Determination of Network Configuration Considering Inventory Cost in a Supply Chain

Abstract

In this paper we show the importance of applying mathematical optimization when designing the distribution networkin a supply chain, specifically in making decisions related location of facilities and inventory management, which areassociated with different levels of planning but are closely related.

The addressed problem is an extension of the classic capacitated facility location problem. The distinguishing featuresare: the inventory management, the presence of multiple plants, and the single source constraints in both echelons. Akey issue is that demand at each distribution center is a function of the demands at the retailers assigned, which is arandom variable whose value is not known at the time of designing the network. We focus on the mathematicalmodeling of the problem and the evaluation of the performance of the developed models, so, it can be observed thetroubles that arise when modeling supply chains that consider different types of decisions.