Optimal solution for the network

The linear programming tool is a first step in uncovering possible choices to operate a supply chain that may differ from the usual heuristics that do not account for the chain structure. Often the solution generated exposes opportunities that may not have been considered. At other times, the solution enables an understanding of the value of changes to a supply chain, such as addition of new supply sources or warehouses, that may further improve performance. 

In addition, the optimization model also provides sensitivity analysis that can be used to understand the impact of capacity or demand changes. 

8 Evaluating the Effect of Fixed Costs in the Supply Chain Example 

Consider the earlier example, but include the possibility of closing plants and warehouses given fixed costs associated with each facility. During supply chain network design, such facility decisions will have to be made 

There are three possible decisions regarding plant capacity (1) keep both plants open, (2) keep plant 1 only open, or (3) keep plant 2 only open. Similarly we have three possibilities for the two warehouses (1) keep both warehouses open, (2) keep warehouse 1 only open or (3) keep warehouse 2 only open. Closing plants or warehouses gives us fixed cost reductions but potentially decreases the flexibility to respond to changing cost or demand situations. 

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