Production facilities, demand allocation

The multicommodity capacity facility location-allocation problem is of primary importance in transportation of shipments from the original facilities to intermediate stations and then to the destinations. In this illustrative example we will consider such a problem which involves I plants, J distribution centers, K customers, and P products. The commodity flow of product p which is shipped from plant i, through distribution center j to customer k will be denoted by the continuous variable z tp. It is assumed that each customer k is served by only one distribution center j. Data are provided for the total demand by customer k for commodity p, Dkp, the supply of commodity p at plant i denoted as Sip, as well as the lower and upper bounds on the available throughput in a distribution center j denoted by V " and Vf7, respectively. 

Production planning and manufacturing. These problems address creation of products and services in response to customer demand. It includes such supply chain management concerns as master production planning, capacity allocation, scheduling, maintenance of manufacturing facilities, and manufacturing quality. 

ALLOCATING DEMAND TO PRODUCTION FACILITIES From Table 5-2 we calculate that TelecomOne has a total production capacity of 71,000 units per month and a total demand of 32,000 units per month, whereas HighOptic has a production capacity of 51,000 units per month and a demand of 24,000 units per month. Each year, managers in both companies must decide how to allocate the demand to their production facilities as demand and costs change. 

We will save the discussion of production planning models, however, for Chapter 5, based on the similarity of that problem to the facility location and location-allocation problems discussed in that chapter. Also in Chapter 5, we introduce the notion of risk pooling, which is a means of reducing the safety stock required to support a target service level by aggregating demands across multiple sources, for example across multiple customers or customer regions supported by a single facility. 

The allocation of supply sources and markets to facilities has a significant impact on performance because it affects total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand. This decision should be reconsidered on a regular basis so the allocation can be changed as production and transportation costs, market conditions, or plant capacities change. Of course, the allocation of markets and supply sources can be changed only if the facilities are flexible enough to serve different markets and receive supply from different sources. 

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