Prepared by Group 2:

(D10101001)
Jonathan Burke (D10001805)
Adinda Oktavia Kusumanegara (M10301821)
(M10301107)
Ghilman Fatih (M10201818)

Outline
1
Introduction

3
Questions and
Analysis

2
The Scenarios

4
Conclusion

Introduction
Centralized System

Consumer Demand
Retailer
Consumer Demand

Supplier

Warehouse

Decentralized System

Retailer
Consumer Demand
Retailer
Consumer Demand

Retailer
Consumer Demand
Supplier

Retailer
Consumer Demand
Retailer

Introduction
Decentralized
System

Centralized
System

Introduction
Order from
supplier

Inventory at
least 4 period
away from
retailers

Allocation
to retailers

Inventory
of retailers
Cost Of
Goods Sold
Holding Cost
= Revenue
(COGS +
Holding)

Supplier

= Demand met /
Total demand *
100%

The Scenarios

The Scenarios

Demand Correlation
Control:
Strong Negative
None (Normal)
Strong Positive
Demand
mean
Standard Deviation (Demand
Variance):
High Variance: 15
Medium: 10
Low Variance: 5

The Scenarios

Questions and Analysis

Question 1:
Please use default parameters (variance: 10, correlation: neutral)
to run the system for 50 periods. Compare revenue, profit and
fillrate between the centralized system and the decentralized
system. Does the centralized system perform better than the
decentralized?

Questions and Analysis

Questions and Analysis

160000

120%
110%

140000
100%
120000

90%
80%

100000
70%
80000

60%
50%

60000
40%
40000

30%
20%

20000
10%
0

Centralized

Decentralized

0%

Questions and Analysis

Analysis:

Revenue
Cost of
Goods Sold
Holding
Cost
Profit
Fill Rate

Centralized Decentralized
143000
142500
71500

71250

48450

47025

23050
97%

24225
97%

Decentralized
At medium variance, with average correlation, the centralized system outperforms
the decentralized system very marginally in terms of revenue, but underperforms
slightly in terms of COGS. However, the profit advantage of the decentralized system
is significant. For a business, this is the most important performance metric.
Since this case is done in a neutral and medium variance, we want to see how
significant is the different for the profit by looking at profit margin
Profit margin = profit / revenue
Centralized: 23050/143000 = .16 16%
Decentralized: 24225/142500 = .17 17 %

Questions and Analysis

Question 2:
Please execute the nine scenarios and make plots and
explanation in each round with 50 periods. Try to explain, if there
are, the relationship of orders, demands, holding cost, profit
Strong
Positive
Neutral
Strong Negative
and fillrate by using
figures.
Overall Result
Demand
Centralize
d
Orders
Decentrali
zed
Centralize
d
Holding
Decentrali
zed
Centralize
d
Profit
Decentrali
zed
Centralize
d
Fillrate
Decentrali
zed

High
Low
High
Low
High
Low
Varianc Medium Varianc Varianc Medium Varianc Varianc Medium Varianc
e
e
e
e
e
e
7198
7488
7411
7260
7323
7367
7514
7443
7425
7194

7428

7366

7221

7302

7352

7438

7417

7392

7188

7335

7085

7235

7242

7120

7350

7289

7112

50175

48450

46725

50175

48450

46725

50175

48450

46725

50400

47025

43650

50400

47025

43650

50400

47025

43650

20015

24310

25645

20285

23050

25505

22455

24100

25905

19860

25155

26490

20330

24225

26730

21480

24695

26750

97%

97%

97%

97%

97%

98%

96%

97%

97%

97%

96%

94%

97%

97%

95%

95%

96%

94%

Questions and Analysis

Centralized
350

Strong Positive High

Variance
105% 350

300

100%

250

95%

200

90%

150

85%

100

100%

250
200

95%

150

90%

100

80%

50

75%

Order

105%

300

50

Demand

Decentralized

85%
80%

Fillrate

Demand

Order

Fillrate

60000

105%

60000

105%

50000

100%

50000

100%

40000

95%

40000

30000

90%

30000

20000

85%

20000

10000

80%

10000

85%

75%

80%

Holding Cost

Profit

Fillrate

95%
90%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Strong Positive
Medium
105% 300

350
300

Decentralized
105%

100%

250

95%

200

90%

150

85%

100

50

80%

50

85%

75%

80%

250
200
150
100

Demand

Order

100%
95%
90%

Fillrate

Demand

Order

Fillrate

60000

105%

50000

105%

50000

100%

40000

100%

40000

95%

30000

95%

30000

90%

20000

85%

20000

90%

10000

80%

10000

85%

75%

80%

Holding Cost

Profit

Fillrate

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Strong Positive Low

Variance
120% 250

350
300

100%

250

80%

200

Decentralized
105%
100%

200

95%

150

60%

150

40%

100

90%
100

85%

50

20%

50

80%

0%

75%

Demand

Order

Fillrate

Demand

Order

Fillrate

50000

120%

50000

105%

40000

100%

40000

100%

80%

30000

95%

30000

60%
20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

90%
20000

85%

10000

80%

75%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Neutral High
Variance
120% 400
100% 350
300
80%
250
60%
200
150
40%
100
20%
50
0%
0

400
350
300
250
200
150
100
50
0

Demand

Order

Fillrate

Decentralized
120%
100%
80%
60%
40%
20%
0%

Demand

Order

Fillrate

60000

120%

60000

120%

50000

100%

50000

100%

40000

80%

40000

80%

30000

60%

30000

60%

20000

40%

20000

40%

10000

20%

10000

20%

0%

Holding Cost

Profit

Fillrate

0%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Neutral Medium

Decentralized

350

120%

300

105%

300

100%

250

100%

80%

200

95%

60%

150

90%

40%

100

85%

50

20%

50

80%

0%

75%

250
200
150
100

Demand

Order

Fillrate

Demand

Order

Fillrate

60000

120%

50000

105%

50000

100%

40000

100%

40000

80%

30000

60%

20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

95%

30000

90%
20000

85%

10000

80%

75%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Neutral Low
Variance
120% 250

300
250

100%

200

80%

150

60%

Decentralized
105%
100%

200

95%

150

90%
100

100

40%

50

20%

50

80%

0%

75%

Demand

Order

85%

Fillrate

Demand

Order

Fillrate

50000

120%

50000

105%

40000

100%

40000

100%

80%

30000

95%

30000

60%
20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

90%
20000

85%

10000

80%

75%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized
350

Strong Negative High

Variance
105% 350

300

100%

250

Decentralized
105%

300

100%

250

200

95%

200

95%

150

90%

150

90%

100

85%

50
0

80%

Demand

Order

100

85%

50
0

80%

Fillrate

Demand

Order

Fillrate

60000

105%

60000

105%

50000

100%

50000

100%

40000

95%

30000

40000

95%

30000
90%

20000

90%

20000

10000

85%

10000

85%

80%

80%

Holding Cost

Profit

Fillrate

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized

Strong Negative
Medium
120% 300

350
300

Decentralized
120%

100%

250

100%

80%

200

80%

60%

150

60%

40%

100

40%

50

20%

50

20%

0%

0%

250
200
150
100

Demand

Order

Demand

Fillrate

Order

Fillrate

60000

120%

50000

120%

50000

100%

40000

100%

40000

80%

30000

60%

20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

80%

30000

60%
20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

Questions and Analysis

Centralized
300

Strong Negative Low

Variance
120% 250

250

100%

200

80%

150

60%

Decentralized
105%
100%

200

95%

150

90%
100

100

40%

50

20%

50

80%

0%

75%

Demand

Order

85%

Fillrate

Demand

Order

Fillrate

50000

120%

50000

105%

40000

100%

40000

100%

80%

30000

95%

30000

60%
20000

40%

10000

20%

0%

Holding Cost

Profit

Fillrate

90%
20000

85%

10000

80%

75%

Holding Cost

Profit

Fillrate

Questions and Analysis

12000

9700

Centralized

10000

60000

9700

9700

9700

9700

9800

9600

9700

50000

8000

40000

6000

30000

4000

20000

2000

10000

0
Demand

Orders Centralized

Holding Centralized

Profit Centralized

Fillrate Centralized

12000

9700

10000

Decentralized

9700

60000

9600

9400

9700

9700

9500

9500

9600

9400
50000

8000

40000

6000

30000

4000

20000

2000

10000

0
Demand

Orders Decentralized

Holding Decentralized

Profit Decentralized

Fillrate Decentralized

Questions and Analysis

Analysis:
Theoritically, centralized distribution system will ought benefit
when variance is high and have strong negative correlation.
Our result shows that in all type correlation (strong positive, strong
negative and neutral) but with high variance, the centralized
system always have higher profit.
Meanwhile, decentralized system always benefited when there is
low variance of demand in no matter what type of correlation it is
in.

Questions and Analysis

Question 3:
What is the definition of fillrate? Why is the fillrate over 100%
sometimes? What is the relationship between fillrate and profit?
Analysis:

Fill Rate
The speed at which current inventory can meet current demand.

Fillrate=

Questions and Analysis

Analysis:

Exceeded Fill Rate

Fill rate exceeds 100% when suppliers stock
retailers in excess of demand.
Holding costs increase, and profits fall as a
consequence.

Fill Rate & Profit

Fill rate < 100% reduces revenue
Fill rate > 100% increases holding cost
Optimal fill rate = 100%

Questions and Analysis

Question 4:
Please use default parameters (variance: 10, correlation: neutral)
to play the game while you can change the order quantity and
amount distribution in the centralized and the decentralized
systems by yourselves. Can you get any insights or improvement
for the two systems?
Analysis:

Questions and Analysis

Centralized

Neutral Medium

200
180
160
140
120
100
80
60
40
20
0

120%
100%
80%
60%
40%
20%
0%
Demand

Order

Decentralized

200
180
160
140
120
100
80
60
40
20
0

120%
100%
80%
60%
40%
20%
0%

Fillrate

Demand

Order

Fillrate

30000

120%

25000

120%

25000

100%

20000

100%

20000

80%

15000

60%

10000

40%

5000

20%

0%
Holding Cost

Profit

Fillrate

80%

15000

60%
10000

40%

5000

20%

0%
Holding Cost

Profit

Fillrate

Questions and Analysis

Analysis:
Revenue

73000

Decentraliz
ed
72800

Cost of Goods
Sold

36500

36400

Holding Cost

24225

23512.5

Profit

12275

12887.5

99%

98%

Centralized

Fill Rate

xxxxxxxxxxxxxxxxxxxxxxx
xxxx

130%

80000

120%

70000

110%

60000

100%

50000

80%

90%
70%

40000

60%
50%

30000

40%

20000

30%
20%

10000
0

10%

Centralized
Revenue

Decentralized
Profit

Fill Rate

0%

Conclusion
In question number one, the profit of centralized is smaller because it is
holding too much goods. However, the profit margin between centralized
and decentralized is insignificant thus we can conclude these two system
when demand mean is 50 have the same effect.
When demand variance is low, the retailer can control the market demand
easier and decide how many safety stock and inventory they should be
maintained. So holding cost of the centralized and the decentralized are
not significantly different.
When demand variance is high, centralized warehouse that the risk of
demand variation be pooled is clearly important based on the profit margin
which is quite big.

Thanks For Your

Attention