Demand planning approaches

In our view, an important decision in this process is whether the product is functional or innovative. Functional products require different supply chains than innovative products. Section 5.1.3 discussed the difference between the two. If the product is innovative, the planning approach needs to estimate the market mediation costs. These are the costs that arise from mismatches between supply and demand. For example, shortages cause loss of contribution from sales — one type of market mediation cost. Overstocking can lead to product markdowns — another such cost. 

The SC design-planning approach follows the model developed in Chap. 2. In this formulation (Eqs. (2.1H2.28)), a four echelon SC is considered as shown in Fig.4.2. In this chapter, the equation expressing that part of the demand can be left unsatisfied because of limited production capacity (Eq.(2.4)) becomes one of the integrating equations as stated in Sect.4.3.4. 

The fact that the great majority of the data needed for a retrospective study are already present in the database demands an entirely new conceptual approach. The situation can be compared to that of a sculptor faced by a massive block of stone from which he plans to carve a much smaller but absolutely precise statue. The sculptor has to cut away all the unwanted stone... 

Chemical process systems are subject to uncertainties due to many random events such as raw material variations, demand fluctuations, equipment failures, and so on. In this chapter we will utilize stochastic programming (SP) methods to deal with these uncertainties that are typically employed in computational finance applications. These methods have been very useful in screening alternatives on the basis of the expected value of economic criteria as well as the economic and operational risks involved. Several approaches have been reported in the literature addressing the problem of production planning under uncertainty. Extensive reviews surveying various issues in this area can be found in Applequist et al. (1997), Shah (1998), Cheng, Subrahmanian, and Westerberg (2005) and Mendez et al. (2006). 

Therefore, in this approach, we develop Risk Model III as a reformulation of Risk Model II by employing the mean-absolute deviation (MAD), in place of variance, as the measure of operational risk imposed by the recourse costs to handle the same three factors of uncertainty (prices, demands, and yields). To the best of our knowledge, this is the first such application of MAD, a widely-used metric in the area of system identification and process control, for risk management in refinery planning. 

Steam crackers provide the traditional cost-effective approach for olefins production from lighter feed stocks such ethane, propane, naphtha, and AGO. However, these options typically provide higher E/P ratio. To meet the increasing demands of ethylene and particularly propylene, refiners and petrochemical producers are planning integrated facilities. The objectives are ... 

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