Supply-Chain-Paper-1 - Ind. Eng. Chem. Res. 2001, 40,...

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Design of Multi-echelon Supply Chain Networks under Demand Uncertainty P. Tsiakis, N. Shah, and C. C. Pantelides* Centre for Process Systems Engineering, Imperial College of Science, Technology and Medicine, London SW7 2BY, United Kingdom We consider the design of multiproduct, multi-echelon supply chain networks. The networks comprise a number of manufacturing sites at fixed locations, a number of warehouses and distribution centers of unknown locations (to be selected from a set of potential locations), and finally a number of customer zones at fixed locations. The system is modeled mathematically as a mixed-integer linear programming optimization problem. The decisions to be determined include the number, location, and capacity of warehouses and distribution centers to be set up, the transportation links that need to be established in the network, and the flows and production rates of materials. The objective is the minimization of the total annualized cost of the network, taking into account both infrastructure and operating costs. A case study illustrates the applicability of such an integrated approach for production and distribution systems with or without product demand uncertainty. 1. Introduction A supply chain is defined as a network of facilities that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and distribution of these products to customers. 1 A similar definition has been given by Bhaskaran and Leung, 2 who describe the manufactur- ing supply chain as an integrative approach used to manage the inter-related flows of products and informa- tion among suppliers, manufacturers, distributors, re- tailers, and customers. A typical supply chain (see Figure 1) comprises suppliers, production sites, storage facilities, and cus- tomers. It involves two basic processes tightly integrated with each other: (i) the production planning and inven- tory control process, which deals with manufacturing, storage, and their interfaces, and (ii) the distribution and logistics process, which determines how products are retrieved and transported from the warehouse to retailers. Suppliers are at the start of the supply chain provid- ing raw material to the manufacturers. Each manufac- turer may have more than one supplier. The manufacturing sites of interest to this paper are multipurpose production plants where a wide range of products can be produced. The production capacity of each site is typically determined by the detailed sched- uling of each plant. Before being distributed to the customers, the final products from production plants are stored at two distinct stages in the supply chain, namely, at major warehouses and at smaller distribution centers. Each warehouse may be supplied material from more than one manufacturing site. Similarly, a distribution center can be supplied from more than one warehouse al- though, for reasons of organizational simplicity (“single sourcing”), it is often the case that each distribution center is supplied by only one warehouse. Both the
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Supply-Chain-Paper-1 - Ind. Eng. Chem. Res. 2001, 40,...

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