establish between the Nodes and itself. Yet, a number of relationships have been
established, such as with the Inventory, Storage Location, Demand and Facility. In other
words, the Products will only establish its relationship when the element is associated
with it.

21
 Figure 6.9: Relationship with Product

6.8 Relationships of Order and Demand

The existence of Product will fail if there is no order and demand from customers. The
roles of demands will be the initial to be commissioned for the supply chain from a
facility, which will state the quantity of the Product. In the illustration below, one the
Demands is placed. It will establish a number of relationships in the network.

Figure 6.10 Relationships of Order and Demand

22
Here, a node can make many orders and each order may have several demands in it. Once
a supplier is capable of filling an order, its warehouse will make a shipment that contains
the demanded products, creating three supply chain elements and they are the entities that
flow around the chain. Lastly, the purpose of an OrderGenerator, which can be seen in
Figure 6.1 is to generate multiple demands within an order during the simulation. It will
also acts as an end customer in the relationship network, creating each orderGenerator
with a set of DemandGenerator. This is to establish a synchronisation that follows a
specific statistical distribution. In addition, in the attributes of OrderGenerator, it has
these functionalities:

ƒ time until next Order

ƒ time until last Order
ƒ time until first Order
ƒ maximum number of Order.

Figure 6.11 explains the OrderGenerator distribution with its relationship with the
DemandGenerator, which has an attached variable that provides information about the
statistical distribution.

As a whole, now simulation can be built based on the framework designed by Rossetti
and Chan for an object-oriented supply chain simulation. This is also one of the
frameworks used in the supply chain system that can be classified as an analytical and
simulation model. With this simulation framework, it will represent a multi-echelon
supply chain system that involves interactions and relationships associated.

7. Supply Chain Simulation Architecture

The next issue, after deciding on the framework to be used is the discussion on the
desired simulation architecture. The design proposal of this supply chain simulation
system is to support a real time supervisory control. This will account for the dynamic

23
and uncertainty of a supply chain system. As discussed before, using the framework, the
system will be built based on these components exists in the current system:

ƒ Basic Simulation Module

ƒ Inventory Control Module
ƒ Shop Floor Module
ƒ Supplier Module
ƒ Interface Module

The above modules are specifically selected to aid a supply chain logistic operation.
Therefore, the architecture will be designed according to the blueprint illustrated below,
as an overall picture before zooming into the framework of the supply chain networks.18

Inform System
Changes Interface
Basic Simulation Components Components

Update machine Report Update user Update inventory

with repairs Failure request status in the
information interface

Shop Floor
Components Inventory Place Order
(Machine Parts Control Suppliers
are present in Component
the machines) Get Quotes

Figure 7.1: Overview Plan of the Simulation Architecture

Basically, this simulation architecture allows its module to accept stimulus from outside
entities, including the supplier components and users, as the framework defined before.
Moreover, these modules are able to simulate the systems under difference conditions,
such as machines failures, part acquisitions, technician assignment, machine repair and

18
Ganapathy S, Srivinivasan K,(2003), Simulation Based Decision Support For Supply Chain Logistic,
[Online], Available: www.informs-sim.org/wsc03papers/124.pdf , Last Accessed: October 21, 2005
24
part outsourcing. All these will be performed by the simulation server, which runs an
inventory control unit that monitors the inventory and updates the parts storage databases
frequently.

Focusing in detail, the basic simulation component is overall responsible for the
scheduling of events and coordinating of the multi-threaded architecture. It is comprised
of an event calendar, clock, simulator and distributors, with the adoption of the
frameworks which have been discussed earlier. For instance, with regards to this, the
suppliers have the parts needed for machine repair to provide the inventory control with
information about the part details, such as price and shipping schedule.

The inventory control component will track the parts inventory and acquire parts from the
suppliers to keep inventory in control. This module is also able to request quotes and
orders parts from the suppliers, based on trades off analysis of priority, time, cost and
quality of parts. The shop floor component consists of the machines and the technicians
that will update its status to the simulation which is reflected on the interface. The
interface with the simulation module will facilitate updating the information on the server
side.

7.1 Simulation Interface

One of the important elements in system design for simulation software is the interface of
the programme. The interface should not have a complicated look and feel as the main
goal is to present all information in the best possible way to the user. Of course, using
user-animation will create an interesting environment for the simulation to deliver its
ideas. This will be delivered once the main interface has been set properly.

The main interface which represents the four primary section of the architecture, consists
of the top left of information of the machines. This will reflect the status of information
about the parameters for the machine, a list of parts of the machine and time taken to
repair the machine after a machine has failed. On the top right of the screen contains
information about the inventory. It gives information about the different suppliers, their
25
price quotes, quantities, and their part shipping times, if any order need to take place.
Before that, the technician schedule chart is presented to the user so that he or she can
decide on assigning a particular technician for the repair based on the schedule. In
addition, using the framework discussed before, the system is able to check at the
warehouse for any parts available. The illustration in figure 7.2 will give a better picture.

Hence, this is just one of the typical solutions to solve a simulation based decision
support for supply chain logistic, which a 4PL is able to adopt. Supply chain logistic
planning is a complex process and with this example, poor planning may be avoided.
Moreover, in a cognitive process of a logistics planning, there are five different steps19:

1. problem identification,
2. alternatives to solve the problem,
3. evaluation of the alternatives,
4. selection of the best alternative,
5. implementation of the selected alternative

These steps are actually identified by Ganapathy and Srinivasan in a Winter Simulation
Conference in US. 20 Together with these steps and the related initial framework, a
simulation idea is produced.

19
Ibid
20
ibid
26
 Machine 0 Component Diagnosis Inventory Control
Time of Failure for Machine 0 Part Name Qty
Parameters Value Electric Part 1 Needed
Electric Part 1
Temperature Electric Part 2
Electric Part 2
Voltage Electric Part 3
Mechanical Part 1
Pressure Mechanical Part 1
Mechanical Part 2
Capacitance Mechanical Part 2
Check Diagnosis DSS Select Part Name:
Electrical Get
Submit Part 1 Quote

Technician Schedule Chart Suppliers List

At time of failure

Select Tech 1 Schedule

Technician Repair

Figure 7.2 Simulation Interface

7.2 Simulation as a Decision Support System

As the simulation works on the basis of the initial framework suggested, it is also able to
work as a decision support system for any logistic solutions. This system has two
decision scenarios. As the main objective of the supplier identification modules, it selects
the supplier based on conditions, such as cost, shipping schedule and quantity. The
illustration below explains the whole idea.

27
 Figure 7.3: Decision Scenarios

Figure 7.4 describes the decision making process as a block diagram. In addition, a
number of assumptions have been made in this module, such as the part can be ordered
from any suppliers and multiple parts can be ordered concurrently or selected
simultaneously.

28
 Figure 7.4: Decision Process for Selection of Supplier

As a result, it can be observed in the performance measure, such as the machine down
time, number of times supplies orders, the mean number of times part identified
incorrectly and the number of times parts ordered. With these results, an accurate
decision is made to optimize the performance of the supply chain system. It is also
important for the right information to be transferred to the concerned unit. Therefore,
with the combination of the frameworks and the example of the simulation, a suitable
model featuring a decision support system is created to aid human in making decisions in
enhancing the performance of a supply chain logistic system.

7.3 Multi-Agent Programming in the Simulation

Similarly, like the other supply chain management system, the simulation will use multi-
agent technology and optimization technology to enhance the simulation system.
Moreover, the entire system will be built on a web technology for hybrid accessibility. In
fact, from the initial framework discussed, the Nodes can be categorized as a multi-agent

29
system. It has artificial intelligence to compute such decisions based on the scenarios
given.

Furthermore, using the Node and the RelationshipNetwork to build the simulation
architecture, it improves the characteristics of the agent. Thus, allowing it to carry out its
task in depth, making the whole simulation acts just like a real physical operation.

8. Tools & Technology

From the understanding of the framework, the Nodes are designed closely related to a
multi-agent. Therefore, the overall implementation of the solutions will fully-utilise the
Java Agent Development Environment (JADE) platform.21 This is a software framework
to develop agent applications in compliance with the Foundation for Intelligent Physical
Agents’ specifications (FIPA, 1998) for multi-agent systems.22 Moreover, JADE is able
to deal with all aspects external to agents that are independent of their applications, such
as message transport, encoding and parsing, agent lifecycle and others.

Basically, JADE supports a distributed environment of agent containers, which provides

a run-time environment to allow several agents to execute concurrently. This feature has
been utilized to create several concurrent market sessions, such as commodity and
auction sessions, which is used in a simulation area. In addition, JADE will provide
support for standard FIPA and user-defined ontologies with the open source and standard
software concept.

On top of it, JADE is completely implemented in Java language and the minimal system
requirement is the version 1.4 of JAVA (the run time environment or the JDK).
Furthermore, Java features, such as portability, dynamic loading, multithreading, and

21
Java Agent Development Framework, JADE, (Online)[http://jade.tilab.com/, Last Accessed October 21,
2005].
22
FIPA (2003) (Online) [http: //www.fipa.org/., Last Accessed: October 21, 2005].

30
synchronization support, making it appropriate to implement the inherent complexity and
concurrency in a simulated environment. These features are also instrumental for
executing the agents in parallel.

Apart from that, the simulation is an add-on function to an existing Enterprise Resource
Planning (ERP) System, which remains the leading systems for every organisation. The
simulation provides a functionality that cannot be achieved by decentralized ERP system.
One of key indicators for the system is to keep the complexity low (e.g number of
parameters, details of modeling) as the main benefits come from the accuracy and speed
of information flow and cross enterprise visibility and synchronization.

9. The Challenges and Feasibility

The challenges in implementing this system can be addressed in a number of areas. They
are the financial, organisation and technical areas. Any organisations that which would
like to implement this solution have to address these matters in order to improve their
logistic service in the supply chain management. Therefore, in order to implement this
system, the organisation will conduct a feasibility study whether this system benefits their
organisation. Ideally, it would be a good investment for the organisation, such as a 4PL
provider to implement this simulation to enhance their decision support in planning the
logistic environment for their client.

9.1 Financial Challenges

The financial challenges can be streamed down into a section that have to be considered
by the organisation, such as the development cost, net present value, return of investment,
project cost, implementation cost and training cost. Furthermore, the cost, such as
maintenance cost will remain a concern after the simulation has been implemented.

31
In the development cost, the concern is bound between the development team. Here, the
salaries and equipment purchase will be discussed. In order to build such system, the
team requires:

ƒ 1 Project Leader
ƒ 2 System Analysts
ƒ 5 Programmers
ƒ 2 Multimedia Designers

The development will be carried out in phases over an estimated of 6 months to complete
and implement. The salaries and wages will also be paid at the normal market price. As
for the development cost, it will consist of the salaries, equipment/installation cost,
training cost, facilities cost, utilities cost, licenses, support staffs and miscellaneous cost.
All these costs can sum up to AUD$100, 000 or even more.

On the other hand, the organisation will also receive cost savings, such as the cost of
efficiency and flexibility in dealing with suppliers reduce shipping cost, increase in
production and other related cost. This is also known as total annual benefits, which can
save more that the annual operating cost. In order to view this, a return on investment will
be drawn out to estimate the return cost from the solution implemented.

9.2 Organisation Challenges

While the financial challenges handle with the cash/account flow of the organisation, the
organisation challenges also exist as the system is implemented. Therefore, it is crucial to
identify the potential risk that may arise. To some extent, the organisation challenges are
concerning the cultural environment. Firstly, once the simulation is implemented, the
organisation has to start training their staffs on using the simulation effectively. The user
supports have to be considered in this area to support the operation at maximum
effectiveness. These user supports will be provided through various methods, such as on-
line documentation and troubleshooting, resident experts, help desk and technical support.

32
Furthermore, the supplier will also be known about this new simulation system through
the company’s news or in a form a internal and stakeholder’s advertisement related. This
is done to inform the suppliers on the effectiveness of the organisation supply chain
management and also indirectly to prepare the suppliers on the demand wave of the
supplies.

10. Recommendation

Overall, it is strongly recommended to implement a supply chain simulation system into

the current Enterprise Resource Planning (ERP) System to remain the leading system for
every organisation. Moreover, it is only an add-on application, which works as a modular
based system. The simulation also provides a functionality that cannot be achieved by
decentralized ERP system.

Figure 10.1 Alignment of Strategic Plan and IT activities

One of key indicators for the system is to keep the complexity low (e.g number of
parameters, details of modeling) as the main benefits come from the accuracy and speed

33
of information flow and cross enterprise visibility and synchronization. Strategically, the
simulation is able to align the organisational supply chain strategic plan with its IT
strategic plan, in order to achieve this mission. This is explained in the illustration above,
and this implementation will make the organisation stays at a competitive advantage
level23.

11. Conclusion

In this research proposal, a generic supply chain simulation framework, which facilitates
the dynamic analysis of supply chain system, has been covered. This is done to build
supply chain simulation architecture with the tools and technology discussed. The
discussion also covers the challenges if the organisation plans to implement such systems,
as the system is built to target a fourth party logistic to work efficiently with their clients.
Thus, the suppliers will keep replenishing into the facility.

The whole idea of implementing this system is to aid in supply chain logistics planning.
This is due to the complexity process in the supply chain operations. In the framework,
the system will take advantage of the information flow in the network to simulate a plan,
aiding the supply chain management system. Hence, these activities with be strategically
aligned together with the IT activities.

As the framework developed further into the architecture, an agent base architecture is
formed. This will allow rules and behaviours to be easily plugged into the simulation. In
addition, further work is planned, making the persistent network easier to use. Finally, the
utilization of transportation elements within a supply chain simulation with finer details is
provided as the framework explores the hierarchy.

23
Caralli R. (2004), The Critical Success Factor Method: Establishing a Foundation for Enterprise Security
Management, [Online], Available:
http://www.sei.cmu.edu/publications/documents/04.reports/04tr010/04tr010title.html, Last Accessed:
October 10, 2005

34
12. References

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[online], available: http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html, last
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2. Koch, C. The ABCs of Supply Chain Management, [online], available:

http://www.cio.com/research/scm/edit/012202_scm.html, last accessed: October
21, 2005

3. Supplychain consultants, Sales and Operations Planning Basics, [Online],

Available: http://www.supplychain.com/Downloads/sandop.pdf, Last Accessed:
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4. Turban, T., King, D., Lee, J., Viehland, D., 2004, Electronic Commerce: A
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5. Prof Hoek R., UPS Logistiic to mocve towards 4PL –or Not, [online], Avaiilable:
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37