Supply Chain Planning Using Optimization
Optimization
Introduction to Optimization Models
Optimization
Optimization-Based Planning Models
In constraint-based planning, production processes can be represented as optimization models.
A production model based on optimization consists of Objective Function(s), Decision Variables, and constraints based on market conditions, physical processes, and resources/capacity. These kinds of models are usually called mathematical programs.
Optimization
Decision Variables
Decisions variable are the independent variables of the problem. Typically, decisions take the form of Production lot sizes, Transport lot sizes, Purchase of additional capacities and so on. Examples of Decisions Variables: How much do we invest in new machines? How much do we spend in labor? How many units to make? Repair or replace?
Optimization
Objective Functions
The Objective Function is the single benchmark for evaluating all combinations of decisions that satisfy the constraints. It usually represents a quantifiable goal, and sometimes 2 or more goals. Examples of Objective Functions: Minimize total production costs Minimize total material costs Maximize total sales revenue Minimize total inventory costs Minimize total lead time
Optimization
Constraints
Constraints represent limitations on which decision can be made and how decisions can be made. For example, the production capacity is 5000 Units/day. Constraints are also used to apply business rules when solving a problem. For example, all inventory must be non-negative.
Other examples of constraints: Market conditions/demand Material/supplies Capacity/resources Transportation/logistics Policy/managerial
Optimization
Steps for Constructing a Planning Model
Typically, a simplified production model comes from performing VAT analysis on the existing production process that we want to model. What are the decisions variables? What are the constraints? What is the objective function?
Optimization
Objective Functions, Decision Variables, Constraints in APO
Objectives SNP, Distribution & PP
Lateness, Storage Costs, Transportation Costs, Production Costs, Purchase of additional Capacities Production Resources, Transportation (Fleets) Products
Decision Variables
Lateness Production Lot Sizes Transportation Lot Sizes Purchase of Additional Capacities
Constraints
Production Capacities Transportation Capacities Handling Capacity Due Dates Safety Stock Discrete Values Production Lot Size, Transportation Lot Size, Extra Shifts Time Constraints (maximal due date, shelf life Minimal production stages, campaign) Due Dates Setup Times, Productivity Resource network Calendar Shifts, Effectivity of receipts
DS
Lateness Makespan Setup Costs
Resource Allocation (Alternative Machines/Storage) Start Dates NOT Lot Sizes or Alternative Recipes
Optimization
SNP Optimization
One time period (bucket)
Demand at a location Dependent demand at a location Processing flow
Optimization
Optimization of the Network
Control costs Penalty costs
Sourcing production & purchasing requirements
Forecasts Customers orders
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Goal: Minimize costs Goal: Maximize Profits*
Priorities for: demand types defined via costs
Optimization
Optimization Methods
Linear Programming Continuous Linear Optimization Problems Primal Simplex Method Dual Simplex Method Interior Point Method Discrete Linear Optimization Problems Mixed Integer Linear Programming Prioritization Decomposition Vertical Aggregated Planning
Horizontal Aggregated Planning
Optimization
Optimization Methods
Discretization
Discretization until a certain date*
Detailed Discretization for different restrictions for daily, weekly, or monthly buckets* Maintain discretization in PPM or transportation lane individually
Optimization
Optimization Parameters
Decision Variables Production lot sizes Transportation lot sizes Capacity increase Constraints Production capacities Transportation capacities Handling capacity Due dates (demands) Safety stock Discrete Values Production Lot Size Transportation Lot Size
Objectives Lateness Storage costs Transportation costs Production costs Penalty for increasing capacity Penalty cost for not maintaining safety stock* Penalty cost for late or non delivery*
Optimization
Cost Maintenance function
Use Use this function to maintain all costs used by the Optimizer and assigned to the master data from a single point of access. If you maintain the costs using this function, the master data for the selected planning version is automatically updated. Integration This function integrates costs assigned to PPM, Resource, and Product master data. These costs include Production, Handling, Storage, Transportation, Procurement, and Delay/NonDelivery costs.
Optimization
Optimizer Profile
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Costs
Due date violation
Optimization
Optimizer Profile
Transport Capacity
Storage Capacity
Determines which constraints are considered
Handling Capacity Other Constraints
A B C D
Safety Stock Violation
Production Capacity
Optimization
SNP Cost Profile
AB C A D
Penalty for falling below the minimum safety stock limit
Optimization
Optimization Bound Profile*
Specifies the time buckets where the new plan is constrained by an upper and lower limit on the allowable change. For example, you change the plans in the first month only within 10% of the original value. The basis for the change is the last optimization run for the same planning area
Optimization
Optimization Run - Interactive Planning Desktop
Range of location products can be selected. Predefined Optimizer profiles can be selected
Changes to the predefined profiles is allowed
Optimization
Costs in the APO Environment (I)
Model considers the following costs: Higher non-delivery cost results in: forced production Higher relative storage cost results in: moving products from one location to another ahead of requirement Higher delay cost results in: control lateness/build early scenarios Maximum delay used to: control number of days demand fill is delayed by Transportation cost used to: prioritize source location Costs are Interdependent!
Optimization
Costs in the APO Environment (II)
To specify a site manufacturing priority: Production cost in preferred site Transportation cost from preferred site To influence inventory storage location: Relative storage costs between sites To ensure meeting inventory targets: Safety stock violation penalties
Optimization
Costs in the APO Environment (III)
To meet delivery date early/late Meet Early: Delay Cost Storage Cost Meet Late: Maximum Delay Allowed Delay Cost Storage Cost
To use stock before build Storage Cost To prioritize a site for downstream supply Vary Transportation Cost
Optimization
SNP Decisions
What? Decision Products to plan. Key drivers Priority for planning each product Where ? To source a product from in the given network - Total production cost per location: - Transportation cost - Available capacity How ? To produce? - Which process - Which components Total cost of production process: - Components - Process When ? To produce a product Cost of missed due date: - Late penalty - Storage costs if produced early - Available capacity - Demand priority - Delay cost - Max delay - Non-delivery cost - Storage cost
Data
Demand - Production cost priority (PPM) - Customer - Transportation orders cost - Forecast - Resource - Safety available stock capacity
PPM Storage cost Resource Capacity Resource costs
Optimization
Optimization Total Costs
Total Cost (Sum Total)
Production Storage
Source of cost data
PPM Resource
Storage expansion
Penalty cost for safety stock Transport cost Handling capacity expansion
Resource
Cost Profile Resource Resource
Transport capacity expansion
Production resource expansion Penalty for non-delivery Delay Penalty Procurement costs
Resource
Resource Master data Master data Master data
Optimization
Relevant Costs for the Optimizer
Resource costs
Production Transport Transport (mat) Storage Storage (mat) Handling
Standard (variant 1) Increase (variant 2)
(X) X (X) X X X X X
Additional costs
PPM-header: Safety stock: Variable costs Penalty (cost profile) Non delivery (penalty)
Material priority: Late delivery (penalty)
Optimization
Product Master Data: Global Data
Penalty Costs for Requirements and Customer Forecast Penalty costs for non-delivery Penalty costs for delayed delivery Maximum allowed delay (in days)
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Sales order
Optimization
Forecast
Input Parameters for SNP Optimization Run
Planning Version Level ID Product and Location Planning Book and Data View Planning Start and End Date Optimizer and Cost Profile Optimizer Bound Profile
Modify Quota Arrangement
Optimization
SNP Optimization Run Results
Distribution Plan Production Plan SNP Resulting Costs Alerts
Optimization
