Production and Inter-Facility Transportation with Shipment Size Restrictions

Production and Inter-Facility Transportation with Shipment Size Restrictions

Mohamed K. Omar (Nottingham University Business School, Malaysia)
DOI: 10.4018/978-1-4666-2098-8.ch005
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This chapter studies production and transportation problem confronting a speciality chemical company that has two manufacturing facilities. Facility I produces intermediate products which are then transported to Facility II where the end products are to be manufactured to meet customers’ demand. The author formulated the problem as a mixed integer programming (MIP) model that integrates the production and transportation decisions between the two facilities. The developed MIP aims to minimize the production, inventory, manpower, and transportation costs. Real industrial data are used to test and validate the developed MIP model. Comparing the model’s results and the company’s actual performance indicate that, if the company implemented the proposed model, significant costs savings could be achieved.
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Batch production is widely used throughout the chemical industry when fine chemicals of high commercial values are to be manufactured. The batch production has been long accepted for the manufacturing of many types of chemicals, practically those which are produced in small quantities. Due to the multiproduct nature of this industry, it is important that sufficient manufacturing flexibility is available to avoid loss of potential customers.

Since multiproduct chemical plants in the process industry such as speciality chemicals plants and pharmaceutical firms employ batch processing concepts that involve production of small quantities of products but with high varieties. Then, as a result, products are often of incompatible nature, where an intensive setup is incurred, each time a production change from one product to another. Such process characteristics are distinct and predominate in the process industry.

Another important characteristic need to be understood is the fact that firms in the speciality chemical industry compete to a larger degree with the ability to deliver finished products on a timely basis. Finished products are also relatively costly to store. Moreover, there is less customer loyalty due to the fact that the product tends to belong to the commodity end of the product spectrum, and if any firm can attain a price reduction for any reason, the other competitors must follow suit or loss the market share. Due also to the short production lead-time involved, and little or no price and quality differentiation, most of the speciality chemical firms focus on service and availability.

Consequently, short term timing and control of production takes on a more critical role in the process. In addition, firms involve in speciality chemical industry must account for a host of peculiar factors when planning the use of their systems. The nature of the production process results in varying yields due to variations in the process control. The production lead-time is short due to the fact that there is little or no in-process storage and also due to the short process time necessary in many cases to produce products.

The speciality chemical plant or also known as multi-purpose plants, production equipments are classified into two categories: pressure vessels (reactors) where the intermediate products are made, and atmospheric vessels (blenders) where different intermediate products are mixed with some chemical solvents to produce finished products. It is common in the speciality chemical industry that firms may temporarily store intermediates for later sale or they may continue to be processed further to more finished products. In addition, intermediate products may be transferred to other facilities within the firm or sold to customers to be used as intermediate products for their end product production.

The case addressed by this chapter involves a speciality chemical company in which intermediate products are produced at one production facility and transported to another facility where the intermediate products are processed further to end products to meet customers’ demand. The production and transportation decisions have been dealt with separately and the practice of the company is that production plan is first developed and then transportation plan is worked out by the transportation department. Like many companies with a similar situation, transition between the two functions relies on inventory buffers. Moreover, like many other companies in the industry, there is management pressure for the company to reduce inventory and to adopt the just-in-time concepts as much as they could. Nowadays, it has become essential for companies to explore closer coordination between production and distribution functions.

This study focuses on the coordination of production planning of intermediate products, end products and transportation decisions over two manufacturing facilities, separated and located at two different locations. This research, addresses a speciality chemical manufacturing company that produces intermediate products at one location and then transport the intermediate products to another facility where the end products are produced. Therefore, this research reports on the coordination of production-planning and transportation decisions surrounding a speciality chemical company that has all the characteristics of a typical multiproduct batch chemical plants. This research proposes an integrated approach to coordinate and synchronize the production and transportation planning decisions between the manufacturing facilities subject to some constraints and restrictions.

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