Even though every facility in a supply chain has capacity

SUPPLY CHAIN DESIGN & limitations, you often do not need to include those
ANALYSIS limitations in the model.
• When you ask the model to open multiple facilities, it will
naturally tend to balance the demand across the facilities to
minimize average distance or cost.

CHAPTER 5 However, there are instances when capacity will be critical to

your network design study. For example, if you are making
decisions about investing in expensive, highly automated
plants or warehouses, deciding where to place a specialized
ADDING CAPACITY TO THE MODEL production line, or determining how many shifts you want a
plant to operate.

CASE STUDY – chemical company

A company that made and sold chemicals for swimming pools could never exactly CASE STUDY – chemical company
predict where and when the first warm weekend would hit and everyone would want to
So when the company designed its supply chain:
buy supplies for their swimming pools, they wanted to position their product in
warehouses that were as close to the customers as possible.  They had to consider this capacity constraint. This could change their
answer. For example, without capacity constraints, it might be best to
locate very large facilities near densely populated areas and smaller
 They also wanted to minimize the number of warehouses so that they had some
facilities in other locations.
flexibility. For example, if they ship a product to a region and that region does not
get warm weather, they may have to ship this product out to another warehouse.  But with this constraint, there will tend to be many warehouses at or
near the limit of 100,000 units. And, some densely populated markets
 Their products were labeled as hazardous, and if the warehouse where they were
may have multiple warehouses whereas without the constraint one large
being stored caught fire, the fire would be difficult to contain and would strain the warehouse would have been better.
local firefighting squads. Therefore, the local fire departments would not allow
them to have more than 100,000 units of product in the warehouse.
Adding capacity Adding capacity
With plants, capacity expansion typically comes in three forms:
1. Adding Labor: Extra labor can provide the ability to produce For facility capacity, you may also need to factor in the time period
more. Sometimes extra labor can be added in small increments for capacity:
(1 person at a time, for example) or in larger batches (you need to  In annual or long-term models, you will model the effective
bring in another full crew). capacity over the year.

2. Adding Shifts: When you add shifts, you may incur additional  For a very seasonal business, you can adjust the capacity to reflect
that fact  you can set your facility to average capacity or peak
fixed costs (to staff up the line, to manage it, and it may be
capacity.
difficult to remove later), as well as additional variable costs.
3. Adding Equipment: This can include anything from investing in
the existing equipment to make it faster, to adding production
lines, to building a completely new plant.

MATH FORMULATION FULL MATH MODEL

• Add the capacity constraint:

the term voli,j to measure The term capi to measure

the effective volume of the capacity of arehouse
demand for customer j i.
being assigned to
warehouse i.

This constraint ensures that a warehouse is never assigned more demand than it can handle.
Note that if the warehouse capacity is not infinite, this constraint also will ensure that if a
customer is assigned to a warehouse, that warehouse must be opened.
7
Possible difficulty with the capacity-constraint model
It is possible to create a model such that it is impossible to solve:
 We can specify 100 units of demand and only 80 units of
capacity. In this case, the constraint that we must meet all
demands cannot be met. We need to make sure that our
constraint on the number of sites does not conflict with the
capacity constraint.
 You are locating two warehouses, each with 100 units of
capacity, and you have three customers, each with a capacity
requirement of 60 units. System-wide there is enough capacity
(200 units); however, no two customers will fit into one
warehouse (two customers need 120 units but a warehouse has
room for just 100).
LESSON LEARNED
One lesson about capacity is that even though every supply chain has
capacity constraints, you do not always want to model them.
Capacity can be difficult to measure. When you include a capacity
constraint, make sure that you model it carefully and that it is
going to do what you want it to do.
LESSON LEARNED
Capacity constraints don’t necessarily change the locations of
facilities, but they do have the impact of changing the warehouse to
customer assignments. With capacity constraints, the assignments
may look completely strange and seem to contradict the objective.
In tightly constrained models, the optimization has to do
everything possible just to find room in a facility, and only then can
it worry about trying to minimize the weighted-average distance
(or other objective).
LESSON LEARNED
If you add a capacity constraint and entities in the model consume
capacity in large chunks, you may be creating a problem that is
very hard to solve. In addition, capacity constraints can cause
infeasible models. Remember that we also saw infeasible models
in the preceding chapter on service levels. It is worth noting that
when you combine both of these constraints in a model, you may be
creating more possibilities for infeasibility as these constraints
interact.
 END OF
CHAPTER 5