Optimum Production-Distribution and Transportation Planning in Three-Stage Supply Chains

Abstract

We develop an integrated mixed-integer linear programming model for production-distribution and
transportation planning in three-stage supply chains (SCs). The model has two versions, the fully optimized
version (FOV) and the less fully optimized (LFOV). Each of the versions determines the optimal quantity of
each product to be produced at each plant in each period, kept in inventory at each plant in each period,
transported to each distribution centre (DC) from each plant in each period, subcontracted at each DC, kept in
inventory at each DC, and transported from each DC to each retailer in each period. It also determines the
optimal amount of extensions needed at each DC in each period. Examples given to test and compare the two
versions of the model show that they work very well. In all the examples, the optimal objective-function values
produced by the FOV are greater than those produced by the LFOV. The examples also show that using a single
model to integrate and optimize all the stages and key components of a SC simultaneous can greatly enhance an
organization’s operational efficiency and financial performance.