Supply Chain Management Fall 2014

RISK POOLING
GAME
Professor Shuo-Yan Chou

GROUP 10
Nguyen Thi Anh Tuyet
Franky Saputra

Novieka Distiasari

( D10301811)
(M10201809)
(M10301206)
(M10301004)
(M10217005)
(M10301820)

QUESTIONS &
ANALYSIS

Question 1

Compare revenue, profit and fill-rate between

the centralized system and the decentralized
system with default parameter setting

Simulation Result
Neutral Demand Correlation; Demand Mean: 50; Variance: 10

10

Explanation (1/2)
From the simulation, the centralized system has a little bit higher
revenue than decentralized system. It shows that the centralized
system sells more products in this case (Fillrate is higher).
The twist is it has a lower profit than decentralized system. That fact
means centralized system has a higher holding cost and CoGS.

Higher holding cost shows that in this condition centralized system is

caused because centralized system hold more inventory with its
aggregation demand system, but as a result centralized system can have
higher fill rate because its aggregation demand system can handle more
uncertainty.

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Explanation (2/2)

From the result, we can calculate the profit/revenue ratio

of the centralized system is 16.64% and the decentralized
system 17.27%.
In this case, Centralized System perform better on Fill
Rate, but Decentralized System perform better on
Holding Cost and Profit.

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Question 2

Executing the nine scenarios.

What the relationship of Orders, demands, holding
cost, profit and fill-rate?

15

17

Holding Cost
On High Variance, Centralized System has a lower holding
cost.
The centralized system uses aggregates demand, so it has a
lower safety stock which will has a lower holding cost when
the variance is high.
On Low Variance, Decentralized System has a lower holding
cost.
The decentralized system supplies demand directly one by one
to the retailers, so it will has a lower holding cost when the
variance is low.

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20

Profit (4/4)

According to profit margin of the nine scenarios,

1. The centralized system has better margin profit for strong
negative correlation and perform worse as the correlation
move to strong positive correlation because of its aggregation
demand system
2. The centralized system has better margin profit for high
variance condition
3. The decentralized system has better margin profit for low
and medium variance condition

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23

Fill Rate (2/2)

Overall, the centralized system has a better fill rate for all
scenario, compare to the decentralized fill rate.
Thats because centralized system uses an aggregation system to
supply the demands to suppliers, so the supplier can be delivered
with a better balance to improve the service level for all retailers.
Low variance has a better fill rate value.
Because the difference of the demand is less for low variance, so
the distribution of the goods will be better to all retailers which the
result can be shown on the higher fill rate.
The centralized system also perform better in Strong Negative
situation
Its because when the demand in one supplier is higher than average,
that means the demand in the other supplier will be lower than
average and this makes the aggregation system of centralized system
work really well
25

Question 3
What is the definition of fill-rate?
Why is the fill-rate over 100% sometimes?
What is the relationship between fill-rate and profit?

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What is The Definition of Fillrate?

Definition:
The number of service level between 2 parties.
A measure of shipping performance expressed as a
percentage of the total order.

Divided Number of Order Lines Shipped on the Initial

Order with Total Number of Order Lines Ordered

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Why is The Fillrate Over 100% Sometimes?

Usually the optimal fillrate is 100% where it is also called

perfect order.

When the fillrate over 100%:

0
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Demand 1

Demand 2

Demand 3

100

-50

100

Why is The Fillrate Over 100% Sometimes?

It is can happen when a demand has high coefficient of
variation.
In the real world, usually the demand distribution will change
into other distribution (Poisson, Weibull, Johnson, etc.) or the
demand will automatically become 0.

When the demand is below 0 (- demand) in real world:

Customer do not order anything in that period

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What is The Relationship Between Fillrate

and Profit?
Value of Order Lines Shipped on the Initial Order /
Total Value of the Order ($400/$500 = 80%)
Inventory -> inventory stock -> reduce profit
No inventory -> stock-outs -> lost profit
Perfect Order (on time, complete, damage free,
and having correct invoice)

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When the Holding Cost is also

considered

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Question 4

Play the game while you can change the order quantity
and amount distribution.
Can you get any insights or improvement for the two
systems?

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Question 4
The change of order quantity and amount
distribution.

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Holding Cost and Profit

Holding cost in Centralized System is lower than

Decentralized System, making the profit in Centralized
System higher
In Neutral situation, when demand in one retailer is higher
than average, demand in other retailer will be likely to lower
than average, Centralized system have benefit from this
because of its aggregation demand
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Fillrate

There is not much difference in Fill rate value between

Centralized and Decentralized.
Both system using the same configuration to achieve 95 %
Fill Rate

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How about when the Demand has Strong

Positive Correlation?

Cost

37

Holding Cost

1.5

Revenue per Item

20

Cost per Item

10

As the Revenue per Item goes up or

Cost per Item goes down

-0.903%
Cost

38

Holding Cost

1.5

Revenue per Item

200

Cost per Item

10

Solution

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Solution

-0.29%
Cost
Holding Cost

1.5

Revenue per Item

200

Cost per Item

10

Decentralization System still perform better in Strong Positive

Correlation
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Conclusions
CONCLUSIONS
1.

From the 1st question, we can conclude that the centralized and the decentralized
system has a similar revenue, profit & fillrate for neutral correlation and
medium variance
2. From the 2nd question, we can conclude that
The centralized have a better margin profit than decentralized system on
strongly negative correlation than on strongly neutral & positive
correlation
The centralized system has better margin profit for high variance
condition
The decentralized system has better margin profit for low and medium
variance condition

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Conclusions
CONCLUSIONS
3.

4.

5.

From the 3rd question, we can conclude that Fill rate has a positive correlation
with profit in the same system. Even a slight increment of the fill rate can give
a significant increment profit.
From the 4th question, we can conclude that Centralized system show better
result than Decentralized and its able to generate higher profit in neutral
correlation
When the correlation turn become positive correlation, Decentralized system
can perform better than Centralized System depend on the Revenue per Item,
Cost per Item, and Holding Cost

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