# Market-Oriented Procurement Planning Leading to a Higher Service Level and Cost Optimization
## 3 Design of the Conceptual and Simulation Models
### Design of Case Study to Test the Model Depending on the Product Lifecycle  
First, the modeler must define a time horizon and units of time. It is easy to conduct this step by asking to what extent the simulation should be considered. In the case of this study, we decided to simulate eight working years to evaluate the influences in the short, medium, and long term. The simulation was performed with 400 time periods, each representing one producing week, counting a total of eight years of production, which represents the lifecycle of the product in consideration. The lifetime of car models in the past decade in the more advanced countries decreased on average from eight to almost four years [52]. Second, the supply chain structure is set to apply the conceptual model and to be able to simulate it under certain conditions. The structure consists of a Tier 1 supplier and an OEM Producer as shown in Figure 3. The hierarchical supplier network is divided into three tiers, with the Tier 1 suppliers as producers of completed modules (e.g., dashboard, engine, seats, etc.) with their own manufacturing capabilities or montage [53]. Both have their warehouses of raw materials and finished products in addition to their production facilities. Finally, end-customers are at the end of the chain receiving the products:  
Third, general assumptions were made to be able to answer the research question allowing the reduction of model complexity. The following assumptions were applied to all scenarios and models of the case study:  
* The product is a finished/sale product after the OEM production facility; \begin{table}
\begin{tabular}{c c c} \hline \hline
**No.** & **Key Indicator** & **Formula** \\ \hline
12 & \(\sum\) Inventory costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Proucrement costs_\(+\) \\  & & _Warehouse Storage costs_\(+\) _Stockout costs_. \\ \hline
13 & \(\sum\) Procurement costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Units_\(\times\)_Cost per Unit_\(+\)_Orders_\(\times\) \\  & & _Cost per Order_ \\ \hline
14 & \(\sum\) Capital commitment costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Inventory value_\(\times\)_Storage time_\(\times\)_Interest rate_ \\ \hline
15 & \(\sum\) Storage costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Personnel costs_ \\ \hline
16 & \(\sum\) Stockout costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Penalty per unit backlogged_\(\times\)_units backlogged_ \\ \hline
17 & \(\sum\) Investment costs (mil. USD) & \(\sum\limits_{t=1}^{n}\)_Investment per time period_ \\ \hline \hline \end{tabular}
\end{table} 
Table 7: _Cont._  
Figure 3: Supply chain structure of the case study (own elaboration). Original equipment manufacturer (OEM). * The orders have only one product type; There is only this product type in the supply chain model considered;
* There is no transport limitation, or transport means limitation between the different stages;
* The replenishment times between stages at the beginning of the case study have the same distribution over the period considered;
* A steady supply of materials for the production process of the Tier 1 supplier is given;
* The stock and products in the transport process are known in every moment, assuming a calculation after each transaction along the supply chain;
* Order information along the supply chain is available;
* Demand is not known, but historical data for all customers is available one week after the demand;
* Customers do not leave the company or order before or more if the last orders were not met on time;
* In the beginning, all employees have the same experience and have the same capacity to perform warehouse activities. Employees characteristics, such as age or experience, are variables that can be parameterized in the model to assess their influence;
* The production capacity is always between a minimum and a maximum, given a capacity per shift and the number of employees if no decision has been taken along the simulation.