Use of Decision Trees in Supply Chain Decision Making
Introduction
The research paper involves the general overview of supply chain, decision making process in the supply chain of any organization. Three levels of a supply chain decision making process are briefly discussed. Agent based decision making process is also explained in this research paper. The complete decision making process in the supply chain form a tree that is called decision tree. The decision tree is very useful tool for effective decision making.
Decision Trees
Decision trees are comprehensive tools for formulating all possible decision options. A decision tree is a method that can be used to help make good choices, especially decisions that are of high costs and risks.
Supply Chain Decision Making
From management’s view point managers must sensibly and reasonably allocate the limited resources at the managers’ disposal by making optimal decisions that result in the ultimate outcome of profit maximization. Supply chain management (SCM) is a proven strategic business structure that’s goal is to implement organizational decision making that results in optimal performance. The goal of every business is to cut costs and optimize profits. The entire decision making is done to achieve this main goal. Supply chain management (SCM) also provides ways and options to achieve maximum output by taking sensible strategic decisions.
In general there are three levels of decision making process in a supply chain. Understanding the decision making context is important in the current dynamic business environment as it facilitates the joint management of supply chains that leads to competitive advantage.
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Decisions Trees in Supply Chain Decision Making
Strategic level decision making
Strategic decisions are the highest level. The strategic level defines the supply chain network. Here, a decision concerns general direction. At the strategic level the firms establish objectives and long term goals. These are qualitative or judgmental decision making that include activities like building relationships with suppliers and customers and integrating information technology (IT) within the supply chain. These decisions are least structured and most imaginative; they are the most risky and the most uncertain outcome.
The type of decisions that are made using qualitative methods are those where the possible outcomes are largely unknown and the input data is tertiary in nature. The strategic level decision making involves the selection of suppliers, transportation routes, manufacturing facilities, production levels, and warehouse location in supply chain management. Decision making at the strategic level may lack the precision in data.
Tactical level decision making
The supply chain tactical level is where the planning and scheduling is done to meet the actual demands. This decision making is to be of medium range. The decisions are made mostly using probabilistic method. The continual mismanagement at this level can greatly impact the strategic level. The types of decisions that can be made using probabilistic methods are those where the possible outcomes are only particularly enumerated. Its examples include payoff matrices and regression trees which require the decision maker to have an objective required outcome.
At the tactical level decisions need to be updated regularly i.e. on monthly, quarterly or yearly bases such as purchasing and production decisions, inventory policies, transportation strategies and customer strategies. The tactical level covers the planning of suppliers, manufacturing schedules etc. Here supply chain decisions are made to meet actual demand (Fox, 2002).
The Term Paper on Supply Chain Management 12
Supply chain management Supply chain management (SCM) is the process of organizing, operating, and controlling supply chains. The concept of supply chain management began in the early sixties; however, it has changed greatly since that time. The first stage in the development of supply chain management was called physical distribution management. (Handfield 47) This process integrated the ...
Some argue that the tactical and operational level are the same (Mills & Schmitz, 2002) yet they should be seen as separate as this level is characterized by the efforts towards the integration of business processes across the firm boundaries. The tactical level covers logistics decisions and areas such as quality management and the use and integration of modern information technology in the supply chain.
Supply chain management systems are instantiations of management support system which provide instances of decision technology. They are composed of intelligent decision agents, which interact with other decision agents to plan and execute one or more responsibilities (Fox et al., 2000).
Intelligent decision agents are wholly independent, carrying out their own agenda, acting as an agent for no one, while being able of interacting and communicating with other decision agents.
An Agent based model
An agent based model uses mathematical models, numerical solution techniques and algorithmic forms to analyze and solve decision making problems. Extensive computational resources are needed for simulating the actions and interactions of autonomous individuals in a network. Today more sophisticated planning; scheduling and coordination methods contribute to better decomposition of complex systems that result in better supply chain management (SCM) optimization.
Many agents involve in the supply chain decision making process. These agents are as follows:
Order acquisition agent: this agent is responsible acquiring orders from customers, negotiating with customers and handling customers’ requests.
Logistics agent: this agent is responsible for coordinating the plants, suppliers and distributions centers to achieve the best possible results.
Transportation agent: this agent is responsible for the assignment and scheduling of transportation resources
Scheduling agent: this agent is responsible for scheduling and rescheduling activities in the factory.
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Dispatching agent: This agent performs the order release and the real time floor control functions as directed by the scheduling agent (et al., 2000).
Operational Level decision making
Mechanisms at the operational level are used to execute plans and/or by first level managers to direct specific tasks. These are everyday decisions, used to support tactical decision making in supply chain management (SCM).
These decisions are structured with little thought. Their impact is immediate, short term, and usually low cost. The consequences of a bad operational decision will be minimal. Operational decision making can be preprogrammed, pre-made or set out clearly in policy manuals.
These three are the three basic levels with underlying agents at every level in the decision tree of a supply chain decision making process. The paper provides with the general information about the use of simple decision tree in the supply chain decision making process.
References
* Angela Mattia, 2012, A multidimensional view of agent based decisions in supply chain management, Vol. 2012 (2012), Article ID 658483, 13 pages, Jacksonville University, Jacksonville, Florida
* Fox, M. S. (2002).
Integrated supply chain management. Enterprise integration laboratory. Working Paper.
* Fox, M. S., Barbuceanu, M. & Teigen, R. (2000).
“Agent-Oriented Supply-Chain Management,” International Journal of Flexible Manufacturing Systems, 12, 165.
* Luca Greco, Liliana Lo Presti, Agnese Augello, Giuseppe Lo Re, Marco La Cascia
* and Salvatore Gaglio, “A multi-agent decision support system for dynamic supply chain organization”, University of Palermo.
* Mills, J., and Schmitz, J. (2002).
A strategic review of supply networks. Working Paper, Centre for Strategy and Performance, University of Cambridge
