A simulation program
In each stage we use a simulation program to calculate total costs and service performance. The program uses information about all orders in the preceding period. Furthermore, the program requires transport tariffs, cutting capacities and finally for each DC the list of stocked product and the cutoff order size. The output consists of the total transport costs for replenishment, regional and direct shipments, the number of orders that were shipped from each location and the number of orders that were shipped too late.
Delays in shipping are caused by a lack of cutting capacity in a location. In practice orders are cut using a first-in-first-out policy. To prevent service performance from dropping below target, locations that lack service capacity are frequently forced to work overtime. We could not model that in our simulation program since no data was available on the overtime policies. To reflect the positive effect of overtime. We used the last-in-first-out (LIFO) policy in the simulation program. As this policy maximises the number or orders cut in the time, It gives about the same effect as overtime (the number of day and orders is delivered too late does not play a role in the study.)