Coordinated Location, Distribution, and Inventory Decisions in Supply Chain Network Design
Read this article. The goal is to understand optimum product allocation and distribution locations so products are delivered at the lowest possible cost. As you read Part 2, what are some other problems associated with supply chain allocation and distribution?
Case Study
The case study presented here, with an example from
the food industry, illustrates the algorithm proposed in Section 4, as
well as the applicability and effectiveness of the model. This food
industry company is the leading producer of two main categories of
Iranian food and drink (rice and tea). The basic distribution data are
presented in the next sub-section.
Setup
A case study inspired by a food producer in Iran is presented to demonstrate the validity and practicality of the model and solution method. The company owns one production site and six potential DC/warehouse sites in the different customer zones (Figure 2). There are three types of products and twenty main retailers.
Lingo 8.0
optimisation software is used as the problem solver. All scenarios are
solved on a Pentium 4 (Core 2 Duo) with 1GB RAM and 4 GHz CPU.
Because
of confidentiality, the input data are randomly generated. However, the
generation process is done so that it will be close to the real data
available in the company. Without loss of generality and just to
simplify generation of the stochastic parameters, we apply the pattern
of a systematically normal distribution for our numerical test.
The
required throughput capacity of any warehouse for product ' is as
follows: s,= 2, s2= 5, s3= 4. Tables 2 and 3 list some of the other
basic distribution data.
Performance analysis
The interactive solution procedure using the proposed SGP method for the case study is as follows:
First,
formulate the original stochastic multi-objective DPD problem according
to equations (1)-(9). The goal of the model is to select the optimum
numbers, locations, and capacity levels of warehouses to deliver the
products to the retailers at the least cost, while satisfying the
desired service level of the retailers. The proposed model is
distinguished from the other models in this field in the modelling
approach. Because of the somewhat uncertain nature of retailers' demand
and DMs' aspiration levels for the goals, a stochastic modelling
approach is used. Additionally, a novel and generic SGP-based solution
approach is proposed to determine the preferred compromise solution.
Second,
obtain efficient extreme solutions for each of the objective functions.
These extreme solutions of the case study are presented in Table 4.
It
is assumed that the DMs do not choose any of the efficient extreme
solutions as the preferred compromise solution, and proceed to the next
step.
Considering the efficient extreme solutions given in Table
4, the lower and upper bounds of the objectives can be determined. In
our case, the corresponding minimum and maximum values of the efficient
extreme solutions are determined as the lower and upper bounds
respectively, as presented in Table 5.
After calculating the upper and lower bounds of each objective function, the next step is formulation of problems 1, 2 and 3. A summary of the results for the various scenarios is given in Tables 6, 9 and 11.
As
stated previously, the relative weights for the first and second
objective functions in problem 1 can be determined by DMs using various
methods. For the presented case study, DMs determine three weights for
the INV and TCOST objectives as follows: (0.7, 0.3), (0.5, 0.5) and
(0.3, 0.7). For this problem, no constraint on delivery time is included
and TH=1000 (planning horizon) hereafter. By fixing the values of W1
and W2, the solution given in Table 6 is obtained. In this table, for
three values of each objective function and three levels for the
customer service performance index (K), nine scenarios have been
generated.
In Table 6, the warehouse load ratio percentage (WRL)
column shows the efficiency of the opened warehouses. The average WRL in
approach 1 is 0.9865, and since Zp1 is a non-linear objective function,
the range of the CPU time for solving this problem is very wide, from 6
to 180 seconds.
Note that in scenarios 5 and 6, although the
customer service performance (90%, 75%) is lower than in the 4th
scenario (97.5%), the objective function is higher. Therefore these
scenarios are inferior and must be removed from the scenario list.
Figure 3 shows the results of equal weights for scenarios 1, 2 and 3,
comparing them with non-equal weights for scenarios 7, 8 and 9 in
approach 1. A comparison of the first and third scenarios in Table 7
shows that total cost is increased slightly from 6,988,496 to 7,111,742
(1.7%) when CSPI is increased from 75% to 97.5% (23%). This situation is
the same for scenarios 7, 8 and 9 in approach one and for the other
scenarios in the second and the third approaches (Tables 9 and 11). As
can be seen, the effect of customer service level decreasing on cost
improvement is negligible. This may support management's preference to
select K=97.5% because a large increase in CSPI results in a small cost
penalty. Selecting the first or the seventh scenario in this approach is
based on DMs' preferred objective weights.
To
solve problem 2, first the γ parameter must be calculated based on the
DMs' preferences for the right-hand side of the new constraint (TDELT).
Table 8 shows three preferred values for the delivery time performance
index ( γ ).
Based on three values for W1, W2 and γ, eighteen
scenarios have been generated. The results of these scenarios are
presented in Table 9. In approach 2, the WRL average (0.9644) is lower
than approach 1 (0.9865); and by considering the TDELT objective in
approach 2, this effect was predictable. Considering the sixth column in
Table 8, it can be determined that since Zp2 is a non-linear objective,
the range of the CPU time to solve this problem is very wide, from 32
to 1,693 seconds. Comparing the CPU times in Table 6 and 9 shows that
these times for problem 2 are significantly larger than those for
problem 1. Unfortunately, LINGO optimisation software could not solve
the 16th scenario in 180 minutes. The results presented in Table 9 are
illustrated graphically in Figures 4 and 5.
Table 10 shows the preferred values for η and γ in problem 3. For this problem, six scenarios are examined. The performance vectors and the other results are presented in Table 11, and illustrated graphically in Figure 6. It is interesting to note that in approach 3 the WRL average is 0.9878, and it is higher than the other approaches.
In summary, we make the following observations from our case analysis:
- Ten cases out of 33 scenarios are dominated by the other ones.
- The solution results indicate that the proposed model is not very
sensitive to CSPI, so the preferred value for this parameter is 97.5%.
It
can be concluded that the proposed SGP solution using approach 3 may
provide different and even more preferable results when compared with
approaches 1 and 2