Optimization of the H.

Schlenker

worldwide supply chain R. Kluge

J. Koehl
at Continental Tires:
A case study
Continental Tires faces difficult challenges in its production and
supply chain, both upstream on the production or sourcing side, and
downstream on the market or delivery side. Meeting these challenges
involves a complex planning process. For example, long-term
production and supply chain planning, carried out every year,
supports mid-term and short-term planning or scheduling. Since
long-term planning is performed on the worldwide level, it affects
enormous amounts of moneyVbillions of Euros both in terms of
revenue and costs. The major goals of management and planning
teams are: increase sales (e.g., through optimal assignment of
production to demands), reduce costs (e.g., through production in the
correct locations), and balance critical trade-offs (e.g., supply versus
demand). IBM addressed these challenges with the implementation
of a new long-term planning solution. The mathematical optimization
approach, together with a mature software platform, solves the
complex planning models. The models include aspects such as limited
resources, worldwide supply chain network, multiple production
locations, many products, detailed material lists, production
complexity, capacity limitations, and multiple planning periods.
The solution helps supply chain planners and managers create the
best possible plans, and react to unforeseen events and market
changesVnot only rapidly but also optimally in terms of revenue
and costs.

Introduction can’t well solve many complex optimization issues[ in

In this paper, we summarize the scientific background of the
long-term planning solution developed at Continental Tires,
called FACT (Future Allocation and Capacity Tracking).
We discuss how the solution was defined and implemented to
match the business requirements of Continental Tires, how it
works in Continental’s environment, and what benefit it
brings to the planning process and to Continental’s
worldwide supply chain. Continental Tires is the tires
division of Continental AG, a major automotive-parts
manufacturer in Germany [1]. We discuss the concept of
optimization in supply chain planning and its contribution to
improved supply chain performance. Not long ago, in 2010,
Qian et al. [2] stated that Bthese [optimization] algorithms
Digital Object Identifier: 10.1147/JRD.2014.2345934
supply chain management. Similar statements can also be
found in [3, 4]. Even today, production planning at all levels
is still widely done manually (for example, using
spreadsheets, proprietary systems, or Enterprise Resource
Planning [ERP] systems). It still might be difficult to apply
standardized optimization, for example embedded in ERP
systems, to very complex production and supply chain
planning scenarios. However, with the latest improvements
in the runtime performance of optimization solvers (see,
e.g., [5]), together with the availability of highly configurable
and customizable software solution platforms, we believe
that it is now possible to apply optimization to more and
more complex situations. Our solution successfully applies
mathematical optimization and integrates different
production areas in manufacturing, supply chain
management, and even engineering. Finally, this paper

!Copyright 2014 by International Business Machines Corporation. Copying in printed form for private use is permitted without payment of royalty provided that (1) each reproduction is done without
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0018-8646/14 B 2014 IBM

IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014 H. SCHLENKER ET AL. 11: 1
provides insight into the advanced planning process of a
major, global automotive supplier.
This paper is structured as follows. In the following
section, we describe the business background of the involved
planning processes and some of the disadvantages of the
former planning approach, which motivated the need for a
new solution. Then, we summarize the current state of the art
of optimization for supply chain planning and point out the
differences between standard packages and configured
planning and scheduling solutions. After this, we provide
details of the new solution that involves architecture,
workflow, and an optimization model. Finally, we summarize
the resulting benefits of the new approach, and we conclude
the paper.
Business background
Continental Tires is a large tire manufacturer, headquartered
in Germany, but producing and selling around the world [1].
It produces passenger and light-truck tires for all sorts of cars,
SUVs (sports utility vehicles), vans, light trucks, and even
bicycles and motorcycles. The tires are sold under various
brands to the two major market segments: an OEM (original
equipment manufacturer) segment, which in the automotive
industry is a synonym for car manufacturer, and a
replacement segment.
Continental Tires is a major player in the market,
generating yearly revenue of about 10 billion Euros and
employing more than 40,000 people around the world [1]. In
2011, the company launched a project to significantly
improve the long-term resourcing process of its worldwide
tire production. The tires are produced in a global production
network with 18 plants around the world. The products are
currently produced and marketed in more than 10,000
different variations, and every year around 1,000 new
product types are added.
The complex manufacturing process consists of a
combination of chemical and discrete manufacturing tasks
and encompasses up to 100 production steps per final product
(tire). The process type is make-to-stock: the production is
triggered mainly by inventory rules (such as safety-stock
lower bounds, combined with the seasonal sales forecast),
rather than by booked orders. Manufacturing uses various
different product components, including chemicals, rubber,
metal, and fabrics, in order to build the final product. Some
raw materials have very long lead times and can only be
sourced from a very limited number of suppliers worldwide.
Other semi-finished products are produced by the company
itselfVsome in the same plant as the final product, some in
other plants. Some intermediate products can be stored for
longer time horizons; others have to be processed
immediately due to their limited shelf life. The
manufacturing process is quite asset intensive. Many
machine tools have been designed and built by the company
itself as they are considered as a technology competitive
11: 2 H. SCHLENKER ET AL.
advantage. Transportation of the final products is done
mostly via full truck loads in order to minimize transport
costs. The production facilities are located worldwide, but are
clustered in all continents to serve major markets with the
lowest supply chain costs. The same products can be
produced in many different plants, enabling rapid
reassignment from one plant to another in order to better
serve local market demands with lowest inventory and
shipping costs. Production capacity is limited; therefore, full
utilization of the plants is one element of the manufacturing
strategy.
On the market side, the company serves many different
markets worldwide (e.g., serving both the OEM market and
replacement customers). The OEM market is especially
challenging, with many niche products to support and
co-develop. In the replacement business, the company serves
very small dealers and garages as well as large wholesalers
and retailers or online giants; end customers are served
through their own retail chains in selected markets. The
replacement market is expanding continuously.
The product portfolio is diverse: from high-volume,
low-margin products and customer segments to low-volume
and high-margin products and customer segments. Sales
follow strong seasonal curves in some markets, whereas
other markets follow a flat sales curve across the year.
Forecasting of the product volumes is a complex process
with challenging reliability due to external and internal
factors. Globalization and strong market growth in Asia and
South America forces the company to invest significantly in
emerging markets.
Business problem
At Continental Tires, increasing volatility of customer
demands, as well as serving new customer channels requires
a reliable and strategic long-term production planning
process. The traditional process did not meet these
requirements. It was very time consuming, highly manual,
and did not have consistent underlying data across all
involved business functions. The planning was mainly
carried out with fragmented spreadsheets across different
business functions. These where loosely connected to the
underlying IT (information technology) infrastructure, based
on SAP and home-grown systems. These systems maintain
most of the master data for the planning.
The company manages the global production planning
through a complex planning process, from long-term
planning to mid-term planning down to short-term
scheduling and sequencing, with the following
characteristics. Long-term planning (carried out yearly or
twice per year) Blooks[ 1 to 3 years ahead, on both the global
network and at the individual plants. In this iterative process,
many planning scenarios are created, evaluated, and
compared until the final decision is made. The process is split
into an allocation part, which plans the allocation of products
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
to the global manufacturing network, and the capacity
planning process, which utilizes these results for more
detailed capacity planning on the plant level. Mid-term
planning, or master planning, (performed weekly) Blooks[
12 to 18 months ahead, still considering the entire network,
but on a much more detailed level and with higher frequency
than the long-term plan. The master plan defines the
production requirements on a weekly Bbucket[ level.
Scheduling and sequencing (carried out weekly and daily)
takes the results of the master plan as input and transforms it
into an executable schedule and sequence. This process takes
the daily and weekly plant constraints into consideration. The
execution of the schedule and sequence is then finally
controlled by the Manufacturing Execution System (MES).
These processes are closely connected to each other, such
that the long-term and mid-term planning processes are
centralized, and the scheduling and sequencing processes are
performed locally in the plants. We now focus on the
long-term planning process, since this is the planning step
that has now been improved with the new FACT system.
On a long-term basis, the expected production volume is
allocated to the plants, considering the production constraints
and manufacturing capabilities of the plants. The plants then
use this information to enable manufacturing for the
execution of these plans. They use the allocation plan to
derive the detailed requirements on how to execute, using
detailed capacity models, shift models, machine tools, special
setups, carriers, transportation capacities, etc. The plants
further enhance the already very complex plans with
localized real capacity information from the shop floor,
which includes yield information, losses, maintenance
downtimes, etc. Before FACT, this process was heavily
manual and supported by complex spreadsheets, which often
became inconsistent with each other since there where many
different touch points. As the manufacturing network has
grown through acquisitions across the world, the underlying
manufacturing technology slightly differs from plant to plant.
This results in different capabilities, machine tools, and
master data among the plants, sometimes even for the same
type of product.
The long-term planning process generates decisions
including those involving which product to produce in which
plant, and what products to transport from plants to market
regions. Another outcome of this planning process is the
required extension of resources in a plant. This decision
might require buying a new machine for a plant, or moving
tools from one plant to another. These decisions are taken on
the long-term planning level. However, there are decisions
that might be revised or overruled on other planning levels;
if, for instance, long-term planning determines the volume of
each product to be produced at each plant, but then due to
volatile monthly demands from customers, the master
planning process might change the quantities to be produced.
Until today, long-term planning has been done once a
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
year; however, the company has a goal to increase the
frequency in future to better adapt to faster product and
market changes.
The old long-term planning process could no longer meet
today’s challenges for several reasons. Distributed,
collaborative planning was not well orchestrated between
central functions and the plants. Files had to be exchanged,
compared, and merged manually. Furthermore, the planning
was essentially done manually, without the support of
automated mathematical planning functions. The creation of
multiple business scenarios for different allocation situations
was virtually not possible, as this took too much time.
Finally, underlying data often did not have the required level
of granularity and quality to support high quality decisions.
Related work
Generally speaking, the performance of the supply chain
determines, to a large degree, the competitiveness of an
organization and therefore its shareholder value. Profit, as
well as capital requirements, is improved by optimized
supply-chain planning decisions. Revenue is increased by
better satisfaction of the demand, and cost can be reduced by
efficient sourcing, production and distribution processes.
Inventory optimization reduces working capital requirements
and fixed capital is used in a more efficient way by improved
supply chain efficiency. Conflicting goals have to be taken
into account when driving towards the optimal business
value. Larger batch sizes can reduce production cost and
increase throughput, but they can also cause increased
inventory and lead times. Producing closer to the customer
can increase the capital cost but can also reduce the
transportation cost and lead time. Focusing on the supply
chain cost may impact the lead time and production
flexibility, hence impacting customer satisfaction and
revenue. Typically, supply chain planning decisions have
been based on experience, and spreadsheets are often used to
analyze the impacts of decisions and to compare different
scenarios. However, there often is no way to tell if the overall
result is rigorously optimal in a global sense. In particular, if
decisions have been made by different groups within the
organization with the goal to optimize their individual
performance measures, the overall result is typically far away
from the (company’s) global optimum. Also, the number of
decisions to be made often exceeds what can be handled
in a traditional manual process. The example given by Lapide
[6] amounts to 10 million planning elements that need to
be considered, including all the tradeoffs between the
different decisions and their impact to the business goals;
this example is even on the lower end of the typical ranges
of problem sizes we are seeing today.
Mathematical optimization is a way to address these
challenges, and it has been noted that Boptimization [grew]
out of a discipline called Operations Research[ [7].
Sashihara provides a definition: Boptimization is a
H. SCHLENKER ET AL. 11: 3
decision-making process and a set of related tools that
employ mathematics, algorithms, and computer software . . .
to use that data to make recommendations faster and better
than humans can[ [7]. He points out that Bwhen effectively
applied, optimization can become a competitive game
changer, as it has for many companies[ [7]. The use of
supply chain modeling and optimization enables making
data-driven decisions to determine a plan that optimizes the
global goals of a company vs. optimizing the often
conflicting objectives of different organizations.
Simchi-Levi et al. [8] point out the challenges to global
supply chain optimization and present many examples of
actual projects. The annual competition for the Franz
Edelman Award for Achievement in Operations Research
and the Management Sciences [9] demonstrates the important
improvements organizations and society can obtain from the
use of optimization in successful projects. However, there
is still room for a more wide-spread adoption of planning and
optimization processes, as the Supply Chain Digest notes [3],
BDespite the fact that the majority of companies say they
do engage in formal sales and operations planning, the reality
is that most are still executing those processes at a relatively
immature level compared with the leaders and what is
possible with a technology-enabled, integrated, and
disciplined approach.[
Sashihara [7] gives a good overview of the Bearly
adopters[ of optimization, starting in the 1950s. An
important driver of the more wide-spread use of optimization
has been the improvements in the underlying technology for
solving Mixed Integer Programs (MIPs) [4, 10, 11] and
Constraint Programs, which are often used in supply chain
optimization applications. According to evaluations done by
Achterberg and Wunderling [5], the performance of the
optimization solver engine IBM CPLEX* (see, e.g.,
Bixby et al. [11]), increased between 1998 and 2012 such
that many large MIP models can now be solved about
200 times faster than in the past. If we assume an additional
hardware speed-up of 60 during that time, then many
problems that required a 24 hour run time in 1998 can now
be solved in 7 seconds, and many problems that could not be
solved in a reasonable amount of time are now solvable
with a run time that supports the creation, optimization,
evaluation, and comparison of multiple scenarios.
As long ago as 1998, Lapide [12] pointed out that while
the market for Advanced Planning Systems (APS) Bhas
increased dramatically over the last decade, only within the
last two to three years has optimization been widely
incorporated into APS systems.[ The improvements in solver
speed increased the successful use of optimization in the years
following and considerably increased the scope of planning
applications that can benefit from optimization today.
There are different ways to use optimization in supply
chain planning. Many standard software packages, such as
SAP, Oracle**, and i2 Technologies (see, e.g., Stadtler and
11: 4 H. SCHLENKER ET AL.
Kilger [13]), use mixed integer programming software like
IBM CPLEX in certain planning modules. The use of
optimization does improve the quality of the solution
considerably, and these packages have increased the use of
optimization in supply chain planning. A package may,
however, not represent the supply chain or production
process accurately enough for every company, and often, the
package can require compromises in the models. Another,
less obvious drawback is that the number of distinct features
that each package needs to support in order to cover a
commercially attractive application space creates
considerable complexity in the model, which negatively
impacts run time and memory consumption. Configurable
software platforms represent an alternative to standard
software packages that can model more precisely the part of
the supply chain in focus. This approach provides the highest
flexibility and performance. The availability of modeling
languages, including OPL (Optimization Programming
Language), GAMS (General Algebraic Modelling System) or
others, support efficient model development and make it
possible to adapt the models to fit exactly to the business
situation at hand, reducing the restrictions given by standard
software with hard-coded models. Additionally, software
platforms such as the IBM Decision Optimization Center (see
next section) comprise configurable and customizable
components such as a planning cockpit to support distributed
planning and scenario comparison.
In defining a planning and optimization solution, the
designer must consider carefully the trade-off between
modeling details and runtime. The solver performance
improvements have simplified this task and to a certain extent
reduced the modeling effort. Typical modeling considerations
are the length of the time buckets and time horizon,
product definitions at SKU (stock-keeping unit) or
aggregated level, the level of detail for the supply, production
and transport network, and the associated constraints, and
the costs, which may, for example, include sourcing,
production, transportation, and inventory costs.
Most applications use some form of hierarchical planning,
sometimes to reduce model complexity, but in many cases to
provide a better fit to the existing planning process and
responsibilities of the planners involved. Bitran et al. [14]
show a typical two-step hierarchical production planning
approach favoring Ban aggregate allocation approach at
the higher level of the hierarchical system.[ In many
applications, the initial strategic planning uses a longer time
horizon and larger time buckets. Another example
(Stadtler [15]) uses Baggregation and planning intervals
ranging from Faggregated long-term_ to Fdetailed short-term_
planning.[ The FACT application also uses different time
Bbuckets[ in the two planning steps, allocation and capacity
planning. Stadtler [15] also points out that aggregation and
Bdisaggregation [of] product types or product families[
usually takes place between mid-term and short-term
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
 Figure 1
Example planning and optimization applications developed by the IBM team and its customers. The shaded area at the top of the figure outlines the
scope of the FACT application.
planning. In contrast, the FACT approach does not aggregate
products but uses all (about 10,000) products individually in
the planning. However production resources are aggregated
in the production allocation step described below. In
addition, FACT takes into account production complexity
and its impact on production capacity, in a way highly
tailored to tire production.
Packaged solutions (like the ones mentioned above) did
not meet Continental’s requirements because of the very
specific allocation and capacity planning process that
Continental developed over many years. It covers complex
manufacturing constraints, like mold setups, green
(or semi-finished) tires, or very specific production step
sequences. Continental therefore developed a spreadsheet
driven planning process that required multiple loops of
manual planning, and which is now replaced by FACT.
Figure 1 shows some example planning and optimization
applications developed by IBM, its partners and customers,
spanning a wide range of applications from strategic planning
down to production scheduling. In particular, discrete
manufacturing, including the automotive industry, has unique
challenges [3] including complex, multi-level bills of
material, multiple product configuration options, complex
product lifecycle planning and management environments
and multi-tier and/or multiple sales channels. These
applications address the top business pressures as seen by the
supply chain officers in the discrete industry: BGrowing
complexity of global operations and rising supply chain
costs[ [16]. The ability to model each industry-specific
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
aspect of these challenges is a strong point of a tailored
platform solution. The use of a common modeling platform
permits the execution of multiple planning applications on
the same software and hardware platform. Figure 1 also
outlines the FACT application scope (shaded area at the top
of the figure). This covers more than other production
planning applications. However, it also covers
lessVcompared to sales and operations planning, the FACT
application focusses on the production and supply side. The
demand is given as a fixed input and not part of the
interactive planning; financial impacts on revenue and profit
based on different demand scenarios are therefore not
evaluated.
Solution details
Core approach and components
The following gives a very brief introduction to the basic
concepts. For more details and formal definitions on models
and solution algorithms, please see, e.g., Chen et al. [17] or
Bixby et al. [11].
As outlined above, optimization uses mathematical
algorithms to solve very difficult decision problems in very
short time, such that pre-defined goals are maximized or
minimized. Technically, this approach uses two core
components: an optimization engine that implements the
mathematical algorithms, and an optimization model that
describes the business problem in a way such that the engine
can solve it. The optimization model consists of definitions
H. SCHLENKER ET AL. 11: 5
 Figure 2
The IBM Decision Optimization tools. CPLEX refers to a product name. (IDE: Integrated Development Environment; OPL: Optimization
Programming Language; API: application programming interface; GUI: graphical user interface.)
for input data, decision variables or choices, constraints or
requirements, and objectives or goals; the model specifies
mathematically the relationships among all these elements.
An optimization model is written (or configured) for each
individual application, thus reflecting the application’s
specifics as far as possible. The engine uses highly
specialized mathematical algorithms to solve these models,
and it assigns values to all decision variables, such that all
pre-defined constraints are met (like production capacity
limitations), and goals (or key performance indicators, KPIs)
are optimized (e.g., production costs are minimized).
An assignment of values to decision variables is called a
solution. One particular assignment of a value to a decision
variable represents one particular decision. In the context of
production optimization, a decision variable could for
example represent the number of items that a specific
machine will produce within a particular time period, e.g., the
following Monday. If this particular decision variable would
be assigned the value 100 (in one solution), then in this
solution, the respective machine would produce 100 items,
the following Monday. The optimization engine assigned the
value 100, because it found this value to be (globally)
optimal in the given situation (taking into account all given
constraints, goals, and all other decisions to be made).
By generating a solution, the optimization engine
automatically generates an optimal production plan, with
respect to the given model, in a mathematical sense: no better
solution exists. (Technically, due to the nature of the
algorithms and typical problem sizes, the guarantee is slightly
weaker: the solution falls within a certain, known bound of
optimality.)
11: 6 H. SCHLENKER ET AL.
Solution architecture
Figure 2 shows the IBM Decision Optimization toolset that
is used in the FACT application. The CPLEX Optimization
Studio provides tools for optimization specialists to write
an optimization model (CPLEX is a product name).
The model is typically written in the Optimization
Programming Language (OPL). The model is then deployed
for solution on the CPLEX solver residing on an optimization
server. A data server manages a Scenario Repository
containing the data related to the multiple Bwhat-if[ scenarios
under consideration by the planners. The CPLEX tools
can be integrated into large software systems through
various connectors and application programming
interfaces (APIs).
The FACT application is built on the IBM Decision
Optimization Center platform. This solution platform
provides a set of software components on top of the
underlying CPLEX optimization technology: the
Optimization Server, the Data Server, and a graphical user
interface (GUI) such as the Client. The Client is the front-end
application for the end user of the application. It serves as a
planning cockpit that provides rich planning functions
including data import and export, data editing, analysis,
visualization, optimization parameterization, optimization
run and control, scenario based what-if simulation, etc. The
Optimization Server uses the optimization model and the
engine and manages the optimization jobs. The Data Server
stores, using a standard database system, all the planning data
of the application in user-definable scenarios: input data,
parameters, error reports, and optimization results. Hence, the
FACT application has its own planning data repository. The
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
 Figure 3
Solution workflow. The green arrows indicate data flow inside the FACT application. The blue arrows indicate manual parameter settings. With
changing parameters, the user can simulate different capacity/sourcing scenarios and evaluate the impact. (SCM: Supply Chain Management Division;
GTS: Global Tire Sourcing Division.)
planning data is imported from and exported to existing
systems including Enterprise Resource Planning (ERP)
systems, data warehouses, reporting systems, and legacy,
file-based data sources. During the planning process, the
users import planning data (e.g., master data or forecasts)
from the other systems, then analyze this data (checking for
consistency and completeness), prepare the optimization
(through parameter settings or input data adaption), and then
run the optimization. After the computation, the users
analyze the results. The FACT application provides both
graphical and tabular data views. These are based on standard
views that the Decision Optimization Center provides and are
tailored and extended to fit the needs of the FACT planner
users. The system also supports team collaborationVmultiple
users, potentially distributed over the worldwide production
network, can access common data workspaces and planning
scenarios, reviewing and adjusting each other’s work. The
Decision Optimization Center takes care of personalized data
access and consistency.
The IBM Decision Optimization Center itself is a generic
solution platform. In an implementation project, the FACT
application was built on top of this platform through
configuration of the optimization model and the user
interface views and through customizations or extensions
through application-specific plug-ins. For further information
on the Decision Optimization Center platform and typical
solution architectures, please refer to [18].
Solution workflow
Figure 3 shows the basic workflow of the FACT solution.
Initially, a high level allocation scenario is created, based on
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
expected market volumes, plant restrictions, transport costs,
and product specifics (this data is partially re-used from
previous plannings, and partially imported from external data
sources). The allocation scenario is then optimized by the
allocation planning. The human planners then sometimes
fine-tune the resulting allocation plan, and generate multiple
possible scenarios, using the system’s interactive planning
features. The allocation plan is then split into per-plant
scenarios, which are then distributed to the individual plants
(portfolio per plant). In each plant, a capacity balancing
optimization model simulates the local production, reports
anticipated production bottlenecks, and provides mitigation
options (such as which resource can be extended and by what
percentage). The capacity optimization model implements
much more detailed constraints and goals than the network
allocation model. In order to create different scenarios, input
parameters can be adjusted for the optimization processes.
The capacity balancing process is a Breality-check[ for the
allocation plan; its results (validated capacities) are fed back
into the allocation process. In addition, the capacity check
serves as an input for different organizational units including
manufacturing, supply chain management, global tire
sourcing and others. Thus, many organization units at
Continental Tires benefit from the FACT solution. The
solution is currently used by 10 central business users and
approximately 80 users in production locations worldwide;
these numbers are planned to increase.
Optimization model
As stated above, FACT at Continental Tires involves
planning at two levelsVallocation planning at the worldwide
H. SCHLENKER ET AL. 11: 7
level, and capacity planning at the individual plant level. In
the FACT solution both steps are implemented by tailored
planning and optimization models. Each optimization model
computes plans at capacity level: it assigns production
numbers to products and resources (such as the plants), and
to a few planning periods (monthly or quarterly buckets). It
does not produce detailed production schedules, which
would include, for instance, setup tasks and cleaning times.
Computing a detailed schedule for such a big planning
problem would take extremely long, and it would not provide
significant additional value (at this planning level).
Nevertheless, the optimization can deal with sophisticated
effects like production complexity, as we will see.
The Allocation Planning essentially assigns production
quantities to the worldwide production locations (about 20).
This planning step considers only one planning period, one
year as a whole. Since the whole worldwide production is
planned, all relevant products must be taken into account,
about 10,000 in this application. A few resource types are
considered, together with their capacity restrictions: plants
(e.g., the maximum output of a specific plant for the planning
period is 10 million tires), certain key machines (together
with their availability times during the planning period under
consideration), or product characteristics (e.g., in a certain
plant, the maximum production of 19-inch tires is 1 million).
Then, for each product and each corresponding resource, a
Bill-of-Capacity (BOC, [19]) links the product with the
resource, and defines a resource usage factor, usually given in
minutes of resource usage per unit of final product (the tire).
Even production complexity is taken into account: producing
many different product types in one plant requires many
setups, cleaning, and other non-productive tasks in this plant,
which reduces the overall production performance in the
plant. In the optimization model, this effect is handled as
follows: For every plant, the number of different product
types is computed. Then, this number is attached to a
step-wise function that describes the plant performance (e.g.,
100%, 90%, 80% for respective numbers of types). This
performance factor adjusts the usable capacity in the resource
capacity constraints. Thus, production complexity
implications are handled at the capacity level without the
need to compute a detailed production schedule. Finally, the
allocation planning takes into account the transportation of
the products, mainly since this transportation imposes
significant costs that can be avoided through an appropriate,
optimal assignment. The result of the allocation planning step
(i.e., the worldwide production allocation to the production
locations) is an important input to the next step: Capacity
planning.
Capacity Planning (also called Capacity Balancing) solves
a planning problem that actually has many similarities to
production allocation planning. One major difference,
however, is that capacity planning deals with each plant
individually: one optimization model (or planning team,
11: 8 H. SCHLENKER ET AL.
respectively) covers only one single production plant,
without considering the rest of the network. On the other
hand, capacity planning considers more than one planning
period, e.g., 12 or 24 distinct months. Since it covers only
one plant, and takes the input from the preceding planning
step, the capacity planning does not take into account all
company’s products but only those that have been assigned
to this plant in allocation planning. Capacity planning
considers the detailed Bill-of-Materials (BOM) for each
productVthe complete list of raw materials and intermediate
products required in the production process in the plant at
hand (up to 100 for each final product). It also takes into
account all relevant production resources in the
plantVmachines that produce intermediate products,
machines that produce the final products, and even some
workforces. All resources have a given capacity calendar.
Furthermore, the capacity planning model takes into account
the machine-dependent-time (MDT) for all products and all
respective production resources. The MDT represents the
resource consumption for the production of final products.
The capacity planning step essentially helps to detect
production bottlenecks and to find mitigation actions (such as
which resources to extend). Thus, this step is sometimes also
called de-bottlenecking. In contrast to the first planning
stepVproduction allocationVcapacity planning is done in a
distributed fashion. Each plant does its own capacity
planning. In theory, they can do capacity planning
independently from each other. In practice, however, they
must communicate about possible assignment shifts.
Therefore, they need a system that supports them doing
cooperative, iterative planning.
Technically speaking, both optimization models are mixed
integer programs (MIPs). They contain mainly continuous
decision variables (the number of tires, for example, is
rounded after the optimization), and some integral ones for
representing piecewise linear functions or certain discrete
decisions. The optimization runtime for most instances is
below ten minutes per scenario.
Capacities, overload, and extension
A major function of the planning system involves the
allocation of production to plants and other resources, always
taking into account the fact that these resources are limited
and their usage is expensive. Continental Tires often faces
the situation in which the available resources are not
sufficient to produce all needed tires in time. Then, the
planners have to decide what not to produce, or which
resources to extend. Very often, the actual production
bottlenecks can be hard to determine: for a complex system
with thousands of products, utilizing hundreds materials, to
be produced in a complex production chain, it is hard to
actually determine why some demands cannot be fulfilled.
Sometimes the insufficient availability of very inexpensive
resources might be the root cause for unfulfilled demands and
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
therefore big sales losses. Thus, it is essential to detect the
real production bottlenecks. In addition, planning incurs
trade-offs. For example, in order to avoid transportation
costs, it might seem best to produce all products in the plant
closest to the buying client (or market). However, producing
many different products in one plant is also costly, since it
requires, for instance, keeping all production molds for all
products in all plants, thus incurring unnecessary and
unproductive tasks (like switching machine tools very often)
that further limits the available production resources (or
productive time). Therefore, there is a trade-off between local
production and centralized production, and that trade-off
might look different for different products and different
plants. In this complex reality, it may be very difficult to
determine how to optimally use the resources, where the
bottlenecks actually are, what impact they have, and how to
solve production issues. Many other planning applications
not based on optimization have to evaluate these trade-offs
manually or with the help of some rule-based heuristics.
Mathematical optimization both automates the allocation,
and ensures that the planning results are optimal (or at least
close to optimal).
Mathematical optimization helps in multiple ways: it helps
determine what can be produced with the given resources
and what cannot be produced (products that cannot be
produced, are called overload), it helps identify the
bottlenecks, and it helps determine how to extend the
resources in order to be able to produce more.
In production planning, optimization automatically
respects limited capacities. It shifts production between
locations, lines, machines, workforces, and other resources as
far as possible, taking into account factors such as production
compatibility constraints and also product prices and
market margins. This is how it automatically determines
where to produce the products and which products to produce
or not to produce, respectively (because, for instance, the
customer has a low priority, or the product margin is not high
enough to buy new resources).
Thus, the application allows for analysis of the production
plans: It displays which resources are used at their limits and
which are not. It helps identify the bottlenecks, the
resourcesVmachines, tools, workers, transportation vehicles,
etc.Vthat are insufficient and whose limits prevent the
production of more (or enough) final products.
Finally, the FACT solution can automatically compute
resource extensions, as potential actions to solve capacity
limits (by, for example, assigning additional work shifts,
buying a new machine, or sometimes even building a new
plant). In the optimization model, possible extensions are
assigned costsVif the optimizer decides to extend a resource,
then it must account for some associated costs. Costs can be
real costs (e.g., C or $), if available, but they can also be
estimated or artificial costs, just for use in the goal formulas.
Thus, the optimization can determine which (and how)
IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014
resources to extend in order to meet certain production goals.
It can even balance resource extensions versus possibly
gained benefit through sales increase.
Results
The FACT software application, together with necessary
process changes, has been developed and rolled out globally
by Continental Tires over a period of approximately two years.
The rollout started with the central allocation planning
which is now mainly used by central functions, such as
global tire sourcing and industrial engineering, which manage
the global manufacturing network and tire sourcing process.
Based on the allocation plan, the company determines whether
the global manufacturing capacities match the expected
volumes or whether and where additional tools and
machinery have to be added. The second, capacity planning,
part of the application has also been successfully rolled
out into industrial engineering and plant operations
functions in all plants worldwide. They use it to orchestrate
the optimization of the capacities and constraints within
the plants.
In the implementation project, the following major
challenges had to be solved: user acceptance, data quality,
and data size and model complexity. User acceptance of the
new approach and system was accomplished through early
involvement of key business users, who defined the
requirements for the new system and took, together with the
IT division, the decision to take IBM as the solution provider.
Data quality in the new system is assured through a
multi-staging data acquisition process: initially the external
data is loaded verbatim into the loader data stage of the
application, then certain users check and clean the data in the
review data stage, and finally the data is extracted into
both the allocation and the capacity planning data stage.
Finally, the new system can handle the required data size
and model complexity through the latest performance
improvements in the software products and state-of the
art optimization modelling tricks.
Comparing the process before and after implementing the
new solution, the following benefits have been gained. The
new FACT solution is based on a consistent data model,
which enables the organization to further improve master
data quality. It has been made much easier to enter and
maintain master data with the new tool, as well as to identify
missing or inconsistent master data. As both the entire
allocation and the capacity planning processes are now based
on one single tool, the information flow from central
functions to plants and vice versa is much more consistent
and a lot simpler due to the elimination of the spreadsheets
and the interfaces between the different business functions.
Although the solution still requires data from other source
systems, the leading instances for master data have been
clearly defined and missing data from source systems can
easily be identified, highlighted and corrected. It has been
H. SCHLENKER ET AL. 11: 9
positively attested by the users that data quality has already
been improved significantly during the implementation of the
new solution. The business processes have been harmonized
between the central headquarters and local plant functions,
especially because now the plants work with a fairly
standardized process setup, even though local peculiarities
still need to be considered. The spreadsheets formerly used
have been replaced by the new solution, so that now standard
formulas and algorithms to calculate results or to simulate
different business scenarios are available, which finally
results in better decision making and comparable and
traceable results. The new solution is perceived as a much
more collaborative planning environment because it is not
based on isolated spreadsheets which had to be somehow
merged together.
The new solution achieves a better planning granularity
while enabling creating more business scenarios. Human
decision making has been improved through more visibility
into capacity bottlenecks, more consistent underlying master
data, and the creation of what-if scenarios and evaluation
capabilities. Today, the planners focus on key tasks rather
than number crunching and error debugging. More
decision proposals can be created and evaluated in
shorter time.
Overall, the FACT solution improves the planning process
and, hence, the plans. This results in better decision making,
therefore ultimately resulting in cost savings and better
customer service. FACT provides a good basis for further
extensionsVmore detailed production and investment
planning, extension of the planning horizon to three years,
consideration of future product and manufacturing
technologies.
Conclusion and future work
This paper described a case study that applied state-of-the art
optimization technology to a complex planning problem in
the automotive supplier industry. We have provided the
business background of the planning process, which was
manual and heterogeneous before this project. This led to the
definition and creation of the new solution, FACT. The
solution assists the various worldwide planning teams in their
regular planning tasks, which we have described, together
with the workflow related to how the new solution is actually
being used. We have shown that the solution runs
successfully and helps to manage a large worldwide
production and supply chain. We have provided a description
of the mathematical optimization models that have been
configured to match the planner’s requirements. We have
shown how we solved the major challenges in the
implementation project (data size and model complexity, data
quality, user acceptance). Finally, we have presented results
of the introduction of the new FACT solution, describing
what benefit it brings to the planning process and to the
involved company divisions.
11: 10 H. SCHLENKER ET AL.
As future work, Continental Tires is planning to extend the
solution to other planning tasksVnamely more strategic
onesVand to apply recent research results in optimization
under uncertainty.
Many companies see disruptionsVcaused by their
suppliers or carriers, raw materials, and fuel price volatility,
as well as environmental catastrophic events, as the main
pressures for supply chain disruptions ([20]). Modeling
different risk scenarios and choosing a plan less sensitive to
adverse events is one way to deal with risk. Optimization
under uncertainty will be used to determine plans that are
robust under the unavoidable variation in the conditions,
such as demand or cost variation, non-reliable supply lead
time, or exchange rate changes. Here, the solution is
determined such that the constraints hold for the entire
parameter range, and the goal function may either be the
expected value, value at risk, or another stochastic function.
*Trademark, service mark, or registered trademark of International
Business Machines Corporation in the United States, other countries, or
both.
**Trademark, service mark, or registered trademark of Oracle
Corporation in the United States, other countries, or both.
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Received January 15, 2014; accepted for publication

February 12, 2014

Hans Schlenker IBM Software Group, Industry Solutions,

Hollerithstr. 1, 81829 Muenchen, Germany (hans.schlenker@de.ibm.
com). Dr. Schlenker is an IBM Technical Sales Specialist for IBM
ILOG* Decision Optimization products and solutions. He joined ILOG
in 2005, and since 2009, worked in different roles in services and sales
for IBM. He sold and delivered projects and solutions for many
companies in various industries including automotive, industrial
production, logistics, banking, insurance, and energy. Overall,
he has more than 15 years of experience in algorithm development,
IT architectures, optimization modeling, and solution design.
Dr. Schlenker taught classes at several universities. He currently holds
an IBM research assignment for the Karlsruhe Institute of Technology,
where he researches real-world optimization projects. Dr. Schlenker
holds a Master’s degree in computer science from Ludwig Maximilians
Universitaet, Munich, and a Ph.D. degree in industrial engineering/
computer science from Technische Universitaet, Berlin.

Ruediger Kluge Continental AG, Beiersdorfstr. 5, 30165

Hannover, Germany (ruediger.kluge@gmail.com). Dr. Kluge is leading
the Global Supply Chain Planning Solutions Group at Continental
Tires. He studied Mechanical Engineering at Leibniz University
Hannover and joined IBM Global Services Management Consulting in
1996, focusing on supply chain management and operational efficiency
improvements. In 2001, Dr. Kluge joined a major software vendor in
Supply Chain Management, where he led multi-national supply chain
transformation and software solution programs from process definition
to execution. These programs enabled world-class supply chain
management and operational efficiencies for business leaders across
different industries. Dr. Kluge holds a Master’s degree and a Ph.D.
degree in mechanical engineering/logistics from Leibniz University,
Hannover.

IBM J. RES. & DEV. VOL. 58 NO. 5/6 PAPER 11 SEPTEMBER/NOVEMBER 2014 H. SCHLENKER ET AL. 11: 11