Strategic and operational decisions in supply chains

Abstract

<p>In this work, we develop models that supply chains can employ to satisfy periodic and stochastic demand effectively. These models combine the strategic and operational decisions to cost function. Strategic decisions are represented by the size of capacity acquired, while operational decisions are represented by the parameters of the inventory policy employed.;In addition to combining the strategic and operational decisions, the developed models study three alternatives that can reduce the cost of satisfying the demand by relying on external production to outsource or subcontract some of the demand. Outsourcing is studied where a fixed amount of the product is delivered to the supply chain each time period regardless of the demand and inventory status.;Subcontracting is employed if the inventory status reaches a certain level that justifies going to a third party. Collaboration is the last alternative considered where two supply chains cooperate to satisfy the demand they are subject to. Two models of collaboration are studied; in the first model, collaboration takes place by exchanging unused capacity while in the second model, collaboration happens by exchanging finished products.;A simple stochastic approximation method is used to find the optimum parameters that minimize the cost functions considered. The costs are evaluated using simulation, while the gradient of the cost with respect to the different parameters is found using infinitesimal perturbation analysis (IPA). The validity of the suggested optimization method is checked graphically for models having three parameters to optimize.;Different experiments are conducted to study the response of the supply chain to its working environment and parameters for both single stage supply chains and multi-echelon supply chains. The working environment; is changed, by changing the variability of the demand that the supply chain is trying to satisfy and by changing the cost of the units satisfied from external sources. Holding cost, capacity cost and backordering cost are the supply chain parameters changed in these studies.</p>