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ByMiss Kamolwon ChaUme ID 5322300210
Industrial Engineering ProgramSirindhorn International Institute of Technology
Thammasat University

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Introduction & Previous work studiedObjectivesLiterature Reviews
MethodologyResults & DiscussionsConclusionFurther Study

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The companies that can response to the changefrom customers faster more competitiveadvantage over the othersNeed to understand different types ofuncertaintiesApply some tools/ policies to reduce theuncertainties in the system or to maximize thewhole chain profits

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Study different factors thateffecting the profitability of aretail store
Construct a simulation modelthat can capture the overalloperation of the whole supply
chain Study and compare the basecase with different types ofuncertainties
Study the interaction effectswith different type ofuncertainties
Study two components of thedouble probabilistic setting:epistemic and aleatoryuncertainty Suggest solutions for reducinguncertainties in the system Investigate effects of inventorypolicy (Lateral Transshipment) Apply two types oftransshipment policies : TBAand TIE to the model
Analyze and investigate eachtype of uncertainty in moredetails

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To understand the application of LateralTransshipment in a retail Supply Chain networkTo study various types of Lateral TransshipmentPolicies
To find the optimal policy of LateralTransshipment in order to reduce supply shortageTo analyze and evaluate the effects andsignificances along with providing suitable
recommendations

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Two components of the double probabilistic setting: aleatoryand epistemic uncertainty (De Rocquigny et al.,2008)
Aleatory uncertainty is to sampling the demand for anappropriate mean
 arises from an inherent randomness in the properties orbehaviour of the system under study
Epistemic uncertainty is to sampling the mean ofuncertainty derives from a lack of knowledge about the appropriatevalue to use for a quantity that is assumed to have a fixedvalue in the context of a particular analysis

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Base model (No lateral transshipment)(NLS)Lateral Transshipment Based on Availability (TBA)Lateral Transshipment for Inventory Equalization(TIE)
Lateral Transshipment with service leveladjustment (SLA)

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Retailer A Retailer B Retailer C Retailer D
Overstock 10 units Overstock 2 units Stock out 5 units Stock out 3 units
Transshipment quantity = Min( Max(Overstock) ,Max (Stock out) )= Min (10,5) = 5
Retailer A Retailer B Retailer C Retailer D
Overstock 5 units Overstock 2 units Stock balance Stock out 3 units
Transshipment quantity = 3 units
Stop process , No stock out
Transshipment can be done many times in a cycle

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Retailer A Retailer B Retailer C Retailer D
Inventory 10 units
Inventory 2 units
Inventory5 units
Inventory3 units
Forecast demand4 units
Forecast demand3 units
Forecast demand2 units
Forecast demand1 units
Redistribution of Stock According to the Proportion of Demand
Retailer A Retailer B Retailer C Retailer D
E1 = 8 units E2 = 6 units E3 = 4 units E4 = 2 units
Lateral Transshipment for Inventory Equalization (TIE)
Pickup 108 =2 Dropoff 62=4 Pickup 54= 1 Pickup 32=1
Transshipment can be done only one time in a cycle

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Retailer A Retailer B Retailer C Retailer D
Upper Level
Target Level
Lower Level
Transshipped Quantity = Min ( 5 , 2 ) = 2
Assume all retailers have the same level For example; If = 9 and = 2Upper level = int (9 + 0.52x2) = 10
For example; If = 5 and = 2 Lower level = int(5  0.82 x 2) = 3Target level = int (5 + 0 x 2) = 5
10
3
5
15 units
5 units
2 units
7 units
Retailer A Retailer DTransshipped 2 units
Transshipment can be done many times in a cycle

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Steps of the overall modelManufacturer model stepsRetailers model steps

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Retailer x 4

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C u s t o m e r
D e m a n
d
( I n
t e r  a r r i v a
l t i m e o
f c u s t o m e r s ) NORM (2, 25% of the mean)
NORM (2, 50% of the mean)
NORM (2, 75% of the mean)
NORM (2, 100% of the mean)
Retailer 1
Retailer 2
Retailer 3
Retailer 4
Wagner Within Algorithm8 Week Rolling
Planning Horizon
Manufacturer
Supplier

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This will be used to vary
**(Excluded from the model)
Epistemic Uncertainty

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Maximize Profit = Manufacture Profit +(Retailer 1s Profit + Retailer 2s Profit+Retailer3s Profit + Retailer 4s Profit )
Manufacture Profit = Sale (RM Cost +Reorder Cost + Operating Cost +Holding Cost+ Penalty Cost )

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Retailer Profit = Sale (RM Cost +Reorder
Cost + Operating Cost +Holding Cost+ Penalty Cost)

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Constraint: Profit of Each Member 0
Decision variables Target Stock Levels(TSL) at Retailer 1, Retailer 2, Retailer 3,and Retailer 4
These variables will be searched for theiroptimal setting by the OptQuestThe lower and upper bounds guaranteed to belarge enough to ensure that the optimal settingfalls inside the boundary

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ManufactureSelling price = $20/unitRM cost = $5/unitHolding cost = $0.16/unit/weekShortage cost = $20/unit
Production cost = $5/unitOrdering cost = $ 250/order
RetailerSelling price = $50/unitHolding cost = $0.40/unit/weekShortage cost = $50/unitOrdering cost = $250/orderOperating cost = $100/unit/year

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Transshipment costsThe cost of transshipment will be set at sixdifferent levels to observe the effect on theprofitability
Transshipment cost = 0%, 20%, 40%, 60%, 80%,and 100% of the shortage cost, which is equalto $0, $10, $20, $30, $40 and $50 per each unittransshipped respectively

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Note:
1. Assume there are no uncertainties in demand, supply and lead time butthere is a variation in interarrival time ( Aleatory uncertainty)2. Aleatory uncertainty is an inherent variation associated with thephysical system or the environment also referred to as variability,
irreducible uncertainty, and stochastic uncertainty, random uncertainty
Using the following Optimized Target StockLevel for the base model
Optimized TSL Retailer 1(units)
Retailer 2
(units)
Retailer 3
(units)
Retailer 4
(units) Base Case 114 117 120 124

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Retailer 4 has the highest variation ofnorm(2,100% of the mean)
Lowest profitRevenue and RM are lowestHolding cost and operating cost are highest
Aleatory uncertainty has an effect to theprofit of retailers

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Lateral Transshipment Based onAvailability (TBA)
Lateral Transshipment for InventoryEqualization (TIE)
Service Level Adjustment (SLA)

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560,000.00
570,000.00
580,000.00
590,000.00
600,000.00
610,000.00
620,000.00
0% 20% 40% 60% 80% 100%
P r o
f i t ( $ )
% Variation of transshipment cost with respect to shortage cost
Whole Chain Profit Comparison of Base Case
NLS
TBA
TIE
SLA

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At the Base Case setting, SLA is the policythat generates highest profits under allpercentage of transshipment cost levels
Profits generated by TBA decrease the mostdrastically as the transshipment costincreasesTIE is the only policy where profits generated
rises with increasing of the transshipmentcost

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The uncertainties cause a negative impact onthe whole chain s profitHigh level of uncertainty has the largest effect
on both types of uncertaintiesProcess uncertainty has higher effect thandemand uncertaintyA high level of process uncertainty (HM) the
profit has reduced up to 9.66%A low level of demand uncertainty (LD) theprofit has reduced only 1.93%

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Transshipment leads to a significant increase inprofits when the transshipment policies areapplied The TBA policy is better, when the % variationis around 0% to 20% of transshipment cost withrespect to shortage cost
Higher number of transshipment reduce theexcess inventory (lower the overall holding costs
and shortage costs)TBA is not beneficial transshipment cost ishigh or closed to the shortage cost (the holdingcosts and transshipment cost have incurred)

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The TIE policy is better, when thetransshipment cost with respect to shortagecost is greater than 50%
TIE has higher profit than TBA policyTIE will perform only once per cycle less effectto transshipment costsThe total holding cost stable
The SLA is the policy that generates highestprofits in most of the cases

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The main reason forhigh profit of SLAmodel highnumber of lateral
transshipment doneby the model
The transshipmentquantity of TIE islowest because thetransshipment canbe done only onceduring each cycle

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It is recommended SLA policy if theirtransshipment costs are under 80% variationwith respect to shortage cost, and TIE iftransshipment costs otherwise

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Introducing transshipment helps the supply chain todeal with the problem of having stock out whenthere is demand and process uncertaintyThe TBA policy is recommended the
transshipment cost with respect to shortage cost isaround 0% to 20%The TIE policy is recommended the transshipmentcost with respect to shortage cost is greater than
50%The SLA policy generates the highest profits inmost of the cases

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It is recommended SLA policy if the transshipmentcosts are under 80% of the shortage cost, and TIE ifotherwiseFactors that need to be considered before
implementing transshipment Holding cost Transshipment cost Shortage cost

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Introduce self decision making simulationmodel
1) If need to do transshipment policy which policy should be implemented?
2) Select whether to do or not to dotransshipment policy Check the profitof implemented transshipment > NLS?

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International Conference on Business andInformationDate : 4 July 2012 , Sapporo (JAPAN)Title : The impact of uncertainty and transshipmenton a retail supply chain under various transshipment
policies and costsInternational Journal of Logistics Systems andManagemen t (With no impact factor)
Accepted: May 2012
Published: 27 August 2012 Title: Simulation of retail supply chain behaviour andfinancial impact in an uncertain environmentReference: Int. J. Logistics Systems and Management,Vol. 13, No. 2, pp.162 186.

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