Supply chain network design for critical needs with outsourcing

Authors

  • Anna Nagurney,

    1. Department of Finance and Operations Management, Isenberg School of Management, University of Massachusetts, Amherst, Massachusetts 01003, USA. (e-mail: nagurney@gbfin.umass.edu, myu@som.umass.edu)
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    • The authors are indebted to the three anonymous reviewers for helpful comments and suggestions on two earlier versions of this paper. This research was supported by the John F. Smith Memorial Fund at the Isenberg School of Management. This support is gratefully acknowledged. The first author also acknowledges support from the Rockefeller Foundation and its Bellagio Center Program, which made possible the conference Humanitarian Logistics: Networks for Africa, which took place at the Bellagio Center on Lake Como, Italy in May 2008. Finally, the first author acknowledges Professor Manfred Fischer, who hosted her seminar on supply chain vulnerabilities and synergies in March 2009 at the Vienna University of Business and Economics. Some of the ideas in this paper were inspired by subsequent discussions.

  • Min Yu,

    1. Department of Finance and Operations Management, Isenberg School of Management, University of Massachusetts, Amherst, Massachusetts 01003, USA. (e-mail: nagurney@gbfin.umass.edu, myu@som.umass.edu)
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  • Qiang Qiang

    1. Management Division, Pennsylvania State University, Great Valley School of Graduate Professional Studies, Malvern, Pennsylvania 19355, USA (e-mail: qzq10@gv.psu.edu)
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Abstract

Abstract

In this paper we consider the design of supply chain networks in the case of critical needs as may occur, for example, in disasters, emergencies, pending epidemics, and attacks affecting national security. By ‘critical needs’ we mean products that are essential to the survival of the population, which can include, for example, vaccines, medicine, food, water, etc., depending upon the particular application. ‘Critical’ implies that the demand for the product should be met as nearly as possible since otherwise there may be additional loss of life. The model that we develop captures a single organization, such as the government or a major health organization or corporation that seeks to ‘produce’ the product at several possible manufacturing plants, have it stored, if needs be, and distributed to the demand points. We assume that the organization is aware of the total costs associated with the various operational supply chain network activities, knows the existing capacities of the links, and is interested in identifying the additional capacity outlays, the production amounts, and shipment values so that the demand is satisfied with associated penalties if the demand is not met (as well as penalties with oversupply, which are expected to be lower). In addition, the organization has the option of outsourcing the production/storage/delivery of the critical product at a fixed/negotiated price and with the capacities of those entities being fixed and known. The solution of the model provides the optimal capacity enhancements and volumes of product flows so as to minimize the total cost, which we assume to be a generalized cost, and can include time, subject to the demands being satisfied, as nearly as possible, under demand uncertainty.

Resumen

En este artículo consideramos el diseño de las redes de cadenas de suministro en el caso de necesidades críticas, como las que podría haber por ejemplo en caso de desastres, emergencias, brotes epidémicos, y ataques a la seguridad nacional. Por “necesidades críticas” entendemos productos esenciales para la supervivencia de la población, como pueden ser vacunas, medicamentos, alimentos, agua, etc., dependiendo de la aplicación en particular. La palabra “críticas” implica que la demanda del producto debería satisfacerse lo más pronto posible ya que de lo contrario se podría sufrir pérdidas humanas adicionales. El modelo que desarrollamos incluye a una única organización, como un gobierno o una agencia de la salud o corporación que tengan la intención de “producir” el producto en varias plantas de manufacturado, almacenarlo, y si es necesario distribuirlo hasta los puntos de demanda. Asumimos que la organización está al tanto de la totalidad de costos asociados con las diferentes actividades operativas de la red de la cadena de suministro, conoce las capacidades existentes de cada eslabón, y está interesada en identificar los desembolsos adicionales para capacidad, las cantidades a producir, y los valores de transporte, de manera que la demanda se satisface con penalizaciones asociadas si no se cumple con ella (así como penalizaciones por un sobre abastecimiento, que se espera que sean menores). Además, la organización tiene la opción de subcontratar la producción/almacenaje/reparto del producto crítico a un precio fijo/negociado, siendo las capacidades de dichas entidades valores fijos conocidos. La solución del modelo proporciona las mejoras óptimas de capacidad y los volúmenes de flujo de producto para minimizar el costo total, que asumimos ser un costo generalizado, y puede incluir el tiempo, sujeto a que las demandas queden satisfechas, en lo posible, bajo una incertidumbre de la demanda.

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