Global Supply Chain Design Review, MHRC Portland Marc Goetschalckx. School of Industrial and Systems Engineering Georgia Institute of Technology

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1 Marc Goetschalckx School of Industrial and Systems Engineering Georgia Institute of Technology MHRC Portland, 2002 Marc Goetschalckx Definitions and problem statement Literature review Characteristics of (global) strategic supply models Computational tools Research opportunities and conclusions reserved 1

2 Japan S S M W USA C S W C S W C Mexico M C C W Germany C Suppliers Production Facilities Warehouse s Finishing Facilities Warehouse s Customers reserved 2

3 A supply chain is a network of organizations that are involved through upstream and downstream linkages in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer, Christopher (1998). reserved 3

4 More Best mean (144989) Avg. Param. Value (80989) Best Std.Dev. (59989) Cost minimization Return on investment maximization Profit maximization Robustness Responsiveness Flexibility Usually conflicting reserved 4

5 Vendors Inventory Facilities Customers Objectives Countries Channels Products Time Periods Strategic Stratetic Enterprise Planning Strategic Demand Planning Tactical Master Production and Distribution Planning Tactical Demand Planning Operational Material Requirem. Planning Production Planning Distribution Planning Operational Demand Planning Execution Purchasing Scheduling Vehicle Dispatching Demand Monitoring reserved 5

6 Examples: Build a manufacturing plant Select third-party logistics Select customer-product groups Long range permanence of decisions Heterogeneous forecasted data, if available at all Company vision and survival Multicommodity, multiperiod, multiechelon, capacitated network flow design problem (planes, nodes, arcs) Decision variables Binary status variables for facility location status, technology and size, and machines Continuous material flow variables (production, transportation, storage, and sales) reserved 6

7 Objectives Cost minimization, profit maximization, risk minimization, flexibility Objective function, constraint matrix, RHS parameters all are stochastic Definitions and problem statement Literature review Characteristics of (global) strategic supply models Computational tools Research opportunities and conclusions reserved 7

8 Descriptive Design Modeling Supply Chain Global Supply Chain Supply Chain Management 692 Logistics 6045 Global Logistics Material Handling Facilities Planning Warehousing Modeling Design Descriptive 0 Supply Chain Global Supply Chain Supply Chain Management Logistics Global Logistics Material Handling Facilities Planning Warehousing Descriptive Design Modeling reserved 8

9 Modeling Design Descriptive Descriptive 0 Global Supply Chain Global Logistics Material Handling Facilities Planning Warehousing Design Modeling Global models Vidal and Goetschalckx (1997) Cohen and Huchzermeir (1999) Ganeshan et al. (1999) Schmidt and Wilhelm (2000) Location models Owen and Daskin (1998) reserved 9

10 Historic Perspective Geoffrion and Powers (1995) Software Tools Ballou and Masters (1993, 1998) Ballou (1998) (UG) Wood et al. (1999) (UG) Tayur (1999) (Academic) Simchi-Levi et al. (1999) (MBA) Chopra and Meindl (2001) (UG, IIE*) Stadtler (2000,2002) (Practitioner) Shapiro (2001) (Grad) reserved 10

11 Much more papers as compared to material handling For all categories, mostly descriptive or analysis, fewer design, very few normative modeling Extensive literature on deterministic or scenario-based supply chain design Few papers on multinational supply chains Stochastic optimization for small problems Some stochastic optimization for exchange rates in global systems reserved 11

12 Definitions and problem statement Literature review Characteristics of (global) strategic supply models Computational tools Research opportunities and conclusions reserved 12

13 min cijkp xijkp + f jzj + hj rkp y jk ijkp j kp st.. x s ip jk i j ijkp ip x = r y jk y ijkp kp jk jk = 1 k TL z r y TU z j j j kp jk j j pk Marc Goetschalckx Factors Cohen, JMOM, 1989 Cohen, EJOR, 1991 Arntzen, Interfac., 1995 Canel, IJPR, 1997 Dogan, IIE TR, 1999 Vidal, EJOR, 2000 Philpott. Schmidt, Appita J., IJPR, Single-Country (Domestic) Characteristics Objective Cost minimization x x - x Profit maximization x - x - x x x Inventory minimization - x Cost Variance Minimization Costs Materials x x x x x x x - Production x x x x x x x x Distribution x x - x x x x Internal Transportation x x x x x - x External Transportation (Suppliers and Customers) x x x x x x x Inventory - x - x Sales Revenue (Negative Cost) x - x - x x x Fixed Transformation Facility x - x x x x - x Fixed Distribution Facility x - x x - Fixed Machine - x x - x x Fixed Product-Mix x x - Fixed Vendor-Use x reserved 13

14 Cohen, JMOM, 1989 Cohen, EJOR, 1991 Arntzen, Canel, Interfac., IJPR, Dogan, IIE TR, 1999 Vidal, EJOR, 2000 Philpott. Schmidt, Appita J., IJPR, Decisions Supplier-Facility (Purchasing) x x x x x x x - Product-Transformer (Production) x x x x x x - - Product-Machine (Production) - x - x - x x Product-Mix-Machine (Production) x - Transformer-Customers (Distribution) x x x x x x x x Machine-Customers (Distribution) - - x x x - Tactical Inventory Levels - x - x Dynamic Facility Status (more than one change) Components Countries M 1 M M 1 M 1 M Products M M M 1 M M M M Bill of Material Levels M Suppliers M M M M M M M M Machines & Technologies - - M - M M Transformation Facilities M M M M M M M M Distribution Facilities M M M M M - Customers M - M M M M M M Transportation Modes 1 1 M M 2 1 Echelons 1 1 M M 1 M Constraints Production Capacities x x x - x x x x Supply Capacities x x - x x x - Sales Upper Bound by Demand x x x - Demand SatisfactionGlobal Supply Chain Design Review, MHRC x Portland x 2002 x x Marc - Goetschalckx - x Transportation Capacities Cohen, JMOM, 1989 Multiple-Country (Global) Characteristics Cohen, EJOR, 1991 Arntzen, Interfac., 1995 Canel, IJPR, 1997 Dogan, IIE TR, 1999 Vidal, EJOR, 2000 Philpott. Schmidt, Appita J., IJPR, Objectives Global After-Tax Profit Maximization x x x x International Costs Country-Specific Tax Rates x x x x - Tariffs x x x x Duties x - x - Export Incentives (Negative Cost) x x - - Transfer Prices or Markups x x - Decisions Transfer Prices or Markups x - x - Transportation Cost Allocation x - x - International Constraints Local Content / Manufacturing Offset x x Minimum Taxes per Country x - x - International Factors Exchange Rates x x x - reserved 14

15 Unified comprehensive model does not exist Dynamic, stochastic, MIP Economies of scale and scope explode number of binary variables Non-linear effects (transfer prices, overhead, markups) Path-based formulations (duty relief) Large majority use commercial MIP solvers (B&B + LP) Stochastic (operational) simulation Decomposition (Benders), factorization, bilinear programming are very rarely used Stochastic solutions obtained using limited number of scenarios Heuristics reserved 15

16 Definitions and problem statement Literature review Characteristics of (global) strategic supply models Computational tools Research opportunities and conclusions Logistics systems status Bookkeeping Transactional Data warehouse Advantages Enterprise standardization Data integration Up-to-date data Multinational reserved 16

17 Growing importance Major vendors SAP (financial), New enterprise module: Network Design Baan (manufacturing, transportation), CAPS Logistics Toolkit PeopleSoft (human resources)... Logistics systems configuration and planning Optimizing Operations research Constraint based logic Interface with ERP Also called advanced planning systems (APS) reserved 17

18 Global Supply Chain Design Review, MHRC Portland 2002 Strong consolidation Major vendors I2 InterTrans I2 Rhythm Supply Chain Strategist Manugistics J.D. Edwards Numetrix Enterprise Planning Global Supply Chain Design Review, MHRC Portland 2002 Marc Goetschalckx Global Supply Chain Design Review, MHRC Portland 2002 Marc Goetschalckx reserved 18

19 Andersen Consulting, Logistics Software, jointly with Council of Logistics Management, Oak Brook, IL, 1992 and yearly updates. reserved 19

20 Multiple periods, combined with tactical Periodic and seasonal demand Dynamic strategic systems Global Taxes and profit realization Local contents, duty drawback Stochastic and multi-objective Flexibility, responsiveness, robustness, risk, scenarios Integrated models are large and complex and expensive Multi-objective performance measures are complex Strategic design as a continuous effort Technology transfer to logistics professionals and students reserved 20

21 Data aggregation and synthesis tools Middleware between ERP and models Rapid-prototyping design tools Procurement-manufacturing-distributionmarkets mission configuration Multi-objective design models Explicit tradeoffs between economics, risk, flexibility, and responsiveness Robust optimization algorithms (w.r.t. data perturbations) Large-scale multi-objective stochastic optimization algorithms reserved 21

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