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Implementing supply-routing optimization in a make-to-order manufacturing network

Journal

Manufacturing and Service Operations Management

Subject

Management Science and Operations

Authors / Editors

Foreman J;Gallien J;Alspaugh J;Lopez F;Bhatnagar R;Teo C C;Dubois C

Publication Year

2010

Abstract

Dell's supply chain for desktops involves Asian vendors shipping components by sea to several U.S. plants. Although suppliers are responsible for shipping enough inventory to meet total needs across all production sites, Dell can reroute and expedite their shipments while in transit, and also transfer on-hand inventory in order to balance supply across sites. This paper describes the development, implementation, and impact of the process and optimization-based control system now used by Dell to address this supply-routing challenge for its U.S.-bound monitors. In a first phase, Dell created a new job definition focused solely on supply routing and implemented a supporting visualization tool. In a second phase, a decision support system relying on a mixed-integer programming formulation was implemented, overcoming two main challenges: (i) the estimation of shortages as a function of expected inventory, accounting for actual forecast quality; and (ii) the estimation of a meaningful shortage cost. This new methodology is estimated to have reduced Dell's inventory-repositioning costs for monitors by about 60%.

Keywords

Inventory theory and control; Supply chain management; Empirical research; Logistics and transportation

Available on ECCH

No


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