Integrating production and transportation scheduling decisions between two geographically separated plants

Journal of Business Logistics, 2003 by Miller, Tan, de Matta, Renato

Synchronizing production scheduling decisions on a multi-echelon manufacturing network where intermediate plants produce work-in-process (WIP) goods and finishing plants transform the WIP goods into end products represents a significant operational challenge. Integrating the scheduling of transportation between an intermediate plant and a finishing plant with the synchronization of production between two or more plants can further compound the complexity involved. In particular, when multiple transport modes with differing costs and transit times represent viable alternatives, developing synchronized production and transportation schedules to evaluate and optimize all cost and capacity trade-offs is extremely difficult. Frequently, firms choose not to schedule multiechelon plants and their transportation links in a simultaneous, integrated fashion. Instead, they schedule their plants either independently or one echelon at a time. In the single echelon approach, firms typically schedule a finishing plant first and then let the finishing plant's schedule drive the requirements of its supplying intermediate plant(s). On a short run basis, transportation is often scheduled as required based on the production schedule, inventory levels and inventory requirements of the finishing plant. When multiple transport mode options exist, a firm will typically have a normal planned mode of transportation between plants, and perhaps an expedited mode used in times of critical inventory shortages. A multi-echelon production and transportation scheduling process includes numerous costs, decision variables and capacities, which a firm ideally should evaluate in formulating production and distribution schedules. These factors can include (but are not limited to) production, changeover and inventory carrying costs at both the intermediate and finishing plants, transportation, and in-transit inventory carrying costs. Capacity considerations can include production possibilities and constraints at each plant and, in some cases, limits on available transportation capacity. The multitude of costs and decisions in a multi-echelon scheduling process typically yields a complex problem with a wide variety of implicit interwoven cost and service trade-offs. These trade-offs include balancing long production runs which minimize changeover requirements versus inventory carrying costs, balancing the lower transportation costs associated with slower transport modes and the resulting increased inventory investment requirements associated with longer lead times, versus the higher freight costs of faster, shorter lead time transport modes, and so on.

In this paper, a multi-echelon plant-scheduling model is proposed, which simultaneously develops integrated production and transportation schedules for a finishing plant, its supplying intermediate plant and the transport links between the two plants. The proposed optimization model considers all of the costs and production capacity issues noted previously while developing a cost minimizing integrated schedule. In developing this model, logistics trade-offs that require consideration are examined, regardless of whether a firm models them (the trade-offs) explicitly, or simply weighs them implicitly. Managerial implications of both the proposed model and the logistics trade-offs inherent in this scheduling problem are then considered. The motivation for developing a synchronized production and transportation scheduling model emanates from the authors' collective experiences working in several industries including the computer and pharmaceutical industries. Many firms in these industries employ air carriers for a significant portion of their transport volume between plants, and also between plants and distribution centers. Firms in these industries typically do, however, have the option of employing multiple transport modes, including cheaper surface transport, for most of their shipments (i.e., the materials being transported generally do not require that air rather than ocean transport be used). In some cases, air may represent the best transport mode choice. However, the authors' experience indicates that often even in situations where cheaper surface transport represents the most economical choice (when all logistics costs are considered), firms often still use air shipments. This frequently occurs because of WIP inventory shortages at the finishing plant, which result from the lack of synchronized scheduling between the finishing plant and the supplying intermediate plant. The model proposed provides the decision support scheduling capabilities required to allow firms to synchronize "linked" plants' production and transportation schedules at the short run operational level. Thus, motivation in developing this integrated scheduling model is to facilitate the most efficient use of production assets linked by transport lanes and carriers. Decision support models such as this one allow firms to translate plans developed at the annual level into real world activities executed at the operational level.