Optimization in Supply Chain

Abstract Transportation and facility location decisions are crucial in strategic supply chain design. Optimization models guide location decisions giving the optimal site selection under certain assumptions and constraints. It is an art to decide which model to use and how to modify the results based on the needs of a company. This chapter presents some of the important optimization models in supply chain. Mathematical formulations and solution procedures are also given. The models can be expanded for multi-echelon supply chains and/or include multiple products. 

In Chap. 2, we dealt with topics in supply chain management. Supply chain management comprises decision making about facility location, production, transportation, and inventory control. Many companies employ optimization as a decision making tool. Here, we will introduce important and core optimization models and solution strategies for some important supply chain problems. 

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The book starts with an Introduction and the second chapter deals with Supply Chain Management. This chapter discusses key decisions in supply chain management and considers planning operations for it. The third chapter introduces Scheduling Models in Supply Chain. The last chapter is Optimization in Supply Chain. Optimization problems and models reviewed are classified under transportation and facility location. 

Prakash A, Chan FTS, Liao H, Deshmukh SG (2012) Network optimization in supply chain a KBGA approach. Decis Support Syst 52 528-538 Ross A, Venkataramanan MA, Emstberger KW (1998) Reconfiguring the supply network using current performance data. Decis Sci 29 707-728... 

R6 - Price uncertainty consideration in planning Spot demand quantity and prices are uncertain in commodity business specifically in the considered planning horizon of 3-12 months. Since price is the main buying criterion in commodity business, mid-term demand quantity is mainly influenced by the price level. If spot demand quantity and prices depend on each other, uncertainty can be limited to one parameter while the other parameter is kept constant. The spot demand price is considered as uncertain in this problem leading to different turnover scenarios for the same sales quantity. Lababidi et al. (2004) presenting a petrochemical case that had to consider uncertainty in market prices and raw material costs in supply chain optimization. 

The value objective function is oriented at the company s profit and loss definitions. Guiding principle is to only use value parameters that can be found in the cost controlling of the company signed by controlling. Penalty costs and without currency and weighting factors being applied to steer optimization results but having no actual financial impact - as it can be often found in supply chain optimization models - do not meet this requirement. 

Kurus D (2006) Simulation-based optimization model for supply chain planning of commodities in the chemical industry Technical University of Berlin Lababidi HMS, Ahmed MA, Alatiqi IM, Al-Enzi AF (2004) Optimizing the Supply Chain of a Petrochemical Company under Uncertain Operating and Economic Conditions. Industrial Engineering Chemistry Research 43 63-73 Labys WC (1973) Dynamic Commodity Models Specification, Estimation and Simulation, Lexington Books, Lexington... 

Pibemik R, Sucky E (2005) Master Planning in Supply Chains. In Gunther HO, Mattfeld DC, Suhl L (eds) Supply Chain Management und Logistik Optim-ierung, Simulation, Decision Support. Physica, Heidelberg, pp 69-94... 

Daskin MS, Snyder LV, Berger RT (2005) Facility location in supply chain design. In Langevin A, Riopel D (eds) Logistics systems Design and optimization. Springer, Berlin et al., pp 39-65... 

There is significant room for improvement in supply chain management. Outsourcing options need to be investigated systematically in Asia-Pacific as each country is different and new local and regional operators emerge every day, often with distinctive value propositions. Shipping costs are also very volatile and offer tremendous optimization opportunities for those who can master them. 

Provimi Pet Food is the pet food division of Provimi, one of the world s largest animal feed manufacturing and commercial companies. The dynamic growth of the company in the last years resulted in the necessity to optimize the supply chain. The supply chain problem has special characteristics such as special logical constraints of homogeneous transport, complex cost function, and large size. The developed mathematical model and computational experiences are presented here. 

Park, M., Park, S., Mele, F. D., and Grossmann, I. E. ModeUng of purchase and sales contracts in supply chain optimization. Industrial Engineering Chemistry Research, 45(14) 5013-5026, 2006. 

A typical supply chain network is shown in Figure 2.3. Designing a supply chain involves choosing facilities, capacity, and deployment to maximize competitiveness. Steps to optimize a supply chain are described below. 

This difference in supply chain profit arises because of double marginalization, i.e., the retailer does not see the supply chain margin associated with each sale realized or lost and thus makes inventory decisions that are lower than the supply chain optimal decisions (for service levels > 0.5). 

Graves, S.C., and Willems, S.R Optimizing Strategic Safety Stock Placement in Supply Chains. Working paper, Sloan School of Management, Massachusetts Institute ofTechnology, January 1998. 

From 1990 to 1998, in the early phase of supply chain evolution, the supply chain pioneers focus was on the development of vertical processes. It was a zealous focus on optimizing vertical silo processes of make, source, and deliver. As a result, there was little cross-functional overlap and as a consequence, there was no way to orchestrate tradeoffs in supply chain execution. In the last five years, the focus on planning processes has shifted from vertical to horizontal. In addition, from an inside-out (within the organization) to an outside-in (from the external markets in to the organization) focus. Both of these shifts are fundamental to the building of market-driven value networks. 

Stewart (1997), states that managing supply-chain operations is critical to any company s ability to compete effectively, and that success for many companies now depends on their ability to balance a stream of product and process changes with meeting customer demands for delivery and flexibility. Optimally managing supply-chain operations, has therefore, become critical to companies ability to compete effectively in the global marketplace. 

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