In today’s rapidly changing world and competitive business environment, firms are challenged to build their production and distribution systems to provide the desired customer service at the lowest possible cost. Designing an optimal supply chain by optimizing supply chain operations and decisions is key to achieving these goals.
In this research, a capacity planning and production scheduling mathematical model for a multi-facility and multiple product supply chain network with significant capital and labor costs is first proposed. This model considers the key levers of capacity configuration at production plants namely, shifts, run rate, down periods, finished goods inventory management and overtime. It suggests a minimum cost plan for meeting medium range demand forecasts that indicates production and inventory levels at plants by time period, the associated manpower plan and outbound shipments over the planning horizon. This dissertation then investigates two model extensions: production flexibility and pricing. In the first extension, the cost and benefits of investing in production flexibility is studied. In the second extension, product pricing decisions are added to the model for demand shaping taking into account price elasticity of demand.
The research develops methodologies to optimize supply chain operations by determining the optimal capacity plan and optimal flows of products among facilities based on a nonlinear mixed integer programming formulation. For large size real life cases the problem is intractable. An alternate formulation and an iterative heuristic algorithm are proposed and tested. The performance and bounds for the heuristic are evaluated. A real life case study in the automotive industry is considered for the implementation of the proposed models. The implementation results illustrate that the proposed method provides valuable insights for assisting the decision making process in the supply chain and provides significant improvement over current practice.