Optimal design methodologies for configuration of supply chains

This paper describes a methodology developed for designing an optimal configuration for a supply chain. A typical configuration for a supply chain consists of defining components of the system, assigning values to characteristics parameters of each component and setting operation policies for governing the interrelationships among these components. As such, each configuration will be defined by a set of values for quantitative parameters of the system as well as a set of policy and qualitative characteristics. Examples of quantitative variable include inventory levels and frequency of ordering whereas location of distribution centres and mode of transportation between suppliers and the original equipment manufacturers are the decision variables of policy and qualitative nature. The methodology presented here consists of a supply chain model builder coupled with two optimisation algorithms that automatically build a sequence of configurations that systematically move towards an optimum design. A combination of mixed integer programming and a genetic algorithm is used to determine simultaneously the values of quantitative as well as policy variables. The solution consists of strategic decisions regarding facility locations, stocking locations, supplier selection, production policies, production capacities, and transportation modes.