Supply chain network design with considerations for modular assembly

We present a supply chain optimisation model that simultaneously considers sourcing decisions for each part in a complex multi‐level bill of materials (BOM) but decides on which should be assembled into subassemblies or modules. Indeed, some parts in the BOM are flexible in the sense that they can be grouped with other parts or subassemblies to form modules. The problem is to find the composition of the modules and the assignment of modules and parts to subcontractors while minimising the overall supply chain cost. The problem considered is one faced by a jet engine manufacturer when designing its multi‐echelon, multi‐period, multi‐product supply chain network with deterministic demand. The mixed integer programming model considers multiple sourcing where the number of parts sourced from a business partner must exceed a lower bound as dictated by purchasing contracts. Computational results are presented for different scenarios allowing the combined analysis of supply chain design and supplier relationships.