Economic Engineering for Supply Chain Management

Abstract

The purpose of Supply Chain Management (SCM) is to maximize and stabilize the flow of goods through a supply chain. Disruptions to this flow, such as the Bullwhip Effect (BWE), have become increasingly severe and dynamic, challenging current methods for counteracting these disruptions. This thesis develops a systems and control framework for designing SCM policies to meet this challenge.

The thesis makes use of economic-engineering modeling principles to model the dynamics of the supply chain and calculate the flow of goods. Specifically, the supply chain is considered to be analogous to an electrical circuit, with the flow of goods analogous to the current and price changes analogous to voltage drops. Based on these analogies, the thesis develops the building blocks required for modeling a supply chain, consisting of storage, production and external markets. The building blocks are used to construct a serial supply chain with multiple stages and products. The supply chain is analyzed in both the time and frequency domain, quantifying how disruptions influence the flow of goods.

To regulate the flow of goods through a supply chain, this thesis models the procurement, production and product pricing policies of SCM as individual PID controllers. The PID controllers are shown to regulate the flow of goods in a manner similar to how an actual manager would.

The effectiveness of the framework is demonstrated in a simulation study of the BWE in the supply chain of Valtris Specialty Chemicals (VSC). It is shown how tools in classical control theory, like Bode diagrams, are effective in the analysis of the dynamics and severity of the BWE in terms of the resonance frequency and the amplification, respectively. In addition, this thesis shows how the tuning of the PID controllers relates to specific adjustments in the policies of VSC managers.