The strategic simulator for SCA Hubbing

In 2004 SCA, the global paper goods company, a leading European provider of corrugated packaging and longstanding client of Eurobios, launched a logistics services offering in the UK.

It was based on a hubbing model, where stocks of raw materials supplied by vendors were held and managed for manufacturing customers. These customers would call off stock daily as they chose for their production. The hub guaranteed an exceptionally high OTIF (99%), far higher than any of the suppliers could offer.

Obviously, the manufacturing operations were greatly enabled by this. In particular, it afforded great flexibility to production planners who could decide to change their scheduling at almost any time, assured that their line would not face stoppages due to insufficient materials. Additionally, outsourcing the inventory management lowered costs and improved stock levels. At a critical stage of their growth, SCA Hubbing approached Eurobios to investigate how our agent- based modelling techonology, already applied successfully at SCA, could help them.

The Hubbing Simulator, Phase I

It was agreed that the first phase would be to develop a simulation with an animation for sales purposes, to bring alive the hubbing concept for potential clients. A three month project ensued, in which Eurobios gathered the required business information - processes, rules (including detailed replenishment rules), etc. - and data, and proceeded to build an agent-based model and simulation of the system. An animated front end was added (see snapshot above) which displayed the actions performed by agents (e.g. ordering, calling, delivering, re- planning, etc.) and their state (e.g stock levels, running OTIF, etc.) during the simulation.

The Hubbing Simulator, Phase II

After the success of the first phase, a second phase was agreed at the end of 2004 (along with related further work with the parent company SCA). This phase would now give the application a more substantial and quantitative role.

In the initial business model, suppliers paid for the service for the hub on a per pallet basis (on the basis that it compensated for their poor OTIF to their customer). However, there were various problems with this chiefly that the customsers were not paying for the benefit they were receiving, and that the hub actually made less money if it managed the stock better! The Hubbing business now needed a way to cost their business, and to explore the impacts of different cost models under consideration, for different clients.

They also needed to standardise the assessment of new business opportunities for potential clients. This was at the time carried out by consultants, adding great expense to the sales process. Building on the agent-based model created in Phase I, Eurobios added activity tracking and processing capabilities to enable a variety of cost and pricing models (including activity-based costing by time or action, pricing by pallet, transport, etc.). These could be trialled and the costs for each party compared to find the best alternative for particular vendors and customers. An assessment module was also added to produce costed business case assesments for new clients.

Further Work

The Hubbing originally outsourced inventory management to a bureau service which was extremely expensive. The business turned to Eurobios to use their knowledge to build an operational system. A client-server application was built, with the server updating operational data daily from the warehouse management system, and providing replenishment reports according to existing strategies. The client application added tactical simulation and sophisticated forecasting capabilities to the strategic simulator, which was integrated.

Their main client, 3M, later took this system in-house, and continue to use it daily to carry out their inventory management and run tactical simulations in engagements with vendors, etc.

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