Multi-echelon supply chain network design in agile manufacturing

In this paper, we consider a supply chain network design problem in an agile manufacturing scenario with multiple echelons and multiple periods under a situation where multiple customers have heavy demands. Decisions in our supply chain design problem include selection of one or more companies in each echelon, production, inventory, and transportation. We formulate the problem integrating all decisions to minimize the total operational costs including fixed alliance costs between two companies, production, raw material holding, finished products holding, and transportation costs under production and transportation capacity limits. A Lagrangian heuristic is proposed in this paper. Optimizing a Lagrangian relaxation problem provides a lower bound, while a feasible solution is generated by adjustment techniques based on the solution of subproblems at each iteration. Computational results indicate the high quality solutions with less than 5% optimality gap are provided quickly by the approach in this paper. Further, compared to initiative managerial alternatives, an improvement of 15% to 25% is not unusual in certain cases for the proposed approach.

► This paper presents a math programming model for supply network design in agile manufacturing.
► The problem is hard to solve optimally because more than one supplier could be selected per echelon.
► A Lagrangian heuristic developed in the paper overcomes the problem's computational challenges.
► The results are within 5% of the optimal; a standard solver cannot solve industrial-sized instances.
► The impact of this work on agile manufacturing industry can be significant.