Optimizing the design of global supply chains at Dow AgroSciences

The design of the underlying supply chain network can have a tremendous impact on the profitability, manageability, and level of risk of a global supply chain. Taxes, duties, and tariffs vary from country to country as well as trading bloc to trading bloc and can consume as much as 10% of the revenues of certain products. In the highly regulated business environment of agricultural chemicals, the country of origin of an active ingredient can determine where the final product can be marketed and the amount of taxes and duties applied to the product, making it necessary to trace all batches of product through many layers of the supply chain to their sources. This article presents a mixed integer linear programming model in use at Dow AgroSciences LLC that simultaneously optimizes the network design underlying global supply chains and the monthly production and shipping schedules for maximum profitability. This work contributes to the supply chain design literature by demonstrating a novel method of tracing products to their source for inventory valuation, taxation, and duty computation in a production environment where the products change into other products as they pass through nodes in the network. It also demonstrates an iterative scheme for determining unit fixed costs for fixed cost allocation for the same purposes. Finally, it provides a case study of a supply chain design initiative in a global enterprise.