A Supply Network’s Optimal Information System and Material Flows

Introduction

There is today a need, strongly felt by business leaders, to have available efficient methods that provide powerful guidance in managing increasingly complex supply networks. The many management problems that have to be dealt with include: finding the operating policy that is optimal at time t, t+1, t+2 etc for the entire supply network, finding the optimal pure “demand – pull” policy, and deciding which are optimal reactions to supply network interruptions and disturbances, and deciding the consequences of changes in output quality and reliability. The capabilities of the model include solving the infrastructure problems of determining the optimal design of a complete supply network, the optimal location of facilities, and the optimal capacities with which to equip supply network facilities. This paper:

• 1.

  Explains how, in practice, management can develop a tractable analytical model of any specific supply network, no matter how large and complex that network may be. The model is dynamic and is used to identify the optimal solutions to very many supply network planning and decision problems management will face;

• 2.

  Explains how, in practice, management can develop a “Decision and Planning Laboratory” in which alternative decisions and plans can be tested cheaply and quickly before “serious money” is invested and committed for real in real life.

Related Literature

The relevant literature, which we cite below, presents how the profession has developed a deep understanding of, and competent solutions to, many specific managerial problems which occur in supply networks. There is a wide diversity among methods and approaches used. However, none of the published papers or books explains to managers how they can construct a tractable comprehensive model which can guide them to optimal solutions for problems they face in practice in their specific supply networks. This paper shows managers how they can develop such a tractable comprehensive model. Why would managers want to possess such a model?

The answer is that such a model will provide the manager with his own “decision and planning” laboratory. In it, the manager can test which one of all the potential actions is optimal, and should be chosen. In the laboratory, he can find the optimal solutions to his supply network’s infrastructure problems (find the supply network’s optimal: design, capacities and facilities locations). In his laboratory, the manager can find the optimal ways to react to supply network disturbances before he takes any actions. These solutions will be found quickly and cheaply in the laboratory before “serious money” is invested and risked for real.

This paper describes to managers (and all readers) how such extremely useful models can be constructed in practice. The paper describes how management should use the model to tap its full power.

The relevant literature is huge. There are literature overviews in (Harlan et al., 2001; Lamming et al., 2001). The literature that relates to this paper covers three different directions.

The first direction is in papers and books that create mathematical representations (models) of supply networks – large or small, static or dynamic – and that use the representations to describe how the networks work, how best to design them, and how best to manage them? This direction has two sub-directions: (1) original mathematical methods as presented in Dantzig (1963), Johnson et al. (1973), Chopra et al. (2003), Ragsdale (2004), and Simchi-Levi et al. (2003), and (2) innovative applications of the original mathematical methods that show how supply networks can be described, designed and managed as discussed in Dong et al. (2004), Nagurney et al. (2002; 2005), Tayur et al. (1999), Zhang et al. (2003), Galinec et al. (2009), Spohrer et al. (2009), and Chandra et al. (2009).