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Alexandre Dolgui and Mohamed-Aly Ould-Louly

Industrial Systems Optimization Lab. University of Technology of Troyes 12, rue Marie Curie, BP2060 - 10010 Troyes cedex, France Ph: +33 (0)3 25 71 56 29 Fax: +33 (0)3 25 71 56 49 E-mail: {dolgui, louly}@univ-troyes.fr

Abstract. In this paper, a survey of existing methods for supply planning optimization under uncertainty is given. The analysis shows that there are no global models taking into account all the principal factors (random lead time, random demand level, complex product structure,…). The existing approaches (MRP and Operations research methods) have also several other disadvantages. In these conditions, the proposed solution is to create a toolsbox containing the partial models. Then, the planning model for each concrete industrial case will be composed of different models from this tools-box. A simulation environment will assure integration. Keywords: Production systems, Uncertainty, Planning, Inventory control, Optimization.

1. INTRODUCTION Various sources of uncertainties exist along the supply chain due to: supplying reliability; assembly and manufacturing random lead times; random level of customers demand, etc. To decrease the influence of these uncertainties, the companies use safety stocks, but stocks are expensive. So, the problem is to control stocks throughout the supply chain and to avoid stockout while keeping a high service level. Efforts to minimize the random factors are necessary, but another aspect of possible progress should not be neglected, namely: the development of new planning methods (Maloni and Belton, 1997). In a supply chain, the demand forecasts give information on the final needs; this information should go up from the distribution centers to the production sites and to the raw material suppliers by means of the planning activities (Ballou, 1999). Each

planning activity considers the precedent unit of the chain as the supplier of the current unit. In this planning chain the decisions are related to the following questions: • Which are the optimal moments and the optimal quantities to supply? • Which product to manufacture, when and how much? • Which demands to satisfy, with which products and which quantities? In this paper, an overview of the supply planning methods is given and a framework for search of the solution of this problem is proposed. In Section 2, the Material Requirement Planning (MRP) method is analyzed, its disadvantages are shown. Section 3 deals with optimization models based on different mathematical methods. Section 4 proposes a concept of tools-box for planning optimization.

end-item safety stock. the future backlogging could be more expensive than the cancellation of the current customer order). If all the orders of components are launched at the latest. So. the authors develop two probabilistic models. 99) consider inventory models of the order-quantity/order-point type. etc. which was confirmed by the industrial experiments. The MRP method does not take into account the cost parameters. In the deterministic case. operating according to an MRP philosophy. With MRP method. Kimms. for each value of random parameters. is an estimation of the random variable of the real lead time. i.2. Zäpfel. the solution is not optimal. and give simulation studies to evaluate the effectiveness of the suggested method. one does not need to calculate costs. various methods were developed in the framework of "sales forecasting". When MRP uses the sum of the needs. 1999. The random demand variations. In these conditions. Several works to choice the parameters in stochastic environments exist. a backlogging probability and an inventory cost will correspond. 1998. These works are classified into three groups as follows. The third disadvantage of the MRP method is the fact that the component needs for a period are calculated as the sum of all the needs for various products in this component. 1997) discuss the shortcoming of existing methods for measuring system nervousness. For the forecast of the independent needs. 1998) study single-stage. 2. . Numerical examples are given. For each model. 1996). The MRP with lead time uncertainty is also considered in (Nakagiri and Kuriyama. The second disadvantage of the MRP method is that it neglects the interdependence between various stocks. Grubbström and Tang.. the authors show that the expected cost per unit time is jointly convex in the decision variables and obtain the global minimum. then propose a new metric for measuring schedule. Sum et al. MATERIAL REQUIREMENT PLANNING The MRP method is based on the classification of the material requirements in two categories: independent needs (finished products) and dependent needs (raw materials and components) (Vollman et al. which is used in MRP. singleproduct stochastic assembly system. 1997). (Kadipasaoglu and Sridharan. the random production and procurement lead times and the random delivery volumes are taken into account by their estimations. The dependent needs can be calculated using Bill of Material and MRP parameters as lot sizes and planned lead times.. But what is the meaning of "at the latest" if the random factors exist? In this case.. the lead time is supposed be equal to zero. an order for a component could be made whereas it is useless because another component. 1999) study the applicability of the Laplace transform and InputOutput Analysis to formulate a theoretical basis for MRP approach and to investigate the safety stock properties.e. 1995). 1999. which demonstrates the type of analysis possible. the delay of a supplier affects all of its components). but must use forecasts on its evolution (for example. (Grubbström and Molinder. The first disadvantage of the MRP method. for example. Grubbström. not only consider the current state of the system. (Wilhelm and Som. All these disadvantages of the MRP method are known in industry as the problem of the MRP software parameterization.2 The works focused on the lead time randomness (Bookbinder and Çakanyildirim. then the total cost is automatically minimal. and lot for lot scheduling (Kadipasaoglu and Sridharan. which is used together with the first in the assembly of the various products. Enns. 1996.1 The works focused on the demand uncertainty Note that in these works. it is necessary to determine the optimal parameters of MRP method. There are important studies of the parameters affecting the effectiveness of MRP systems (Yeung et al. An example is given. choose the parameters which optimize the planning. The common tendency to overestimate these values induces stockouts. is late. 1996. In a two-stage system with a constant demand rate. The MRP with demand uncertainty is also considered in (Bogataj and Horvat 1996. 2. The assembly systems with many components are very sensitive to this interdependence. which are not really independent (for instance. the parameter of planned lead time. 1998). Three strategies for reducing nervousness in MRP systems are studied: freezing. it sums random variables. The inventory position process is identified as a Markov renewal process. the demand level is an estimation for the real demand. and sensitivity analyses are conducted with respect to the cost parameters. 1999). The optimization should. In presence of random factors. 1999. This optimization must take into account all the cost components. Horvat and Bogataj. is its deterministic nature.

which arrives in depot after a fixed lead time. The considered cost is the sum of the holding costs for the components and the backlogging cost for the assembled product. The authors propose an allocation policy and give an explicit expression for the optimal order quantity. which will be transmitted to the upstream units. The optimization models based on different mathematical approach can be also used for supply planning. safety stock and planned lead time are optimized using simulated annealing. Random demand level. the partial models are shared into two categories: • non linear programming (NLP). Gurnani et al. The ordered components are delivered either during the same time.2. (1998) present a model of production planning with demand forecast.3 The models with several random factors Molinder. the products to be assembled are selected on the basis of . The model allows to calculate the number of components of each type to be ordered from the beginning of each period. The components can be ordered either from one supplier only or from two different suppliers (each type of component has its supplier). n components are needed to assemble a product. (1997) propose a model for the components supply and assembly planning under the assumptions of the constant demand for finished products. Random lead time. the inventory cost and the backlogging cost. (1993) propose a model for the management of assembly systems of one type of product. The model takes into account the cost of purchase. in order to obtain an analytical solution. The model suggested allows to choose the products that have to be produced and the quantities of these products. • mixed integer programming (MIP). the authors often limit the problem to only one component or to only one product. Lee and Billington (1993) propose a model for study the process of demand transmission from the downstream to the upstream of the supply chain. The received order is then shipped to the warehouse. It is not surprising because in these systems the disadvantages of MRP are the most sensitive.1. 3. The components procurement lead times are random. the depot gives an order to an external supplier. The effects of either using safety stocks or safety lead times are compared to each other with propose of finding the best method for protection against uncertainties. 3. Random demand and random lead time. The depot itself does not hold any inventory. The lead times of the components are random variables. Anupindi and Tayur. The costs to be minimized are the inventory cost and the backlogging cost. Non linear programming These models propose nonlinear cost functions. Graves et al. Veatch and Wein (1996) propose a model for a machine. Chu et al. The feature of the model is that the authors propose correction of the forecasts methods keeping maximum stability of the production plan. The authors take account of the component inventory cost and the backlogging costs. 1998). 1996. (1998) study a depot-warehouse distribution system with random demands. 1999). The demand level is constant. At the beginning of each period. The model gives the optimal quantity to order each component from each supplier. The demand and the production time have the same average. but with random delivery times of the components. The encountered problems are sometimes so difficult that. The demands follow independent Poisson distributions and production times independent exponential distributions. which are optimized by classical methods or by a heuristic procedure. The inventory control model with demand level uncertainty is also considered in (Gurnani. There are fixed shipment lead times from the depot to the warehouse. Bollapragada et al. with some probability. It is a model with slipping horizon for only one product. This is a heuristic model. The authors show the convexity of the expected average cost and propose an iterative algorithm to minimize it. Lot sizes. which treats several types of products. (1997) proposes a simulation study of an MRP system affected by both demand and lead time uncertainties. The MRP is not the only method of planning. The majority of these models are developed for assembly systems. or one period later (lead time equal to two periods). The problem is to find the optimal ordering instants. (1996) study an assembly system with only one product and two components. The decisions relate to the quantity to be produced by each unit and the demand. a priority heuristic. Linear holding and backlogging costs are considered at the warehouses. OPTIMIZATION MODELS The general optimization model does not exist. The inventory control model with lead time uncertainty is also considered in (Swaminathan and Shanthikumar. Proth et al.

It would be difficult to imagine such a model. The coupling of simulation with iterative algorithms of optimization allows to find "good" parameters of all the tools-box models within reasonable computational time. (ii) to determine the sites which supply the centers and the customers zones who are assigned to these centers. The system core manages the information exchanges between the modules. the model proposed in (Dolgui and OuldLouly. OPTIMIZATION TOOL-BOX There is no global planning model. and a library of iterative optimization algorithms are principal elements of this tools-box. 1999). which minimizes the total cost on the infinite horizon.1 Tools-box frame 3. Slats et al.The inventory control models with yield uncertainties is considered in (Gerchak et al.1 Tools-box for supply planning optimization. 1994. supply-production. A promising approach is to create a decision-making tools-box (Dolgui. describing the main characteristics of known MIP models. in particular. User interface. Pirkul and Jayaraman (1998) propose a model for the production-distribution level.. Another principal element of the tools-box is the module of supply planning..2 Mixed integer programming The review of MIP models is given in (Vidal and Goetschalckx. It gives the optimal supply volume for each product.. Mathematical programming models where the planning horizon is subdivided into several discrete periods are given. Güllü et al. the backlogging costs. 1999). production-distribution. 3. Dolgui and Ould-Louly. The architecture of the proposed tools-box is given in Fig. because the problem is very complex and very related to the specificity of each company. 1999. and to find parameters of these models optimizing some criteria (cost.).. Aikens (1985) presents a review where there are few stochastic models. The supply planning module contains also several alternative models based on MRP approach. An integer programming model for supply planning was proposed in (Dolgui et al. This module manages the materials flows while deciding how many products of each type should be ordered. It takes into account the inventory costs. which takes account of several production sites. 1996).3 Other reviews Other studies of the state of the art exist. 1999). The problem is: (i) to find the centers and the sites to be opened. to compose the adequate models flows simulation module deliveries forcasting The system core Fig. 4. 1998. for each specific supply planning problem. The authors present summary table. customer service. Each distribution center supplies the customers in its zones. Drexl and Kimms (1997) summarize recent works in the field of lot sizing and scheduling.. (1993) carry out a classification of the works by identifying coordination two by two per couple of functions. . Bhatnagar et al. The models and the mechanism to choose and connect them will allow. which integrate all the other modules. the current components stocks level and the finished product demands. The model gives the optimal value for "planned lead times" in single item and multi-items cases..1. which supply distribution centers. Hung and Chang. The approach is based on a Markov chain. The use of simulation allows to check the results of each decision policy with realistic hypotheses. A linear programming model is proposed. flows simulation module. (1995) introduce the concept of the "logistic laboratory" which is composed of submodels which can be inter-connected to build a total planning model . it takes into account the transport cost and the inventory cost. The linear programming models for supply planning are also considered in (Escudero et al. 2000a). This model minimizes the holding cost while keeping a high customer service level. (iii) to determine at each stage the quantities to deliver. the criterion is the minimum of the total cost. 1997). supply planning iterative optimization demand forcasting user interface 4. which takes into account all the principal factors.

Proth (1996). Schumann. Bogataj. Supply management in assembly systems.-A. vol. G. Kletter and W. the known optimization methods are focused on some particular cases of supply planning problem. Prentice Hall. pp. Gómez and V. Dolgui. (1999). 5. Horvat (1996). Bollapragada. (1985). Gerchak. E.Survey and extensions. Bookbinder. Proth and X. Sabau (1999). A control model of the assembly manufacturing. Escudero. R. Chapman&Hall. A.T.K. European Journal of Operational Research. It requires the use of advanced parameterization techniques for searching the best values of its parameters. In: Proceedings of the 2nd IFAC Conference on Management and Control of Production and Logistics (MCPL’2000). 141-160. (1993). organizing. C. European Journal of Operational Research. Methods and tolls for supply chain integration. Dolgui. France (to appear). Lot sizing and scheduling . pp. García. Dolgui.. In: Proceedings of the 2nd IMACS/IEEE Multiconference CESA'98. and L. In: System Modeling and Optimization.. 19-24. R.M. 22. REFERENCES Aikens. Facility location models for distribution planning.B Hetzel (1998). P. 263-279. Anupindi. Some models of this type. Tunisia. pp. which are based on Bayesien probability calculation. Poland.. and M. 389-396. Tayur (1998). Lot sizing in assembly systems with random component yields. and S. 933-949. Drexl. The effect of batch size selection on MRP performance. International Journal of Production Economics. European Journal of Operational Research. A. Computers & Industrial Engineering. but obtained values are not optimal. Ould-Louly (2000a). C. Szczecin. 221-235. The tools-box includes a set of partial models for optimization of some planning functions. A. CONCLUSIONS The supply chain planning under uncertainty is a new field of research studies. 329-336. and Y. Portmann and J. Centralized ordering and allocation policies in a two-echelon system with nonidentical warehouses. and controlling the supply chain. 119. measures. Ballou. Galindo. A. 35-49. and A. This approach allows to create effective models for each concrete case and it goes in the same direction than some recent proposals in the literature that the authors call "logistic laboratory". IIE Transactions. Currently. European Journal of Operational Research. Ould-Louly (2000b). 99. Çakanyildirim (1999). 67. 37. L. R. Business logistics management: planning.M. and M. Xie (1993). Submitted to International Journal of Production Economics. 300-313. and analysis.H.B. Once materials and components orders are made. Chandra and S.H. Bhatnagar. 26. Dolezal and J. Managing stochastic multi-product systems: model.-A. 519-526.H. Dolgui. Akella and R. The interest for the problem is explained by the necessity to reduce the capital immobilized in the stocks and by the exigency of high service level.. The MRP method has several disadvantages. Chu.C. (J. European Journal of Operational Research. A dynamic model for requirements planning with application to supply chain optimization. and M. 45. Graves. input-output and multi-echelon inventory systems. In the other hand. Fidler. Operations Research. London. 106. Kimms (1999). Wang (1994). 15-19. a concept of optimization tools-box for supply planning is proposed. R. 2000b). S. . Enns. Supply and production management for assembly systems with random yield times. Naval Research Logistics. Ould-Louly (1999). The customer demands forecast module is currently composed of a double exponential smoothing model.C. 14-34. Dolgui. L. An inventory control model for MRP parameterization. Grenoble. in general case. In: Proceedings of the Sixth International Conference “Advanced Computer Systems” (ACS’99). A model for supply planning under lead time uncertainty.3. the partial models can be combined with a simulation tool and with an iterative optimization algorithm. it is necessary to forecast their delivery dates to use them in the supply planning module. Operation Research.F. allows to obtain the optimal values of “planned lead time” while minimizing the total cost (sum of the holding cost and backlogging cost).. Random lead times and expedited orders in (Q. a modeling framework for supply chain management under uncertainty. 74-81. S. Y. 40. S98-S111. 46. D. and M. S. European Journal of Operational research. To obtain a global planning model. Stochastic considerations of Grubbström-Molinder model of MRP. are proposed.Another model (Dolgui and Ould-Louly.r) inventory systems. (1998). Srinivasand (1998). which is based on the same type of Markov chain. J. Ed. M.). studied cases are very restrictive and cannot be used in industrial applications. 46. 115.. In this situation. E. 312-316. J. (1999).-A. A. Goyal. Models formulation multi-plant coordination. A.

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