Transshipment Effect on Economic Lot Size Schedule of a Multi-Site Multi-Product Production Network
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Globalization is rising in every field in the world. Globalization in market and supply chains occur due to competition such as in time and quality (Mentzer et al., 2001). Competition is an important trigger for businesses to enhance their systems and processes. Moreover, becoming a global and international company is a reaction and solution of improvement in this competitive market. Thus, globalization and competition are two important interconnected factors for growing industries. Globalization increases the value of supply chain management and necessitates its existence (Mattsson, 2003). Global supply chains make companies search for better and more beneficial means of product and information flow coordination. Globalization is happening in all stages of supply chains. Industries are growing through increasing their customers, production facilities and suppliers. This expansion can have different reasons, such as being closer to customer and selling regions which leads to higher profit, reduction in cost and higher resource access. Several companies try to develop their performance by having multiple production sites closer to different customers and market. In this process, speed and flexibility become more important. This makes distribution more sensitive. In other words, distributing and delivering the products and services to the customers on time and without deficiency get more important and crucial (Mentzer et al., 2001). Supply chains try to reduce their cost and increase service level and they cannot be obtained without coordination and relationships between actors and stages of supply chains (Mattsson, 2003). Furthermore, having a multi-site production network does not always contribute to better performance or more profit. One of the factors that can facilitate and improve this kind of network is transshipment. Transshipment is the physical movement of products from one inventory to another. However, applying transshipment in a production network demands different reasons and affects differently in supply chains. Hence, in this thesis, it has been tried to analyze the role of transshipment in multi-site multi-product networks and the following two research questions are answered. RQ1. How does transshipment affect supply chains? RQ2. How can transshipment technique be applied in production planning in multi-site multi-product networks by mathematical modelling? In this thesis, literature study, case study and mathematical modelling are applied. The main objective of this thesis is to model and solve a case study regarding application of transshipment strategy in production planning in a multi-site multi-product network. Therefore, answering the research questions are necessary in order to analyze and model the case study. The first research question looks for the causes and effects of transshipment in supply chains and production networks. To be more specific, the applicability of transshipment is analyzed. The reasons why transshipment has been utilized in industries and what are the effects. Based on literature, transshipment occurs due to several reasons. Some of the important reasons are: Customer preference Market and demand fluctuation Demand uncertainty Higher or lower demand than production capacity And some of the important effects are, reduction in cost, increase in profit, increase in competitiveness and flexibility, reduction in inventory levels, lean system, increase in customer satisfaction and service level and reduction in lead time. However, it has been concluded that all of these reasons seek for contributing to one or both of below results: Reduction in cost Increase in service level or customer serviceAnd it depends on supply chain s objectives and strategic goal which one they want to pursue. However, a lot of companies desire to achieve both. Second research question looks for models in literature that are about production and transshipment mathematical models in multi-site multi-product networks. By analyzing literature regarding this question, it found out that using transshipment cannot necessarily be profitable for any kinds of network or production stage or the whole supply chain. And different factors should be considered in order to use the production-transshipment policy in planning problems. This research question assists to model and solve the case study. The objective of this case company is to analyze the applicability of using transshipment in their production network in order to reduce total cost while realizing customer demand. Mathematical modelling or optimization as one of the OR s techniques has been used to model and solve this case. In this case, transshipment is considered between different production sites and these sites produce a variety of products some of which are common and some are uncommon. Since transshipment is for moving common products among sites, this case analyzed a different issue. By considering all products and their operational cost while having the possibility of transshipping common products between sites is the special difference of this case comparing to the models in literature. By using one of the models in literature similar to this case, the applicability of both the model for this case and transshipment in the model have been analyzed. Economic lot size for all products and quantity of transshipment are among decision variables in this model. By using different tools of Excel solver and MATLAB to solve the model of the case, different optimal answers were achieved. This shows the non-convexity of the problem and having multiple optimal ranges. Thus, this modelling needs further development and study. However, this does not reject the possibility of applying transshipment in this case. The answers show that transshipment policy is an option to be considered in this system to reduce the total cost while meeting customer demand.