Supply Chain Management Application essay

In China, an increasing number of start-up online retailer companies had emerged since last decade. Most of them achieved great operation successes, and even some of them have been the listed companies on the Hong Kong and North American capital market. These companies such as ALABAMA, SUNNING and JDK.

However, it IS no doubt that some logistic corporations are also developing smoothly. They have their own operating logistic channels and system, which makes most of online shopping commodities, could be delivered within three days. Because of the widespread shipping stations located in china, most online retailers rely on their competitive advantages on the efficient shipping channel. But in recent several years, these china leading online retailers take the step to consider whether should establish their own delivery system rather than relying other partners simply.

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In this case, we try to use the Monte-Carlo simulation model to compare Sad’s supply chain and hired-party delivery companies cost model, we will determine which operation should JDK takes based on the analysis result. JDK. Com Inc (Ticker: ID) is an comprehensive and professional online shopping mall, and it sells over ten thousands of brands as well as 40. 2 million kinds of commodities, includes home appliances, mobile homes, computers and baby toys. JDK. Com Inc adheres the customers first philosophy, the company also offers authentic licensed, Genius, machine-printed invoices to their customers. JDK. Mom is the leading and typical online retailers in China, which is the reason why we choose this company as our analysis sample. Lastly, the research meaning regarding to this paper is to find Out whether china online retailers should built their own specific logistic system or not. 2 LITERATURE REVIEW As e-commerce developed so rapid, more and more corporations need to consider the supply chain management. Guan Yang (2011 ) thinks that it is very important for company to better use supply chain management. Not only it can provide efficiency to the company but also bring huge profit to the company.

Yanking Ding (2014) thinks that business process redesign and process change has huge impact on e-commerce supply chain management. From our point of view, supply chain management is good, but the most important thing is that we should figure out which type of supply chain best suit the company and then apply it. Y . S. Man (2006) did some research on Third-Party Logistics (PL), Third-Party Logistics mainly refers to the third party logistics company undertake logistic activities for the company. PL do not have products and do not participate in sales. It signs contract and offers logistic service for the company. PL allows company focus on their business, but they cannot control logistic service directly. So the customer service cannot be guarantee. Self-Managed logistics mainly refers to industrial company that own logistics business themselves. Usually the main profit of the company is not the logistics but some other products. Hushing Ghana and her group members (2008) think that the advantages of Self-Managed logistics are that company has strong control force to them. Also, it has strong services, which means company can easily get feedback from their customer and change to the service which customer like.

From our point of view, this kind of logistics also has disadvantages. Such as increase the burden of company investment since company need to invest in their self-managed logistics. So we need to do deep research on this and draw conclusions. In this paper, we also use Monte-Carlo Simulation Model. The model of Monte-Carlo Simulation was proposed by John von Neumann in ass’s. This model solves the problem that some capital budgeting situations which cannot be solved. The main method of this model is to use random samples to develop probability distribution.

So we can use this model to determine actual value, and use the predict value to make investment decision. We usually establish the model in Excel. Don L. Missile (2005) introduced the easy way to modeling. We need to generate large amount of random numbers under the RAND O function of Excel. Also, calculate the maximum, minimum and average of the random numbers. Then, using formula to calculate the total amount of the number that you want to get from the model. After that, use Excel to set specific ranges and see the frequency of the numbers. Lastly, we can draw a distribution based on number and then make decisions.

After reviewing several research papers, we think Monte-Carlo Simulation Model as best method to do our research. Considering the unknown specific data, we can use it to figure out the answer we want and draw conclusions. It is meaningful for us to combine the Monte-Carlo Simulation model and supply chain to research what the situation it is when it be used on Chinese e- commerce companies. 3 MONTE-CARLO SIMULATION MODEL ford. Com 3. 1 Background JDK. Com is the largest BBC online shopping website in China and sell a lot Of kinds of goods online, including phone, book and etc.

According to the historical sales records, we select three most popular goods, which are mobile phone, and Home appliance. Shipping these three kinds of goods to the customer need two steps. First step is the process from the warehouse where the goods are located to the delivery station near the customer. Second step is the procedure from the delivery station near the customer to the destination of the customer through the professionally trained delivery staff offs. Com. According to the PIP road show, there are 1,620 delivery stations in 495 cities and the total amount of deliver staff is 24,412.

Besides, there are 217. 8 million fulfilled orders in the fourth quarter of 2014 from the Announces fourth quarter report Offs. Com. We conclude that there are about 1 5 people in each delivery station and each person deliver 8,922 order per month. In all, each deliver station finish about 134,000 order each month, which is the number of monthly demand. 3. 2 Assumption Considering of the first step, this process can be selected by two logistic mode, which are self-run logistic mode and third-party logistic mode. Self-run logistics mode means JDK. Mom use their own logistics system to finish this process. Third-party logistics mode means JDK. Com use third-party logistics system such as SF professional express company to ship the items from one arouses to another warehouse. The advantage of self-run logistics mode is JDK. Com can control the process of logistics system. The advantage of third- party logistics mode is JDK. Com can simply their selling process through sending out the items from the warehouse to the customer. We consider the price which happens in the first step is related to the amount of demand as a variable cost.

The assumption is that the related cost priced by the weight of the goods, which usually are 1. Egg keg and Egg for mobile phone, TV and home appliance. For the two type of logistic mode, this cost can be change cause of the different logistic ability between self-run logistic mode and third-party logistic mode. Except for the above price, several other variable costs involves in building the cost function for each delivery station Offs. Com. They are monthly demand, rent, utility and administration cost.

Each delivery station needs to rent a space to finish the second process of shipping. Rent cost is different in the different type of city. We can estimate that rent is more expensive in bigger cities. According to the division of city in China, this fluctuation would not very significant Utility cost usually includes he device used by the delivery staff and some basic costs for the delivery station, which are electricity charges, gas fee and water fee. Last but not least, administration cost is the fee paid to the several managers in order to the management in each delivery station.

According to the background and assume, we put up with the formula of the total cost per month for each delivery station Total cost + R + LLC + A In which D = Demand of order per month V= Price of each type of logistics mode (VI :Self-run logistics V: third-party logistics) R = Rental cost LLC Utility cost A = Administration cost 3. Modeling Sample Based on the background and assumptions given above, we create a chart using Monte Carlo Sampling Method. Satanists Lam invented the modern version of the Monte Carlo method in the late ass’s in order to build a simulation model.

Firstly, all the variables cost need to be identified as were mentioned in the former part. The random variables are the price related to the amount Of order, the demand of order per month, the rent cost, the utility expense, and the administration cost. The amounts of these costs vary with the type of cities, the consumer ability of customer, and the size of delivery taxation. The distributions for these random variables are defined as following: a) The price related to the amount of order from self-run logistic mode follows the normal distribution , the mean is Y 63. 5 and the standard deviation is 45. 06. The price from third-party logistic mode follows the normal distribution. Y 43. 82 is the mean, and 26. 97 is the standard deviation. The price related to the amount of order from the third-party logistic mode is more stable than the self-run logistic mode. B) The demand of order each month follows the normal distribution, the mean is 134000 and the standard aviation is 20000. The demand of order varies changes based on the demand of customers in different cities, due to the consume need in the different types of cities. ) The rent cost follow the normal distribution. Y 8000 is the mean and the standard deviation is 2000 , because it changes due to the different types of cities in China. D) The utility expense follow the normal distribution. Y 3000 is the mean and 1000 is the standard deviation. The reason is that it changes depend on the number of delivery staff, which varies from different delivery stations. E) The administration cost follow the normal striation. The mean is V 1 000 and the standard deviation is 200. This expense varies little based on the similar level of management in each delivery station.

According to the illustration of the variables factors, we create the sample of the Monte Carlo Then, we use excel to perform. Firstly, we figure out the probabilities for these variables by using the formula RAND () to get random numbers that vary from O to 1 . Secondly, the inverse of the cumulative normal distributions of these variables need to be accumulated through the MORNING (provability, mean, standard deviation) function. In order to enable the mode accurately, 100 trials are taken to run in this sample.