Design of responsive supply chains under demand uncertainty

Fengqi You, Ignacio E. Grossmann*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

215 Scopus citations

Abstract

This paper addresses the optimization of supply chain design and planning under responsive criterion and economic criterion with the presence of demand uncertainty. The supply chain consists of multi-site processing facilities and corresponds to a multi-echelon production network with both dedicated and multiproduct plants. The economic criterion is measured in terms of net present value, while the criterion for responsiveness accounts for transportation times, residence times, cyclic schedules in multiproduct plants and inventory management. By using a probabilistic model for stock-out, the expected lead time is proposed as the quantitative measure of supply chain responsiveness. The probabilistic model can also predict the safety stock levels by integrating stock-out probability with demand uncertainty. These are all incorporated into a multi-period mixed-integer nonlinear programming (MINLP) model, which takes into account the selection of manufacturing sites and distribution centers, process technology, production levels, scheduling and inventory levels. The problem is formulated as a bi-criterion optimization model that maximizes the net present value and minimizes the expected lead time. The model is solved with the ε-constraint method and produces a Pareto-optimal curve that reveals how the optimal net present value, supply chain network structure and safety stock levels change with different values of the expected lead time. A hierarchical algorithm is also proposed based on the decoupling of different decision-making levels (strategic and operational) in the problem. The application of this model and the proposed algorithm are illustrated with two examples of polystyrene supply chains.

Original languageEnglish (US)
Pages (from-to)3090-3111
Number of pages22
JournalComputers and Chemical Engineering
Volume32
Issue number12
DOIs
StatePublished - Dec 22 2008

Keywords

  • Demand uncertainty
  • Lead time
  • MINLP
  • Pull system
  • Responsive supply chains
  • Safety stock

ASJC Scopus subject areas

  • Chemical Engineering(all)
  • Computer Science Applications

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