Production and Distribution Planning : Strategic, Global, and Integrated
Multiple Perspectives on production and distribution planning
- Plant and Distribution Center Location problem – Strategic – Structural and Design
- Procurement problem – where to source from – Tactical – Allocation, Assignment
- Production and Distribution Scheduling – Operational – Managing Flows
- Multi Echelon Inventory Management- Operational – Managing Stocks
- Supply Chain Integration, Collaboration, Coordination – Hierarchical Planning
Normally, production and distribution planning are handled separately in firms. Integrated planning of production and distribution can add significant value to a company, particularly, in strategic decisions.
From Facility Location and Supply Chain Management – A comprehensive review
Since, in the literature, model objectives change as a function of the planning horizon length, we consider it opportune to define the features of each horizon in order to contextualize the parameters chosen for the models’ comparison. According to , the planning horizons of the supply chain can be clustered as follows:
• Strategic planning: this level refers to a long-term horizon (3-5 years) and has the objective of identifying strategic decisions for a production network and defining the optimal configuration of a supply chain. The decisions involved in this kind of
planning include vertical integration policies, capacity sizing, technology selection, sourcing, facility location, production allocation and transfer pricing policies.
• Tactical planning: this level refers to a mid-term horizon (1-2 years) and has the objective of fulfilling demand and managing material flows, with a strong focus on the trade-off between the service level and cost reduction. The main aspects considered in tactical planning include production allocation, supply chain coordination, transportation policies, inventory policies, safety stock sizing and supply chain lead time reduction.
• Operational planning: this level refers to a short term period (1 day to 1 year) and has the objective of determining material/logistic requirement planning. The decisions involved in programming include the allocation of customer demands, vehicle routing, and plant and warehouse scheduling.
From Integrated Location-Production-Distribution Planning in a
Multi products Supply Chain Network Design Model
- ‘supply chain strategic design’,
- ‘supply chain planning’,
- ‘supply chain optimization’,
- ‘supply chain network design’,
- ‘supply chain production planning’,
- ‘supply chain delocalization’,
- ‘logistic network design’,
- ‘facility location’,
- ‘distribution network design’,
- ‘production-distribution systems’,
- ‘location-allocation problem’,
- ‘supply chain linear programming’
- ‘supply chain mixed-integer programming’.
From From Manufacturing to Distribution: The Evolution of ERP in Our New Global Economy
Over the past fifty years, manufacturing has changed from individual companies producing and distributing their own products, to a global network of suppliers, manufacturers, and distributors. Efficiency, price, and quality are being scrutinized in the production of each product. Because of this global network, manufacturers are competing on a worldwide scale, and they have moved their production to countries where the costs of labor and capital are low in order to gain the advantages they need to compete.
Today, the complex manufacturing environment faces many challenges. Many products are manufactured in environments where supplies come from different parts of the world. The components to be used in supply chain manufacturing are transported across the globe to different manufacturers, distributors, and third party logistics (3PL) providers. The challenges for many manufacturers have become how to track supply chain costs and how to deal with manufacturing costs throughout the production of goods. Software vendors, however, are now addressing these manufacturing challenges by developing new applications.
Global competition has played a key role in industrialized countries shifting from being production-oriented economies to service-based economies. Manufacturers in North America, Western Europe, and other industrialized nations have adapted to the shift by redesigning their manufacturing production into a distribution and logistics industry, and the skills of the labor force have changed to reflect this transition. Developing countries have similarly changed their manufacturing production environments to reflect current demands; they are accommodating the production of goods in industries where manufacturers have chosen to move their production offshore–the textile industry being a prime example of this move.
A report from the US Census Bureau titled Statistics for Industry Groups and Industries: 2005 and another from Statistics Canada titled Wholesale Trade: The Year 2006 in Review indicate that wholesalers are changing their business models to become distributors as opposed to manufacturers. Between 2002 and 2005, overall labor and capital in the manufacturing sectors decreased substantially. US industry data (from about 10 years ago) indicates that the North American manufacturing industry was engaged in 80 percent manufacturing processes and only 20 percent distribution activities. Today, however, these percentages have changed dramatically; the current trend is in the opposite direction. Manufacturing processes account for around 30 percent of the industry processes, and wholesale and distribution activities, approximately 70 percent.
In addition, a report from the National Association of Manufacturers indicates that the US economy imports $1.3 trillion (USD) worth of manufactured goods, but exports only $806 billion (USD) worth of goods manufactured in the US. This negative trade balance is a clear indication of the changing economic trend toward the manufacturing of goods in low-cost labor nations.
The main reason for this huge manufacturing shift is the increasing operating costs of production in industrialized countries. These rising costs are forcing manufacturers to move their production to developing nations because of the low cost of labor in these countries. This includes Asian countries (such as China and Indonesia) as well as Eastern European countries (such as the Czech Republic and Slovakia).
The number of workers (in percentages) in specified industries in G7 countries, and uses 1980 as the base year with 100 percent full employment in each industry. The industries with relatively constant rates of employment are the food and drink and the tobacco industries. Since 1995, all other industries have been maintaining less and less manufacturing employees, as indicated by the declining slopes in the graph. The shift in the textiles and leather, metals, and other manufacturing industries is moving toward production of goods in low-wage, developing countries.
Manufacturing is a global industry, and although a manufacturing company may be based in an industrialized country, it may have the bulk of its manufacturing facilities in a developing country. Producing goods in such a country reduces wage and capital costs for the manufacturer; however, some manufacturing control is lost in offshore production. Shipping, distribution, and rental costs, for example, are often difficult to track and manage, and quality control can be compromised in a production environment that is not local.
Two main outcomes can be seen within the manufacturing industry because of this manufacturing shift: manufacturers have a sense of having relinquished control of their production to low-cost labor nations, and supply chain management (SCM) has now become the answer to manufacturing within industrialized nations.
Suppliers that provide components to manufacturers often have issues with quality. Being part of a large network of suppliers, each supplier tries to offer the lowest prices for its products when bidding to manufacturers. Although a supplier may win the bid, its products may not be up to standard, and this can lead to the production of faulty goods. Therefore, when using offshore suppliers, quality issues, product auditing, and supplier auditing become extremely important.
Because the manufacturing model is changing, manufacturing has become more of a service-based industry than a pure manufacturing industry. Even though the physical process of manufacturing hasn’t changed, the actual locations of where the goods are being produced have. This fact is now compelling industrialized countries to engage in more assembly driven activities–a service-based model. The manufacturing process has transformed into obtaining parts and reassembling them into the final product. The final product is then redistributed throughout the appropriate channel or to the consumer. SCM methods are now reacting to this change as well; they are taking into account final assembly needs, and they are distributing particular products to consumers or manufacturers.
SCM is becoming the norm for manufacturers in the industrialized world. Offshoring is now standard practice, and methods such as SCM have been set up to deal with these economic and logistical business realities.
The economic shift happening in both industrialized and developing countries is dramatic. As the level of management knowledge increases, better methods of constructing offshore products are available in SCM solutions. In both types of economies, the changes in the labor force skill sets and manufacturing environments have consequently led to new software solutions being developed in order to manage this dramatic change.
Within the software industry, many SCM and enterprise resource-planning (ERP) vendors are following the economic shift. They are developing new functionality–ERP-distribution software–to meet the recent demands and needs of the changing manufacturing and distribution industries.
SCM and ERP software are converging to better address these new demands in the manufacturing industry. In the enterprise software market, ERP software vendors have reached a point of saturation; their installs are slowing down and they are seeing a reduction in sales. Therefore, ERP providers are developing new functionality in order to remain competitive with other ERP vendors, in addition to looking for new opportunities. ERP vendors are trying to adapt to the changing market in order to increase their revenues. They are integrating SCM functionality into their ERP offerings, creating ERP-distribution software that can span the entire production process across many continents (if necessary), and that is able to track final goods, components, and materials.
Traditional ERP solutions included some SCM functionality, which was needed to distribute the companies’ produced goods. These systems also allowed components and parts to be imported in order to assemble these goods. But offshore manufacturing and expansion into new markets has required SCM functionality in ERP software to be extended. Some larger vendors have acquired other companies in order to meet these changing demands. For example, Oracle acquired G-Log, a transportation management systems (TMS) vendor, and Agile, a product lifecycle management (PLM) vendor; and Activant acquired Intuit Eclipse.
SCM software vendors, in contrast, have felt encroached upon by ERP vendors. The situation has posed a real threat to SCM providers in the market, forcing them to extend their ERP functionality to compete with ERP vendors and to try to gain new clients in the distribution and logistics industry.
ERP-distribution software has integrated SCM functionality into its existing functionality to navigate through the complex global manufacturing environment. SCM software maps five processes into one solution: planning, sourcing (obtaining materials), producing, delivering, and returning final products if defective. These processes help to track and manage the goods throughout their entire life cycles. In addition, ERP solutions are used to manage the entire operations of an organization, not only a product’s life cycle. This gives users the broad capability to manage operations and use the SCM functionality to manage the movement of goods, whether components or finished product.
With the ability to gain accurate inventory visibility and SCM production, ERP-distribution software is able to see the whole chain of manufacturing and distribution events, from supplier to manufacturer, all the way to the final consumer.
There are three business models.
- The first is the SCM model, which includes the manufacturing process.
- The second is the retail model, which is the distribution of final products to the consumer, business, or retailer.
- The third model is a combination of the first two business models, joined by the ERP-distribution software solution into one seamless process.
Within the SCM process, goods can either be brought in (imported) through foreign manufacturers, or acquired locally. The goods are then given to a distributor, 3PL provider, or wholesaler in order to reach the final client.
Within the retail model, the products are taken from a distributor, 3PL provider, or wholesaler, and are distributed to the appropriate person. Note that there is a “shift” for the consumer. This is to indicate that through the Internet or other forms of technology, consumers are now able to buy directly from distributors. The power of the consumer has changed; where manufacturers once provided products to consumers, consumers are now creating demand, and manufacturers have to meet that demand.
SCM solutions focus on the relationship between the supplier and manufacturer. However, ERP- distribution software has taken functionality from SCM software and combined it with retail software (such as point-of-sale and e-commerce solutions); it is now able to span across the entire supply chain and to track goods along the complete manufacturing process.
This is a simplified view of the complexities of today’s manufacturing processes. These complexities have made it crucial for trading partners to unite with manufacturers in order to help alleviate the frustrations that can occur within this global network. Specifically, trading partners are coming together with manufacturers to unite services, products, and customer experience so that business processes (such as manufacturing and distribution) become more efficient and that goods can move through these processes with minimal problems.
SCM can be thought of as the management of “warehousing processes,” in which the movement of goods occurs through multiple warehouses or manufacturing facilities. Tracking the costs of moving products and components through the maze of warehousing and manufacturing facilities is a tricky process, and many organizations lose money at each warehousing step.
Within the flow of goods in the manufacturing sector, the warehouse is a crucial part of the supply chain. Traditionally, the warehouse has been a source of frustration because the manufacturer or supplier pays for the use of the warehouse (whether owned or rented by the company). This leads to two possible scenarios: 1) the costs of the warehouse are incurred by a 3PL or manufacturing company, or 2) the costs are passed from one warehouse to another warehouse, and the original warehouse charges for these costs.
The typical warehouse process includes the following steps: receiving, put away, picking, kitting, packing, repacking, cross-docking, and shipping. ERP-distribution software is able to track costs across the entire organization and to aid companies in reducing costs that were previously tough to track.
ERP-distribution system encompasses the entire production of the final good. The ERP- distribution system is able to include inventory visibility from points “A to Z” (start to finish) and to track each warehouse cost from supplier to manufacturer to user, whether consumer, business, or retailer.
The Final Word: ERP-distribution software has been developed to meet the growing needs of the manufacturing and distribution industries. The capabilities incorporated into the software work across entire organizations, and even across continents.
Because of the economic shift in the manufacturing industry, the emergence of new software has been vital for businesses to stay competitive, meet the industry demands and emerging shift, and to keep business processes efficient to gain better profit margins.
ERP-distribution software is able to track the processes of manufacturing goods and distributing components, even if the manufacturer has facilities in North America and the Far East. With the SCM component in ERP software, manufacturing and tracking goods becomes manageable. Distributors and manufacturers can now work together in order to better meet customer requirements.
In addition of factors for domestic location selection analysis, other factors in international location selection are:
- Exchange Rates
- Taxes and Tariffs
- Transfer Prices
How do companies in Computers, Automotive, Apparel, Electronics, Consumer Goods, Machinery manage their supply chain planning functions? What software do they use for forecasting, planning, and scheduling?
I know of these software solutions for Network Design and Optimization:
Key Sources of Research:
Combined Strategic and Operational Planning – An MILP Success Story in Chemical Industry
Planning in the Process Industry
Solving Planning and Design Problems in the Process Industry Using Mixed Integer and Global Optimization
Mathematical Programming Models and Formulations for Deterministic Production
Supply Network Planning and Plant Scheduling in the Chemical-Pharmaceutical Industry – A Case Study Investigation
Gang Yang, Martin Grunow and Hans-Otto Guenther
Advanced Planning and Scheduling Solutions in Process Industry
Editors: Günther, Hans-Otto, van Beek, Paul (Eds.)
Advanced Planning and Scheduling in Manufacturing and Supply Chains
Authors: Mauergauz, Yuri
Centralised supply chain master planning employing advanced planning systems
Martin Rudberga* and Jim Thulin
Planning and Scheduling in Supply Chains: An Overview of Issues in Practice
Stephan Kreipl • Michael Pinedo
Sales and operations planning in the process industry
Optimal planning in large multi-site production networks
Christian H. Timpe, Josef Kallrath
Mixed Integer Optimization in the Chemical Process Industry –
Experience, Potential and Future Perspectives
Planning and scheduling in the process industry
Modeling and design of global logistics systems: A review of integrated strategic and tactical models and design algorithms
Marc Goetschalckx Carlos J.Vidal, Koray Dogan
Strategic Analysis of Integrated Production- Distribution Systems: Models and Methods
Morris Cohen and H Lee
Integrated production/distribution planning in supply chains: An invited review
Sß. Selcßuk Erengucß a, N.C. Simpson b, Asoo J. Vakharia
A Review of Integrated Analysis of Production-Distribution Systems
Ana Maria Sarmiento, Rakesh Nagi
Managing Perishability in Production-Distribution Planning: a discussion and review
P. Amorim H. Meyr C. Almeder
Input-Output Analysis For Multi-location Supply Chain Management Control:
A Theoretic Model
Wang Lu, Tong Rencheng
Using Operational Research for Supply Chain Planning in the Forest
Mathematical programming models for supply chain production and
Josefa Mula *, David Peidro, Manuel Díaz-Madroñero, Eduardo Vicens
Formation of a strategic manufacturing and distribution network
with transfer prices
Renato de Mattaa, Tan Millerb
MEASURING THE IMPACT OF TRANSFER PRICING ON THE CONFIGURATION
AND PROFIT OF AN INTERNATIONAL SUPPLY CHAIN: PERSPECTIVES FROM
TWO REAL CASES
Marc Goetschalckx, Carlos J. Vidal and Javier I. Hernández
Integrated Strategic Planning of Global Production Networks and Financial Hedging
under Uncertain Demands and Exchange Rates
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Meixell, M. J. and Gargeya, V. B.
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Sequential Vs Integrated Optimization: Production, Location, Inventory Control and Distribution
Measuring Cost Efficiency in an Integrated Model of Production
and Distribution: A Nonparametric Approach
Subhash C. Ray
Optimization/simulation modeling of the integrated production- distribution plan: an innovative survey
BEHNAM FAHIMNIA, LEE LUONG, ROMEO MARIAN
Strategic Planning and Design of Supply Chains: a Literature Review
Alessandro Lambiase, Ernesto Mastrocinque, Salvatore Miranda and Alfredo Lambiase
The design of production-distribution networks: A mathematical programming approach
Process industry supply chains: Advances and challenges
Strategic, Tactical and Operational Decisions in Multi-national Logistics Networks:
A Review and Discussion of Modeling Issues
Wilbert E. Wilhelm
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A. NAGURNEY, J. CRUZ AND D. MATSYPURA
(Received and accepted November 2002)
Integrated production/distribution planning in the supply chain: the Febal case study
Integrated supply chain planning under uncertainty using an improved stochastic approach
Hadi Mohammadi Bidhandi a,⇑, Rosnah Mohd Yusuff
A MANUFACTURING ENGINEERING PERSPECTIVE ON SUPPLY CHAIN INTEGRATION
Samuel H. Huang, Ge Wang
John P. Dismukes
A review and critique on integrated production–distribution planning models and techniques
Risk Management for a Global Supply Chain Planning Under Uncertainty: Models and Algorithms
John M. Wassick
A new approach to tactical and strategic planning in production–distribution networks
Mahdi Bashiri a,⇑, Hossein Badri a, Jafar Talebi
The Kellogg Company Optimizes Production, Inventory, and Distribution
Brown, Gerald G.
APPLYING ADVANCED PLANNING SYSTEMS FOR SUPPLY CHAIN PLANNING:
THREE CASE STUDIES
Patrik Jonsson* , Linea Kjellsdotter** , Martin Rudberg
Multiobjective optimisation of production, distribution and capacity planning of global supply chains in the process industry
Songsong Liu, Lazaros G. Papageorgiou
Process Industry Supply Chains: Advances and
Optimum Production-Distribution and Transportation Planning
in Three-Stage Supply Chains
Joel K. Jolayemi
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A review in collaborative networks context
Beatriz Andresai*, Raquel Sanchisaii, Jaques Lamotheb, Leila Saaric and Frederic Hauser
Global Supply Chain Management at Digital Equipment Corporation
Supply chain optimisation for the process industries: Advances and opportunities
Lazaros G. Papageorgiou
Network design decisions in supply chain planning
T. Melo, S. Nickel, F. Saldanha-da-Gama
Optimal planning in large multi-site production networks
The Multi-Site Order Fulfillment-Planning Model: A Global Corporation Case Study
Yin-Yann Chen*, Chiung-Wen Shih, Hsiao-Yao Fan
National Formosa University, Yunlin, Taiwan
Global Production Planning Process considering the Supply Risk of Overseas Manufacturing Sites
Hosang Jung and Seungbae Sim
Integrated Supply, Production, Distribution Planning in Supply Chain with Regard to Uncertain Demand and Flexibility in Capacity, Supply and Delivery
Masoud Rabbani1, *, Raheleh Moazemi2, Neda Manavizadeh3,
Moeen Sammak Jalali
Integrated Production and Distribution of Perishable Goods
Pedro Sanches Amorim
Integrated Supply Chain Optimization Model Using Mixed Integer Linear Programming
Paweł Sitek, Jarosław Wikarek
Solving Planning and Design Problems in the Process Industry Using Mixed Integer and Global Optimization