NETWORK DESIGN IN ENVIRONMENTAL UNCERTAINTY

NETWORK DESIGN IN ENVIRONMENTAL UNCERTAINTY

In each company, supply chain includes all functions involved in the fulfillment of consumer demand (product development, marketing, operations, distribution, finance, customer service). Supply chain network of a company experiencing fluctuations in demand, prices, average rates, and competitive environment.

Uncertainty of demand and prices will affect the balance between short-term portfolio and long term. Therefore, the uncertainty in terms of demand, supply, price, finance, must be considered to make decisions in network design.

To evaluate the network design decisions (network design) under uncertainty, there are several methods, among others:

Discounted Cash Flow Analysis
Binomial Representation
Decision Tree (Decision Tree)

The impact of uncertainty on network design decisions
Supply chain design decisions include investment in the number and size of plant, number of trucks, the number of warehouses. This decision can not be quickly changed in a short time, so it requires flexibility in making the decision.

Discounted Cash Flow Analysis
Decision of the supply chain established for the long term, so it must be evaluated as a series of cash flows at a certain period. Discounted Cash Flow Analysis to evaluate the present value (present value) of each future cash flow, which allows managers to compare those cash flows.

Binomial Representation

Period 1: P + u, P-d
Period 2: P +2 u, P + u-d, P-2d
Period 3: P +3 u, P u-d +2, P + u-2d, P-3d
Period 4: P +4 u, P u-d +3, P +2 u-2d, P + u-3d, P-4d
P + tu-(T-t) d, for t = 0, 1, ..., T

Decision Tree
Decision Tree (Decision Tree) is a graphical tool used to evaluate decisions under uncertainty.

Evaluating the network design decisions using Decision Tree, namely:

Managers have to make many different decisions when designing a supply chain network
Many of them long term or short-term and less flexible or more flexible
If the uncertainties are ignored, the long-term options tend to be selected because it is generally cheaper.
The decision as it potentially harmful, because prices in the future is very likely differ from estimates or forecasts made by company.
Decision tree is used as an evaluation tool of decision making in uncertainty

Methodology decision tree analysis summarized as follows:

Identify the duration of each period (month, quarter, etc.) and the number of periods T over which the decision will be evaluated.
Identifying factors such as demand, prices and exchange rates, the fluctuation will be considered after periods T.
Identify representations of uncertainty for each factor, which determines what is used to model the distribution of uncertainty.
Identifying periodic discount rate k for each period.
Represent the decision tree with a country that is described in each period as well as the transition probability between the countries in the period that succeeded.
Starting from the period T, back to the period 0, to identify the optimal decisions and cash flow at each step. Each cash flow at each step within a given period must be discounted back when included in the previous period.

Making supply chain network design decisions in uncertainty, namely:

Combining strategic planning and planning for the manufacture of network design kkeuangan
Using several measurements (multiple metrics) for evaluating the supply chain network.
Using financial analysis as an input in decision making, not as a decision-making process itself.
Using the same estimation with sensitivity analysis.








Reference:
Chopra, Sunil and Peter Meindl. 2007. Supply Chain Management: Strategy, Planning & Operations, 3rd Edition. Pearson Prentice Hall.