Developing simulation tools for capacity management in an outsourced supply chain

Abstract

Outsourcing to subcontractors has become a common practice, enabling businesses to focus better on their core business. Capacity management in subcontractor networks is a pivotal factor in ensuring delivery reliability and cost efficiency. Subcontractors with a medium production volume and a high variety of products often serve multiple customers with different priorities, creating bottlenecks, inefficiencies for both subcontractors and main operators. Ineffective capacity balance in the subcontractor aspect can have an impact on late deliveries, backlogs, and decreased profitability. This research aimed to examine how subcontractor capacity management can be improved through simulation modeling. A theoretical foundation for capacity planning, supply chain management, and simulation modeling was provided in order to accomplish this goal. Bottlenecks at subcontractor workstations and limitations of traditional delivery-reliability metrics have been found as two main areas that can be addressed to enhance the current state of the subcontractors' networks. Based on assessment and literature study, a simulation model was developed following the eight-step simulation development process. The research has also been built around designing, structuring, and validating the model. Lastly, the model has been validated by using sensitivity analyses and testing multiple scenarios to improve subcontractor operations and balance customer priorities. For more research, simulation modelling should include more networks and be expanded for more workstations within the production systems. Additionally, simulation-based strategies and their long-term impact on supply chain collaboration could be valuable for further studies.