Supply Chain Optimization

Part 3
Process and Supply Chain Operations
Supply chain optimization

Jose Pinto
Outline
I.
Strategic Framework to the Analysis of Supply Chain

Networks
II. Design of Supply Chain Networks
III. Planning of Supply Chains
IV. Planning, Scheduling and Supply Chain
Management for Operations in Oil Refineries
Appendices
I. Demand Forecast
II. Transportation Issues
III. The Role of Inventory
Supply Chain
Scope: a supply chain covers the flow of

materials, information and cash across the entire
enterprise
Supply chain management: process of
integrating, planning, sourcing, making and
delivering product, from raw material to end
customer, and measuring the results globally
To satisfy customers and make a profit
Why a supply chain?
Traditional View:
Logistics in the Economy
Freight transportation
Inventory expense
Administrative expense
1990
$352
$221
$ 27
1996
$455 billion
$311 billion
$ 31 billion
Logistics related activity
11%
10.5% GNP
Source: Cass Logistics
Traditional View:
Logistics in the Manufacturing Firm
Profit: 4%
Logistics cost : 21%
Marketing cost: 27%
Manufacturing cost : 48%
Profit
Logistics
Cost
Marketing
Cost
Manufacturing
Cost
Supply Chain Management: The

Magnitude in the Traditional View
The grocery industry could save $30 billion (10% of operating cost by
using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995

because laptops were not available when and where needed
P&G estimates it saved retail customers $65 million by collaboration

resulting in a better match of supply and demand
Laura Ashley turns its inventory 10 times a year, five times faster than 3
years ago
Objectives of a Supply Chain
Maximize overall value generated
Satisfying customer needs at a profit

Value strongly correlated to profitability
Source of revenue customer
Cost generated within supply chain by flows of
information, product and cash
Flows occur across all stages customer,
retailer, wholesaler, distributor, manufacturer and
supplier
Management of flows key to supply chain
success
7
Supply Chain Stages

Supplier
Manufacturer
Distributor
Retailer
Customer
Supplier
Manufacturer
Distributor
Retailer
Customer
Supplier
Manufacturer
Distributor
Retailer
Customer
Decision phases in a supply chain
Supply chain strategy or design
Supply chain planning
Location and capacity of production and warehouse facilities?

Products to be manufactured, purchased or stored by
location?
Modes of transportation?
Information systems to be used?
Configuration must support overall strategy
Operating policies markets served, inventory held,
subcontracting, promotions, ?
Supply chain operation
Decisions and execution of orders?
Cycle View of Supply Chains

Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
10
Process view of a supply chain
Customer order cycle
Trigger: maximize conversion of customer arrivals

to customer orders
Entry: ensure order quickly and accurately
communicated to all supply chain processes
Fulfillment: get correct and complete orders to
customers by promised due dates at lowest cost
Receiving: customer gets order
11
Replenishment cycle
Replenish inventories at retailer at minimum cost

while providing necessary product availability to
customer
Retail order:
Trigger replenishment point balance service
and inventory
Entry accurate and quick to all supply chain
Fulfillment by distributor or mfg. On time
Receiving by retailer, update records
12
Manufacturing cycle
Includes all processes involved in replenishing

distributor (retailer) inventory, on time @ optimum
cost
Order arrival
Production scheduling
Manufacturing and shipping
Receiving
13
Procurement cycle
Several tiers of suppliers

Includes all processes involved in ensuring
material available when required
14
Supply chain macro processes
CRM (Customer Relationship Management) all

processes focusing on interface between firm
and customers
ISCM (Internal Supply Chain Management) processes

internal to firm
SRM (Supplier Relationship Management) all processes

focusing on interface between firm and
suppliers
15
Push/Pull View of Supply Chains

Pull processes in response to a customer order
Push processes in anticipation of a customer order
Procurement,
Manufacturing and
Replenishment cycles
PUSH PROCESSES
Customer
Order arrives
Customer
Order
Cycle
PULL PROCESSES
16
Supply chain performance

Strategic fit and scope
Business Strategy
New Product Marketing
Strategy
Strategy
New
Marketing
Product
and
Development Sales
Supply Chain Strategy

Operations
Supply and
Manufacture
Distribution
Service
Finance, Accounting, Information Technology, Human Resources
17
Achieving strategic fit
Understanding the Customer and Demand

Uncertainty
Quantity - lot size

Response time
Product variety
Service level
Price
Innovation
Implied
Demand
Uncertainty
Regular Demand
Uncertainty due to
customers demand and
Implied Demand
Uncertainty due to
uncertainty in
Supply Chain
18
Levels of Implied Demand Uncertainty

Detergent
Long lead time steel
Price
High Fashion
Emergency steel
Customer Need
Low
Implied Demand Uncertainty

Product Margin
Average Forecast Error
Average Stockout rate
Average markdown
Responsiveness
High
Low
Low
10%
1-2%
0%
High
High
40-100%
10-40%
10-25%
Fischer (1997) Harvard Bus. Rev, March-April, 83

19
Supply source uncertainty
Supply uncertainty increases with...
Frequent breakdowns
Unpredictable and/or low yields
Poor quality
Limited supplier capacity
Inflexible supply capacity
Evolving production processes
Life cycle position of product
New products high uncertainty

salt vs existing automobile model vs new
communication device
20
Understanding the Supply Chain

Responsiveness
High
to Quantity, Time, Variety, Innovation, Service level

DELL
AUTOMOTIVES
INTEGRATED STEEL MILLS
Low
High
Low
Cost (efficient)
21
Achieving Strategic Fit

Responsive
supply chain
High Cost
of it
e
n ic F
o
Z eg
t
ra
t
S
Responsiveness
spectrum
Low Cost
Efficient
supply chain
Certain
demand
Implied
uncertainty
spectrum
Uncertain
demand
22
Responsive and Efficient Supply Chains

Efficient
Responsive
Primary goal
demand at lowest cost
respond quickly
Product design
strategy
Pricing strategy
maximize performance
at minimum cost
Lower margins
create modularity
Manufacturing
strategy
Inventory strategy
lower costs (high

utilization)
minimize to lower cost
Lead time strategy
reduce but not at

expense of costs
select based on cost
and strategy
Supplier strategy
higher margins
maintain flexibility
maintain buffer inventory
aggressively reduce
select based on speed,
flexibility, reliability and
quality
23
Product life cycle

Responsive
supply chain
of it
e
n ic F
o
Z eg
t
ra
t
S
Responsiveness
spectrum
Efficient
supply chain
Product
Maturity
Implied
uncertainty
spectrum
Product
Introduction
24
Strategic Scope
Suppliers Manufacturer Distributor
Retailer
Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
25
Drivers of Supply Chain Performance

Competitive Strategy
Supply Chain Strategy
Efficiency
Responsiveness
Supply chain structure
Inventory
Transportation
Facilities
Information
Drivers
TRADE OFF FOR EACH DRIVER
26
Inventory
What of supply chain

Mismatch between supply and demand
Major source of cost
Huge impact on responsiveness
Material flow time
Role in competitive strategy

Components
i = d t (i inventory, d throughput, t flow time)
Cycle inventory average inventory between replenishments

Safety inventory - to cover demand and supply uncertainty
Seasonal inventory counters predictable variation
Overall trade off: responsiveness vs. efficiency

27
Transportation
How of supply chain

Large impact on responsiveness and efficiency
Components
Mode air, truck, rail, ship, pipeline, electronic

Route selection
In house or outsource
Overall trade off: responsiveness vs efficiency
28
Facilities
Where of supply chain

Transformed (factory) or stored (warehouse)
Components
Location - central or decentral

Capacity flexibility vs. efficiency
Manufacturing methodology product or process focus
Warehousing methodology storage sku, job lot,
crossdocking
29
Information
Affects every part of supply chain
Connects all stages

Essential to operation of all stages
Substitute for inventory
Components
Push vs. pull

Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI, Internet, ERP, SCM

30
Considerations for Supply Chain Drivers

Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information
31
Obstacles to achieving strategic fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of supply chain ownership
Globalization
Difficulty executing new strategies
All increase uncertainty
32
Major obstacles to achieving fit
Multiple global owners / incentives in a supply chain
Information Coordination & Contractual Coordination
Local optimization and lack of global fit
Increasing product variety / shrinking life cycles /

demanding customers/customer fragmentation
Increasing demand and supply uncertainty

33
Lead Time
Dealing with Product Variety: Mass

Customization
s
u
C
iz
m
to
High
n
o
i
at
Long
Short
Mass
Customization
Low
Low
Co
st
High
34
Fragmentation of Markets and Product

Variety
Are the requirements of all market segments served

identical?
Are the characteristics of all products identical?
Can a single supply chain structure be used for all
products / customers?
No! A single supply chain will fail different customers
on efficiency or responsiveness or both.
35
II.
Designing the supply chain network
36
FACILITY DECISIONS:
Network Design Decisions
Facility role
Facility location
Where should facilities be located
Capacity allocation
What processes are performed
How much capacity should be allocated to each facility
Market & supply allocation
What markets should each facility serve

What supply sources should feed each facility
37
Factors Influencing Network Design Decisions
Strategic
Technological
Tariffs and Tax incentives. Stability of currency
Political stability - clear commerce & legal rules

Infrastructure
Fixed costs and flexibility determine consolidation
Macroeconomic
Cost or Responsiveness focus
sites, labor, transportation, highways, congestion, utilities
Competition
Logistics and facility costs
38
The Cost-Response Time Frontier

Low
Local FG
Mix
Regional FG
Local WIP
Central FG
Cost
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
High
Low
Response Time
High
39
Logistics and facilities costs
Inventory costs
Transportation costs
Inbound and outbound
Facility (setup and operating) costs

Total logistics costs
40
Service and Number of Facilities

Response
Time
Facilities
Costs
Number of Facilities
41
Costs and Number of Facilities

Inventory
Facility costs
Costs
Transportation
Frequent inbound
Number of facilities
42
Cost Build-up as a function of facilities

Cost of Operations
Total Costs
Percent Service
Level Within
Promised Time
Facilities
Inventory
Transportation
Labor
Number of Facilities
43
Framework for network design decisions
Define a supply chain strategy
Define a regional facility strategy
Location, roles and capacity
Select desirable sites
COMPETITIVE strategy
Hard infrastructure transport, utilities, suppliers,

warehouses
Soft infrastructure skilled workforce, community
Choose location
Price location and capacity allocation

44
A Framework for Global Site Location

GLOBAL COMPETITION
Competitive STRATEGY
INTERNAL CONSTRAINTS
Capital, growth strategy,
existing network
PRODUCTION TECHNOLOGIES
Cost, Scale/Scope impact, support
required, flexibility
COMPETITIVE
ENVIRONMENT
PHASE I
Supply Chain
Strategy
PHASE II
Regional Facility
Configuration
REGIONAL DEMAND
Size, growth, homogeneity,
local specifications
POLITICAL, EXCHANGE
RATE AND DEMAND RISK
PHASE III
Desirable Sites
PRODUCTION METHODS
Skill needs, response time
FACTOR COSTS
Labor, materials, site specific
TARIFFS AND TAX

INCENTIVES
PHASE IV
Location Choices
AVAILABLE
INFRASTRUCTURE
LOGISTICS COSTS
Transport, inventory, coordination
45
Manufacturer Storage with Direct Shipping
Manufacturer
Retailer
Customers
46
In-Transit Merge Network
Factories
Retailer
In-transit merge by carrier
Customers
47
Distributor Storage with Carrier Delivery
Factories
Warehouse storage by
distributor/retailer
Customers
48
Distributor Storage with Last Mile

Delivery
Factories
Distributor/retailer
warehouse
Customers
49
Manufacturer or Distributor Warehouse with

Consumer Pickup
Factories
Retailer
Cross Dock DC
Pickup sites
Customers
50
Tailored Network: Multi - Echelon

Finished Goods Network
Regional
Finished
Goods DC
National
Finished
Goods DC
Local DC
Cross-Dock
Store 1
Customer 1
DC
Local DC
Cross-Dock
Customer 2
DC
Regional
Finished
Goods DC
Local DC
Cross-Dock
Store 1
Store 2
Store 2
Store 3
Store 3
51
Network Optimization Models
Allocating demand to production facilities

Locating facilities and allocating capacity
Speculative Strategy
Hedging Strategy
Single sourcing
Match revenue and cost exposure
Flexible Strategy
Key Costs:
Fixed facility cost
Transportation cost
Production cost
Inventory cost
Coordination cost
Excess total capacity in multiple plants

Flexible technologies
Which plants to establish? How to configure the network?

52
Capacitated Plant Location Models

Decisions
yi
1 if plant i is open; 0 otherwise
xij
quantity shipped from plant i to market j

n
m
fi
cij
number of potential plant locations

number of markets
annualized fixed cost of keeping plant i open
cost of producing and shipping from i to j
Max Profit = f i y i + ci , j xi , j
i =1
Dj
= Dj
K i yi
i =1
m
j =1
i =1 j =1
i, j
i, j
j = 1,...m
Ki
yi {0,1}
annual demand from market j
potential capacity of plant i
i = 1,...n
i = 1,...n
53
Gravity Location Models

ASSUMPTION: TRANSPORT COSTS GROW LINEARLY WITH SHIPMENTS
k
Min Total Cost TC = D n d n f n

n =1
d
x, y
xn, yn
dn
fn
Dn
( x x n) + ( y y n)
2
Warehouse Coordinates
Coordinates of delivery location n
Distance to delivery location n
Cost per ton mile to delivery location n
Quantity to be shipped
54
Demand Allocation Model
Which market is served by which plant?

Which supply sources are used by a plant?
n
Min C = ci , j xi , j
xij
i =1 j =1
s.t.
All mkt demand satisfied

n
x
i =1
i, j
= Dj
j = 1,...m
No factory capacity exceed

m
x
j =1
i, j
Ki
xi , j 0
i = 1,...n
i = 1,...n; j = 1,...m
Cij
n
m
Dj
Ki
quantity shipped from plant

site i to customer j
cost to produce & ship one
unit from factory i to
market j
no. of factory locations
no. of markets
annual demand from
market j
annual capacity of factory i
55
Warehouse and Plant Location Model
Plant and warehouse locations?

Quantities shipped between various points?
n
i =1
e =1
Min C = f i yi + f e ye + ch ,i xh ,i + ci ,e xi ,e + ce , j xe , j
Fixed costs
plants
warehouse
h =1 i =1
i =1 e =1
e =1 j =1
Shipping costs
Supply source to plant
Plant to warehouse
Warehouse to market
56
Warehouse and Plant Location Model

n
Supplier capacity
x
i =1
h ,i
Balance supply-plant
x
h =1
h ,i
Supplier capacity
x
e =1
i ,e
Balance plant-warehouse
x
i =1
i ,e
Warehouse capacity
x
j =1
e, j
Demand satisfaction
x
e =1
e, j
Sh
t
h = 1,...l
xi ,e 0
i = 1,...n
K i yi
i = 1,...n
e =1
xe , j 0
e = 1,...t
We ye
e = 1,...t
= Dj
j = 1,...m
j =1
57
Network design decisions in practice
Do not underestimate the life span of plants
Do not gloss over cultural implications
Location urban, rural, proximity to others
Do not ignore quality of life issues
Long life hence long term consequences

Anticipate effect future demands, costs and technology
change
Storage facilities easier to chance than production facilities
Workforce availability and morale
Focus on tariffs & tax incentives when locating

facilities
Particularly in international locations

58
III.
Supply chain management of flexible
process networks - Lagrangean-based
decomposition techniques
Peter Chen
Jose M. Pinto
Content
Motivation
Decomposition techniques considered
Problem Statement
CPFN Model
Structure
Objective and constraints
Observation
Decomposition Applied
Lagrangean and Lagrangean/surrogate relaxation

Subgradient and Modified subgradient optimization
Lagrangean relaxation
Lagrangean/surrogate relaxation
Strategies Proposed
Results
Conclusion
Future Work
Motivation
Difficulties faced by most chemical companies
Increasing number of competitors
Increasing product variety from customer demand
Larger and more complicated process network
More efficient management is needed to survive and stay competitive
Why decomposition techniques are needed
The optimization of process networks are very difficult to solve using

standard (full-scale) method.
Large computational effort
Technological barriers
Comparison of techniques are necessary
Various decomposition techniques exist
The effectiveness of the techniques is not standardized
Problem Statement
A process network interconnects in a finite number of ways.
Processes I1~I4
I1 is dedicated
I2, I3, and I4 are flexible
Chemicals J1~J6
Sites C1 & C2
J1 and J2 are purchased

J3 is consumed or sold as product
J4 and J6 are purchased or produced
J5 is sold as product
C1: consists of all the processes and production schemes, contains byproduct J6.
C2: doesnt have I1, I3 contains only 3 schemes, and J6 is not produced.
Markets L1~L4
L1 and L2 sells raw materials

L3 and L4 buys products
Bok et al. (2000) Ind. Eng. Chem. Res. 39, 1279-1290.
CFPN Structure
J1
J2
J3
J4
J5
J6
I1.K1
I2.K1
I4.K1
I2.K2
I4.K2
I3.K1
I3.K2
I3.K3
L1
L2
I3.K4
Site 1
I2.K1
I4.K1
I2.K2
I4.K2
L4
I3.K1
I3.K2
I3.K3
L3
Site 2
CFPN Model Objective Function
Objective Maximize the operating profit of the network

Max Z CPFN = jlt S jlct
Amount chemical sold
jJ lL cC tT
jlt Pjlct
Amount chemical bought
jJ lL cC tT
iI jJM ik kK i cC tT
Wijkct
ikct
jcV jct
Process operation cost

Inventory cost
jJ cC tT
ikk 'c Z ikk 'ct
Changeover cost
iI kK i k 'Ki cC tT
jlt SF jlt
Shortfall penalty cost
jJ cC tT
dlctYPdlct
Raw material delivery cost
d D lL cC tT
jct F jct
jJ lL tT
Transportation cost
List of Assumptions
Assumptions
Mass balance of raw materials and byproducts are proportional to the main
product of the process and respective production scheme.
The operating cost of a process is proportional to the amount of main
product produced.
Changeover only implies in cost and the overall time spent is negligible.
Only one delivery of chemicals from one market over c time interval is
allowed.
Demand is given by a range of values, having an upper and a lower bounds
CFPN Model Constraints
Ratio of input chemicals to the main product

Wijkct = ijkcWij 'kct
Ratio of output chemicals to the main product

i I j , j JOikc , j ' JM ik , k Ki , c C , t T
Limits production under available capacity

Wijkct ijck Qic
i I j , j JI ikc , j ' JM ik , k K i , c C , t T
i I j , j JM ik , k K i , c C , t T
Indicates when changeover occurred ( Zikkct = 1)

Yikct + Yik 'ct +1 1 Z ikk 'ct
i I j , k Ki , k ' Ki , c C, t T
Allows only one production scheme per time period
ikct
kK i
=1
i I j , k Ki , c C, t T
CFPN Model Constraints (Contd)
Mass balance of chemicals in the network

V jc ,t 1 + Wijkct + Pjlct + F jct = V jct + S jlct + Wijkct +
iO j kKi
lL
YP
d D
dlct
U
Pjlct
c 'C {c }
jc 't
j J , c C, t T
j J , l L, c C , t T
Limits one delivery of chemicals over a c time interval.

YPdlc,t 2 + YPdlc,t 1 + YPdlct 1
iI j kKi
Delivery of raw materials

Pjlct
lL
d D, l L, c C , t T
Prevents the purchase of raw material from exceeding the available

amount
P
cC
jlct
a Ujlt
j J , l L, t T
CFPN Model Constraints (Contd)
Limits the product sales below the maximum allowable demand
jlct
d Ujlt
j J , l L, t T
cC
Shortfall penalty if the minimum demand is not met

SF jlt SF jl ,t 1 + d Ljlt S jlct
j J , l L, t T
cC
Bounds
U
V jct V jct
Z ikk 'ct 1
F jct , Pjlct , S jlct , SF jlt , V jct , Wijkct , Z ikk 'ct 0
Yikct , YPdlct {0,1}
Decomposition techniques considered
Relaxation
Easier to solve
Relaxing the right constraint

Obtaining a good multiplier
Solving relaxed
problems
Reduction in the oscillating behavior
Terminating
criteria
No
Updating multipliers
Subgradient optimization
Simple algorithm structure
Modified subgradient optimization
Accelerating convergence
A more suitable step size

Improved search direction
Updating the
multipliers
Yes
Returning
Solutions
Lagrangean and Lagrangean/surrogate

relaxation
Z (u ) = max cx + u (b ( Ax + By ))
Cx + Dy e
General MIP
Z = max cx + dy
Ax + By b
Cx + Dy e
x 0m
y {0,1}n
x 0m
Z u (t ) = max cx + t u (b ( Ax + By ))
y {0,1}n
Cx + Dy e
x 0m
y {0,1} .
n
Narciso and Lorena, EJOR 1999, 114, 165
Subgradient and modified subgradient

optimization
u k +1 = u k + t k g k
tk =
l k (w L(u k ))
gk
1 lk 2 2 ( 1 , 2 > 0 )
Modified subgradient optimization

u
k +1
= u + tk d
k
1 L L( u k )
tk =
2
k
k d
d k = g k + k d k 1 ;
L = r L0 + (1 r ) Lc ;
Fumero, Comp. & Oper. Res. 2001, 28, 33-52.
r = 00.6933(r r )
e
3.26
d k 1 g k
k 1 2
k =
d
0
if r r2
otherwise
If d k 1 g k 0,
Otherwise
Observation
Constraints that link variables at different time period

Yikct + Yik 'ct +1 1 Z ikk 'ct
i I j , k Ki , k ' Ki , c C, t T
V jc ,t 1 + Wijkct + Pjlct + F jct = V jct + S jlct + Wijkct +

iO j kK i
lL
YPdlc,t 2 + YPdlc,t 1 + YPdlct 1

SF jlt SF jl ,t 1 + d Ljlt S jlct
lL
iI j kK i
{F}
jc 't
j J , c C, t T
c 'C c
d D, l L, c C , t T
j J , l L, t T
cC
The model can be decomposed into |T| separate problems if the

variables at different time periods in these constraints are treated as
different variables.
Decomposition applied
Following equations are declared and converted to the equivalent

inequality form
C
V jctB = V jct
C
V jctB V jct
C
and V jctB V jct
SF jltB = SF jltC
SF jltB SF jltC
A
B
Yikct
= Yikct
A
B
Yikct
Yikct
A
B
= YPdlct
YPdlct
A
B
YPdlct
YPdlct
and
A
B
YPdlct
YPdlct
B
C
YPdlct
= YPdlct
B
C
YPdlct
YPdlct
and
B
C
YPdlct
YPdlct
SF jltB SF jltC
and
and
A
B
Yikct
Yikct
Following variable replacement are done

V jct V jctB , V jc ,t 1 V jcC,t 1
SF jlt SF jltB , SF jl ,t 1 SF jlC,t 1
B
Yikc ,t +1 YikcA ,t +1 , Yikct Yikct
A
C
YPdlct YPdlct
, YPdlc ,t 1 YPdlcB ,t 1 , YPdlc ,t 2 YPdlc
,t 2
The model is decomposed into |T| sub-problems through relaxation
Relaxing the following inequalities into objective

C
V jctB V jct
,
Adding the remaining inequalities as constraints

C
V jctB V jct
,
A
B
A
B
B
C
SF jltB SF jltC , Yikct
Yikct
, YPdlct
YPdlct
, Yp dlct
YPdlct
A
B
A
B
B
C
SF jltB SF jltC , Yikct
Yikct
, YPdlct
YPdlct
, Yp dlct
YPdlct
Resulting objective function
Max Z CFPN LR = jlt S jlct jlt Pjlct ikctWijkct

tT jJ lL cC
tT iI jJM ik kKi cC
tT jJ lL cC
A
jcV jctB ikk 'c Z ikk 'ct jlt SF jltB dlctYPdlct
tT jJ cC
tT iI kKi k 'Ki cC
tT dD lL cC
tT jJ cC
Y
A
B
C
(Yikct
)
jct F jct + uVjct (V jct
V jctB ) + uikct
Yikct
tT jJ lL
tT jJ cC
tT iI kKi cC
YP 2
B
C
YP1
B
A
C
B
(
SF
SF
+ u SF
jlt
jlt
jlt ) + udlct (YPdlct YPdlct ) + udlct (YPdlct YPdlct )
tT jJ lL
tT dD lL cC
tT dD lL cC
Lagrangean relaxation (Contd)
Resulting objective function at time period t

t
Max Z CFPN
LR = jlt S jlct jlt Pjlct
jJ lL cC
jJ lL cC
iI jJM ik kKi cC
Wijkct jcV jctB
ikct
jJ cC
A
ikk 'c Z ikk 'ct jlt SF jltB dlctYPdlct
jct F jct
iI kKi k 'Ki cC
jJ cC
dD lL cC
jJ lL
C
Y
A
B
C
B
+ uVjct (V jct
V jctB ) + uikct
(Yikct
Yikct
) + u SF
jlt ( SF jlt SF jlt )
jJ cC
iI kKi cC
jJ lL
YP1
B
A
YP 2
B
C
+ udlct
(YPdlct
YPdlct
) + udlct
(YPdlct
YPdlct
)
dD lL cC
dD lL cC
The total profit is equal to the summation over the time periods
t
Z CFPN LR = Z CFPN
LR
tT
Lagrangean relaxation - Constraints
List of constraints
i I j , j JI ikc , j ' JM ik , k K i , c C
i I j , j JOikc , j ' JM ik , k K i , c C
Wijkct ijck Qic
i I j , j JM ik , k K i , c C
B
Yikct
+ YikC'c ,t +1 1 Z ikk 'ct
kK i
B
ikct
=1
i I j , k Ki , k ' K i , c C
i I j , k Ki , c C
V jcC,t 1 + Wijkct + Pjlct + F jct = V jctB + S jlct + Wijkct +

iO j kKi
C
U
Pjlct YPdlct
Pjlct
lL
lL
j J , l L, c C
d D
C
B
A
YPdlc
,t 2 + YPdlc ,t 1 + YPdlct 1
d D , l L, c C
iI j kKi
c 'C {c }
jc 't
j J,c C
Lagrangean relaxation Constraints

(Contd)
P
cC
S
cC
jlct
a Ujlt
j J,l L
jlct
d Ujlt
j J,l L
SF jltB SF jlC,t 1 + d Ljlt S jlct
j J,l L
cC
U
C
U
V jctB V jct
, V jct
V jct
,
Z ikk 'ct 1
C
F jct , Pjlct , S jlct , SF jltB , SF jltC ,V jctB ,V jct
, Wijkct , Z ikk 'ct 0
A
B
A
B
C
Yikct
, Yikct
, YPdlct
, YPdlct
, YPdlct
{0,1}
C
A
B
A
B
B
C
V jctB V jct
, SF jltB SF jltC , Yikct
Yikct
, YPdlct
YPdlct
, Yp dlct
YPdlct
Lagrangean/surrogate relaxation is done in a similar fashion like the

Resulting objective function at each time period t
t
Max Z CFPN
LS = jlt S jlct jlt Pjlct
jJ lL cC
jJ lL cC
iI jJM ik kKi cC
Wijkct jcV jctB
ikct
jJ cC
A
ikk 'c Z ikk 'ct jlt SF jltB dlctYPdlct
jct F jct
iI kKi k 'Ki cC
jJ cC
dD lL cC
jJ lL
C
Y
A
B
C
B
+ t uVjct (V jct
V jctB ) + uikct
Yikct
(Yikct
) + u SF
jlt ( SF jlt SF jlt )
iI kKi cC
jJ lL
jJ cC
YP1
B
A
YP 2
B
C
+ udlct
YPdlct
YPdlct
(YPdlct
) + udlct
(YPdlct
)
dD lL cC
dD lL cC
Subject to the same constraints as the Lagrangean relaxation

t
Total Profit: Z CFPN LS = Z CFPN LS
tT
General Algorithm
|T| sub-problems
Setting bounds and

determining parameters
1
Starting next
iteration
Fix:
Yikc,1
Vjc,1
SFjl,1
YPdlc,1
Updating the multipliers:

Modified subgradient
optimization
No
3
Fix:
Yikc,2
Vjc,2
SFjl,2
YPdlc,2
Fix:
Yikc,3
Vjc,3
SFjl,3
YPdlc,3
Fix:
Yikc,t-1
Vjc,t-1
SFjl,t-1
YPdlc,t-1
Fix Yikct and YPdlct

t=1
t=2
t=3
Full Scale
Terminating Criteria
t=T
Yes
Return lower bound and
corresponding solution
Linking Constraints
Proposed strategy
Strategy A
Strategy B
Lagrangean relaxation with modified subgradient optimization
Strategy C
Lagrangean relaxation with subgradient optimization
Lagrangean/surrogate relaxation with subgradient optimization
Strategy D
Lagrangean/surrogate relaxation with modified subgradient optimization
Results Calculation time
Calculation time (sec)
Calculation time vs time period

1000
800
Full-scale
Strategy A
Strategy C
600
400
200
0
0
20
40
time period
60
80
Results Solution value
Solution value ($)
Solution Value vs time period

30000
25000
20000
15000
10000
5000
0
Full-scale
Strategy A
Strategy C
20
40
time period
60
80
Results Percent difference from the

optimum
time period
Strategy A
Strategy C
0.000
0.000
14
0.554
0.536
21
1.195
1.723
28
0.829
0.826
35
0.833
0.824
42
1.317
1.313
Conclusion
Calculation time
Solution value
Time spent is much less than the full scale method

The percentage deviation from the optimum is below 2%
Lagrangean vs. Lagrangean/surrogate relaxation
Lagrangean/surrogate always used equal or more iterations

Lagrangean/surrogate spent slightly more time
For same number of iterations, Lagrangean relaxation gave equal or better
solution value
Alternative approaches
Decentralized approach
Model predictive control strategies

Multiproduct, multiechelon distribution networks with
multiproduct batch plants
(Perea, Ydstie and Grossmann, 2003)
Comparison with integrated approach

Poorer coordination of the supply chain decisions
Smaller computational time
Future work
Implementing modified subgradient optimization

Testing strategies B and D and compare them with A and C
Search for new strategies
Other decomposition methods

Applying search_t* algorithm for each set of multiplier values
IV.
Planning, Scheduling and Supply
Chain Management for Operations
in Oil Refineries
JOS M. PINTO
OUTLINE
Introduction
Planning Models
refinery diesel production
Scheduling models
crude oil scheduling
fuel oil / asphalt area
Logistics
oil supply model
Petroleum Supply Chain

Conclusions
MOTIVATION
Profitability Maximization
Refinery Targets
(Pelham and Pharris, 1996; Ramage, 1998)
Minimization of Operational Costs

(Bodington and Shobrys, 1996)
Beginning of Computational Applications for Planning/Scheduling:

Petrochemical Industry:
1950s
(Symonds, 1955; Bodington, 1992)
CPI in general:
(Reklaitis, 1991; Kudva and Pekny; 1993)
(Linear Programming)
(Dantzig, 1963)
1970s
ADVANCES
Availability of more powerful and less expensive computers;
Mathematical Developments:
Time representation;
(Moro and Pinto, 1998)
Combinatorics in MIP;
(Raman and Grossmann, 1994)
Non-convexities in MINLP;
(Viswanathan and Grossmann, 1990)
Consequences for the Petroleum Industry:

(Ramage, 1998)
Unit Level Optimization

(FCC, Crude Unit, etc..)
Large Portions of the Plant

or Plant-wide Optimization
1980s
1990s
OPTIMIZATION IN REFINERY OPERATIONS

LPs in crude blending and product pooling (50s)
(Symonds, 1955)
Advanced control : MPC
(Cutler, DMCC,1983)
Planning models
(Coxhead, Moro et al, 1998.)
crude selection, crude allocation for multi refinery

partnership models for raw material supply
OVM Refinery, Austria (LP)
In-house simulation models for scheduling
(Steinschorn and Hofferl, 1997)

(Magalhaes et al., 1998)
Scheduling optimization models

gasoline blending
(Bodington, 1993)
gasoline production, TEXACO(NLP)
(Rigby et al., 1995)
crude oil unloading
(Lee et al., Shah, 1996)
OUTLINE
Introduction
Planning Models
Scheduling models
Logistics
oil supply model
Conclusions
PLANNING MODEL FOR REFINERIES

Objectives
To develop a general representation for refinery units

streams with multiple inputs and destinations
nonlinear mixing and process equations
bounds on unit variables
To apply to the production planning of a real world refinery

diesel production
to satisfy multiple specifications
TYPICAL PROCESS UNIT
UNIT EQUATIONS
- Feed flowrate:
Qu ,F =
Qu' ,s ,u
u U u s S u ,u
- Feed Properties:
Pu,F,j = fj ( Qu,s,u , Pu,s,j )
uUu, sSu,u, jJs
- Total flowrate of each product stream:

Qu,s = f ( Qu,F , Pu,F,j , Vu )
jJF, sSU
- Unit product stream properties:

Pu,s,j = fj ( Pu,F,j , Vu )
j Js, sSU
- Product streams flowrates (splitter):
Qu ,s =
Qu ,s ,u
u U s,u
s SU
HYDROTREATING UNIT (HT)
HT MODEL
Feed flowrate:
QHT,F=QCD1,HD,HT+QCD2,HD,HT+QFCC,LCO,HT+QCK,CGO,HD
Feed properties:
PHT,F,j = fj (Qu,s,HT , Pu,s,j )
u UHT , s Su,HT, j
JHT
Example - Flash Point (FP)
PHT , F , FP
10006.1
415
= 0 .55
ln( ) + 14 .0922
Qu ,HD ,HT I u , HD , FP
U HT
Qu , HD , HT
Iu,HD,FP = exp[10006.1/(1.8 Pu,HD,FP+415) - 14.0922]
U HT
u UHT
REAL-WORLD APPLICATION
Planning of diesel production
Petrobras RPBC refinery in Cubato (SP, Brazil).
Three types of diesel oil:
Metropolitan Diesel.
Regular Diesel.
Maritime Diesel.
Low sulfur levels

metropolitan areas
Higher sulfur levels
other regions of the country
High flashing point.
DIESEL SPECIFICATIONS
Property
DENSITY
min / max
FLASH POINT
min (C)
ASTM 50%
min / max (C)
ASTM 85%
max (C)
CETANE NUMBER min
SULFUR CONTENT max
(% WEIGHT)
REGULAR
0.82/
0.88
DIESEL
METROPOLITAN MARITIME
0.82/
0.82/
0.88
0.88
60.0
245.0/
310.0
245.0/
310.0
245.0/
310.0
370.0
360.0
370.0
40.0
0.5
42.0
0.2
40.0
1.0
MAIN RESULTS
Potential Improvement
US$ 23,000 / day or US$ 8,000,000 / yr

Implemented with on-line data acquisition
OUTLINE
Introduction
Planning Models
Scheduling models
Logistics
oil supply model
Conclusions
PROPOSED APPROACH FOR

PLANNING AND SCHEDULING
REFINERY PLANNING
LPG Scheduling
Crude
Scheduling
FRACTIONATION
Fuel Oil / Asphalt

Scheduling
SHORT TERM CRUDE OIL SCHEDULING

Crude Oil System
OBJECTIVES
maximize total operating profit

revenue provided by oil processing
cost of operating the tanks
generate a schedule for crude oil operations

receiving oil from pipeline
waiting for brine settling
feeding the distillation units
TIME SLOT REPRESENTATION
MILP OPTIMIZATION MODEL

Max
total operating profit
subject to:
Timing constraints
Pipeline material balance equations
Pipeline operating rules
Pipeline always connected to a tank
Material balance equations for the tanks

Volumetric equations
Component volumetric balance
Tank operating rules

Minimum settling time
Rules for feeding the distillation unit
DECISION VARIABLES
slot k
Ydf,j,k
Ypj,k
fraction f
REAL-WORLD EXAMPLE
Volume
Start time
End Time
(m3)
(h)
(h)
60,000
20
100% Bonito
50,000
48
58
100% Marlin
1,000
58
58.2
100% Marlin
60,000
100
112
100% RGN
Oil parcel
Composition
Tank initial conditions

Distillation target flowrate = 1500 m3/h
RESULTS
MODEL SOLUTION
GAMS / OSL
CPU time
2.80 hrs (Pentium II 266 MHz 128 MB RAM)
Variable size time slot model

912 discrete variables
3237 continuous variables
5599 equations
Fixed size time slot model

21504 discrete variables !
OUTLINE
Introduction
Planning Models
Scheduling models
Logistics
oil supply model
Conclusions
FUEL OIL/ASPHALT PRODUCTION

SCHEDULING PROBLEM
The plant produces 80% of all Brazilian fuel oil;

The plant has relevant storage limitations;
Complexity of distribution operations;
End of the monopoly in the Brazilian oil sector.
Product Base
FO1
FO2
FO3
FO4
UVO1
UVO2
CAP07
CAP20
RASF
RASF
RASF
RASF
RASF
RASF
RASF
RASF
Diluent used
OCC+LCO or OCC or LCO
pure LCO
pure LCO
pure HG
pure HG
major specification:
viscosity
MATHEMATICAL MODELS
Uniform Discretization of Scheduling Horizon;
Objective Function: Minimize the Operational Cost.
First Approach:
non-convex MINLP (5 bilinear products in the viscosity constraints);
Linear Transformation
Second Approach:
MILP;
MINLP MODEL
Minimize:
Raw-Material Costs + Inventory Costs +
+ Pumping Costs + Transition Costs
COST =
COST =
t =1
s =1
[ ( CDs FDCs ,t ) + CD2 FOCCRt + CD3 FRLCOt + CR FRASFM +

I
i =1
q =1
d =1
+ ( CINVI i VI i ,t ) + ( CINVQq VQq ,t ) + ( CINVDd VQd ,t ) +

I
+ ( CBi FIDi ,o ,t )] + ( TRAN o , p ,n CHANGE p,n )

i =1 o =1
o = 1 p =1 n =1
Subject to:
Material Balance Constraints:
volume in i at t = initial volume in i
+ [ inputs in i up to t - ( outputs from i up to t ) ]
the volume capacities of all tanks are also subject to bounds
Demand Supply of Plant Products

Operating Rules for the Plant:
at each t, the plant production must be stored in one single tank
I
i =1
q =1
(XICi,t ) + (XQCq,t ) = 1
FO area
t = 1,...,T
UVO/asphalt area
simultaneous tank loading and unloading is not allowed (exception: HG storage tank)
O
XICi,t + (XIDi,o,t ) 1
o =1
i = 1,...,I; t = 1,...,T
FO area
Operating Rules for the Plant (continuation):

UVO / Asphalt may be sent to truck terminals only between 6:00 a.m. and 6:00 p.m.
XQDq,t HTb
b = 1,..., [ T /( 12 / DT )];
( 12 / DT ) ( b 1 ) + 1 t ( 12 / DT ) b;
q = 1,...,Q
while a asphalt is produced, the RASF diluent must be HG

8
(XQCq,t ) XDRASF1,t = 0
t = 1,...,T
q =5
while asphalt is produced, the OCC stream from UFCC must be directed to storage in TK-42208
XDRASF1,t + ( 1 XZ t ) 1
t = 1,...,T
Material Flow Constraints:

flowrates to oil-pipelines must obey pump limitations
0 FIDi,o,t XIDi,o,t FID max
i = 1,...,I; o = 1,...,O; t = 1,...,T
flowrates to truck terminals must obey pump limitations
0 FQDq,t XQDq,t FQD max
q = 1,...,Q; t = 1,...,T
Viscosity Constraints:
at each t, the viscosity adjustment must be done regarding the kind of product
Q
VISCt =
(MIUVv XQCq,t ) + (MIFO p XICi,t )
q =1 vVq
t = 1,...,T
i =1 pPi
also, the availability of diluents should be considered

D
{[
s2
(FDRASFd,t MIDs ) + FRASFU t MIRASF + FOCCRt MID2 + FRLCOt MID3 ]
d =1 sS d
[ ( (FDRASFd,t ) + FRASFU t + FOCCRt + FRLCOt ]}
= VISCt
d =1
t = 1,...,T
or
D
{[
s2
(FDRASFd,t MIDs ) + FRASFU t MIRASF + FOCCRt MID2 + FRLCOt MID3 ] =
d =1 sS d
= VISCt [ ( (FDRASFd,t ) + FRASFU t + FOCCRt + FRLCOt ]}
t = 1,...,T
d =1
5 bilinear products
non-convex MINLP
EXACT MILP MODEL

Characteristics:
Similar MINLP model structure;
More continuous variables than MINLP model;
More constraints than MINLP model;
Combinatorial feature of the MINLP model preserved.
non-convex
Structure:
MILP Model = MINLP Model +
Nonlinear Viscosity Constraints

+
Linearized Constraints
t'
t =1
o =1
VIK i,t' = VIZ i MI i + [FIRASFK i,t (FIDK i,o,t )]

t'
VQK q,t' = VQZ q MQq + (FQRASFK q,t FQDK q,t )
i = 1,...,I; t' = 1,...,T
(46)
q = 1,...,Q; t' = 1,...,T
(47)
t =1
FRASFU t MIRASF +
s2
( FDRASFd ,t MIDs ) + FOCCRt MID2 +
d =1 sS d
I
i =1
q =1
+ FRLCOt MID3 = ( FIRASFK i ,t ) + ( FQRASFK q ,t )
FIRASFK i,t XICi,t U
Flow
U = cons tan t
FQRASFK q,t XQC q,t U
VI i ,t MI i = VIK i ,t
Viscosity
Material Balance
CONSTRAINTS FOR LINEAR TRANSFORMATION
U = cons tan t
t = 1,...,T
i = 1,...,I; t = 1,...,T
q = 1,...,Q; t = 1,...,T
i = 1,...,I; t = 1,...,T
VQq,t MQq = VQK q,t
q = 1,...,Q; t = 1,...,T
(48)
(49)
(50)
(51)
(52)
FIDi ,o ,t MI i = FIDK i ,o ,t
i = 1,...,I; o = 1,...,O; t = 1,...,T
(53)
FQDq,t MQq = FQDK q,t
q = 1,...,Q; t = 1,...,T
(54)
TK-4
41 13
TK-4
33 07
TK-4
33 01
TK-4
33 01
TK-4
33 07
TK-4
33 0
TK-4 1
33 02
TK-4
41 08
TK-4
33 02
TK-4
41 08
TK-4
33 01
TK-4
41 08
TK-4
33 01
TK-4
41 08
TK-4
33 02
TK-4
33 07
TK-4
33 01
TK-4
41 1
TK-4 3
33 01
TK-4
33 01
TK-4
33 07
TK-4
33 07
TK-4
33 01
TK-4
41 08
TK-4
41 08
TK-4
33 07
TK-4
33 01
TK-4
33 01
TK-4
33 01
TK-4
33 0
TK-4 3
33 02
TK-4
33 07
TK-4
33 01
TK-4
33 01
TK-4
33 01
TK-4
33 01
REAL-WORLD EXAMPLE
Scheduling horizon: 3 days
instance
evaluated
UVO1
Time span: 2 hours
Nominal production: 200,000 m3/month
START
PRODUCTION SCHEDULE AND STORAGE INFORMATION
UVO2
CAP07
CAP20
FO1
FO2
END
FO3
FO4
diluent from TK-42221 (HG)

pure OCC from UFCC
diluent from TK-42208 (OCC+LCO)

pure LCO from UFCC
Each interval = 20 m /h
180
160
140
120
100
80
60
40
20
0
11
13
15
17
19
21
23
25
27
29
31
33
35
Schedule of diluents in the mixer
TK-43302 (i=2)
TK-43303 (i=3)
TK-43304 (i=4)
1
TK-44113 (q=1)
TK-44114 (q=2)
36
TK-43305 (i=5)
TK-43306 (i=6)
1
36
FO4 (p=4)
TK-43307(i=7)
36
CAP-07 (v=3)
TK-44108 (q=5)
TK-44111 (q=3)
TK-44112 (q=4)
1
10
8
6
4
2
0
FO3 (p=3)
UVO2 (v=2)
36
10
8
6
4
2
0
FO2 (p=2)
7 10 13 16 19 22 25 28 31 34 37
UVO1 (v=1)
2
0
12
10
8
6
4
2
0
FO1 (p=1)
TK-43301 (i=1)
10
8
6
4
2
0
Volume (x 10-3 m3) in product storage tanks
36
CAP-20 (v=4)
36
TK-44110 (q=6)
TK-44115 (q=7)
TK-44116 (q=8)
36
Transfer schedule for fuel oils

(m3/h)
400
OIL-PIPELINE TO SO PAULO - CASE A

(RESTRICTED PERIOD: 6:00 a.m./12:00 p.m. - 1
st
day)
Dispatch schedule for ultra-viscous oil

FO1
(m3 /h)
FO2
100
80
60
40
20
0
FO3
300
FO4
200
100
0
1
(m3/h)
400
(RESTRICTED PERIOD: 0:00 a.m./6:00 p.m. - 2
nd
day)
FO1
(m3 /h)
FO2
100
80
60
40
20
0
FO3
300
FO4
200
100
0
1
(m3/h)
400
(RESTRICTED PERIOD: 6:00 p.m./12:00 a.m. - 2
nd
/3
rd
days)
FO1
(m3 /h)
FO2
100
80
60
40
20
0
FO3
300
FO4
200
100
0
1
(m3/h)
400
rd
(RESTRICTED PERIOD: 12:00 a.m./6:00 a.m. - 3 /4
th
days)
FO1
(m3 /h)
FO2
100
80
60
40
20
0
FO3
300
FO4
200
100
0
1
11 13 15 17 19 21 23 25 27 29 31 33 35
11 13 15 17 19 21 23 25 27 29 31 33 35
UVO2 TRUCK TERMINAL

from TK-44111 (q=3)
from TK-44112 (q=4)
9 11 13 15 17 19 21 23 25 27 29 31 33 35
CAP-07 TRUCK TERMINAL

from TK-44108 (q=5)
11 13 15 17 19 21 23 25 27 29 31 33 35
OIL-PIPELINE TO SO PAULO - CASE D
from TK-44114 (q=2)
11 13 15 17 19 21 23 25 27 29 31 33 35
OIL-PIPELINE TO SO PAULO - CASE C
from TK-44113 (q=1)
11 13 15 17 19 21 23 25 27 29 31 33 35
OIL-PIPELINE TO SO PAULO - CASE B
UVO1 TRUCK TERMINAL
9 11 13 15 17 19 21 23 25 27 29 31 33 35
CAP-20 TRUCK TERMINAL

from TK-44110 (q=6)
from TK-44115 (q=7)
from TK-44116 (q=8)
9 11 13 15 17 19 21 23 25 27 29 31 33 35
TRANSITION PROCESS IN OIL-PIPELINES

FLOW
Refinery
Market
to
t1 > to
t2 > t1
Final Product A
Final Product B
t3 > t2
Final Product C
UNDESIRABLE MIX
TRANSITION COST
(m /h)
400
LOCAL OIL-PIPELINE
(WITH TRANSITION MODELING)
FO1
FO2
FO3
300
FO4
200
number of 0-1 variables

number of constraints
number of continuous variables
4514
6890
4465
2629
1512
1512
100
MINLP model
0
1
(m /h)
400
MILP model
11 13 15 17 19 21 23 25 27 29 31 33 35
OIL-PIPELINE TO SO PAULO
FO1
(WITH TRANSITION MODELING)
FO2
FO3
300
FO4
200
number of 0-1 variables

MILP models
number of constraints
number of continuous variables 7985
6890
6733
4465
1968
1512
100
0
1
case
A
B
C
D
11 13 15 17 19 21 23 25 27 29 31 33 35
MIP model
MILP
MINLP
MILP
MINLP
MILP
MINLP
MILP
MINLP
nodes
937
1296
764
1197
-
iterations
15674
13815
16626
15508
13086
23792
23080
12845
WITHOUT TRANS.
CONSTRAINTS
CPU time (s)

570.46
335.36
711.01
391.45
490.86
531.98
851.78
299.30
WITH TRANS.
CONSTRAINTS
objective
969.61
966.99
965.72
961.14
954.99
956.99
950.65
959.49
OUTLINE
Introduction
Planning Models
Scheduling models
Logistics
oil supply model
Conclusions
CRUDE OIL SUPPLY PROBLEM
Solution of oil supply problems among crude oil terminals and refineries
MOTIVATION
Increasing utilization of the system
Larger crude oil demand for crude oil in refineries
Outsource of transportation
Potential economic impact

No systematic scheduling
Operations involve high costs and aggregated values
Petrobras distribution complex

4 refineries in the State of Sao Paulo
PETROBRAS DISTRIBUTION COMPLEX
PROBLEM SPECIFICATION
iDetermined by the petroleum

origin
iApproximately 42 types of
crude oil may be processed
Types of
crude oil
iSets of crude oil types with
similar properties
iNecessary due to limited

amount of tanks
Classes of
crude oil
i7 classes
Types of
crude oil
iTransport types of crude oil

Tankers
iOverstay incurs in additional

costs
- US$ 10 k to US$ 20 k per day
Classes of
crude oil
Types of
crude oil
Piers
iDifferent capacities
Tankers
Classes of
crude oil
Types of
crude oil
Piers
Tanks
Tankers
iStore classes of crude

oil
iMinimum storage levels
Classes of
crude oil
Types of
crude oil
iSettling time between

loading and unloading
operations
Piers
Tanks
Pipelines
Tankers
Classes of
crude oil
Types of
crude oil
iFlow rate at each

pipeline limited by the
density of the heaviest
crude oil class
iPossible to connect to at
most one tank at every
time
Piers
Tanks
Pipelines
Tankers
Substations
Classes of
crude oil
Types of
crude oil
iBuffer operations
between terminal and
refineries
iStore difference in flow

rate between inlet and
outlet pipelines
OBJECTIVES
Tankers
Operating
constraints
Initial
inventory
Costs
Possible
allocations
iSchedules
Tanks
Crude types
Substations
Pipelines
Refineries
Piers
Mathematical formulation
Input
parameters
System
operation
- Allocation of
crude oil types
to classes
- Assignment of
tankers to piers
- Loading
- Unloading
- Settling
PROPOSED STRATEGY
Pipelines
Terminal
Impossible to solve
complete problem
Substations
Refineries
PROPOSED STRATEGY
iDecomposition of the problem in three
formulations
- Port Model
- Substation Model
- Algorithm to adjust timing of pipelines
PROPOSED STRATEGY
Port Model
Port
Results
Allocation of tankers to
piers
Loading and unloading
profiles of tanks
Loading of pipelines
Timing of interfaces in
pipelines
PROPOSED STRATEGY
- Algorithm to adjust timing of
pipelines
Pipelines
Port
Results for this

refinery
PROPOSED STRATEGY
Substation Model
Pipelines
Port
Substations
PROPOSED STRATEGY
- Algorithm to adjust timing of
pipelines
Pipelines
Terminal
results for other refineries are

determined
Substations
Refineries
MATHEMATICAL FORMULATION
MILP model formulation
Time representation
Continuous
Based on events
Inventory level (cont. variable)
Vi
Vi+1
Vi+2
Vi+3
Amount generated (cont. variable)
Qi
Qi+1
Qi+2
Qi+3
Decision to produce (disc. variable)
Xi
Xi+1
Xi+2
Xi+3
time
Time events (cont. variable)
Ti
Ti+1
Ti+2
Ti+3
PROPOSED MODEL - VARIABLES

Binary variables Decisions
Assignment of ship n to pier p:
Unloading of ship n to tank t:
Unloading of tank t to oil pipeline o:
Continuous variables
Timing
Inventory
Flowrates
Operating profit
An , p
LTn ,t ,e
UTt ,o ,e
MODEL ASSUMPTIONS AND

OPERATING RULES
Ships with earlier arrival date unload first in the same pier
Each ship unloads to only one tank at any time
Each pipeline receives crude oil from at most one tank at any time
Each refinery is connected to the docking stations from one and
only one oil pipeline
The same crude oil class has constant flowrates
PROPOSED MODEL - TIMING

Ships, tanks and pipelines
Timing variables in each time event
Initial
Final
Matching of the timing variables

Unloading from ship n to tank t
TN
s
n ,e
= TT
f
n ,e
= TT
s
t ,e
f
t ,e
TN
s
o ,e
TT = TD
Unloading from tank t to pipeline o
TT = TD
s
t ,e
f
t ,e
f
o ,e
PORT MODEL - CONSTRAINTS

Decisions
Assignment of tanker n:
pPn
LT
Operation of tank t:
n ,t , e
nN t
Operation of tanker n:
=1
n, p
LT
tTn
Operation of oil pipeline o:
n ,t , e
oOt
UT
tTo
+ UTt ,o ,e 1
t ,o ,e
PROPOSED MODEL CONSTRAINTS

Material balances
Tanks, Refineries
Operational constraints
Ships and tanks:
flowrate bounds
Timing
Ships
TN ns,e
Tanks
pPn
start
n, p
+ An, p . nent, p
TN ns,e TN nf,e1
TN nf,e
TTt ,se TTt ,fe + dec

t .( UTt ,o ,e +
TT H
f
t ,e
oOt
end
n, p
pPn
LT
nN t
TTt s,e
n , t , e
TTt ,fe 1
1)
PROPOSED MODEL CONSTRAINTS

Matching of timing variables
Ships Tanks
TN ns,e H .(1 LTn ,t ,e ) TTt ,se TN ns,e + H .(1 LTn,t ,e )

TN nf,e H .(1 LTn ,t ,e ) TTt ,fe TN nf,e + H .(1 LTn,t ,e )
Tanks Pipelines
TTt ,se H .(1 UTt ,o,e ) TDos,e TTt ,se + H .(1 UTt ,o ,e )
TTt ,fe H .(1 UTt ,o,e ) TDof,e TTt ,fe + H .(1 UTt ,o ,e )
PROPOSED MODEL OBJECTIVE FUNCTION

max profit =
r clCLRr
Qutt ,o,e' (oil revenue to the refineries)

oOr t(Tcl To ) e '=1
+ REVPclclass . VtT, E Vt0

tTcl
cl
E 1
REVRclclass
, r .
(final - initial oil revenue in the port)
(oil cost in the tanks)
Cn,c
c
nN c
pier
end
start
COST p . n, p n, p (pier utilization cost)
p
nN p
COSTccrude .
COSTnse .Tnse
(overstay cost of the oil tankers)
E 1
face
COSTcl ,cl . INTcl ,cl ,o,e
o clCLOo cl CLOo
e =1
cl cl
(interface cost)
SUBSTATION MODEL - MAIN ASSUMPTIONS

iTanks cannot be loaded and unloaded simultaneously
iOutlet pipelines cannot be loaded by inlet pipelines
and tanks simultaneously
iSubstation must receive crude oil at the flow rates

generated by the Pot Model
- Lots of crude oil
SUBSTATION MODEL SUMMARY

iMinimize
- Cost =
cost of tank loading/unloading +

cost of pipeline alignment +
cost of interface
- Subject to:
- Assumptions of the substation model
- Operating constraints
8 Tank loading/unloading
8 Pipeline operation
- Timing constraints
8 Inlet pipelines
8 Tanks
8 Outlet pipelines
REAL-WORLD PROBLEM
Paulnia
REPLAN
III
T
vA
S
O
VA
RECAP
V
TI
Problem 4
SEGUA
VA
Substation
Model
T
II
SEBAT
Guararema
Problem 2
OS
Substation V
I
T
Model
A
OS
OS
Capuava
So Jos dos
Campos
REVAP
RPBC
OS
VA
Substation
Model
II
TI
Problem 3
BA
OS
Cubato
GEBAST
Problem 1
T II
OSBA
Port Model
P3
P4
P1
P2
So Sebastio
COMPUTATIONAL RESULTS
Smaller optimality gaps for the Port Model
Large variation on computational times
Number of continuous variables

Number of binary variables
Number of constraints
Relaxed LP solution
Best Integer Objective
Optimality gap
Nodes
Iterations
CPU time (Pentium III 450MHz)
Problem 1
Problem 2
Problem 3
Problem 4
1996
1039
7203
21,768.32
20,073.96
7.78%
1118
62313
1,457.51 s
4954
759
10337
23.00
42.00
82.61%
3784
74410
3,602.07 s
712
66
1158
11.00
21.00
90.91%
3921
19321
134.69 s
703
123
1682
11.39
15.00
31.74%
422
5244
28.28 s
Port Model
Substation Models
PROBLEM 1 TANKERS AND TANKS

PEDREIRAS
50
40
30
20
FRONT BREA
120
08
90
27
10
0
60
05
60
40
30
20
0
30
35
40
TBN01
60
20
40
15
15
20 25
TBN02
10
20
62
64
66
68
86
87
88
TQ3214
80
60
10
30
89
85
30
20
40
90
95
100
0
105 139
0
141
143
TQ3215
Vmin
Vmax
24
48
72
96
120 144 168
TQ3219
80
Vmin
0
24
48
72
96
Vmax
40
20
Vmin
0
0
24
48
72
96
TQ3237
80
Vmax
60
40
Vmin
20
0
0
24
48
72
96
TQ3241
80
48
72
96
Vmax
Vmin
20
0
Vmin
0
24
48
72
96
120 144 168
TQ3242
Vmax
60
Vmin
24
48
72
96
120 144 168
24
48
72
96
120 144 168
110
96
120 144 168
120
TQ3210
35
28
21
14
7
0
Vmax
Vmin
0
24
48
72
96
120 144 168
TQ3218
80
Vmax
60
40
20
Vmin
Vmin
0
0
24
48
72
96
TQ3234
80
24
48
72
96
120 144 168
TQ3235
80
Vmax
60
120 144 168
Vmax
60
40
Vmin
20
20
Vmin
0
0
24
48
72
96
120 144 168
TQ3239
80
24
48
72
96
120 144 168
TQ3240
80
Vmax
60
Vmax
60
40
Vmin
20
0
Vmin
20
0
24
48
72
96
120 144 168
TQ3243
80
Vmax
60
24
48
72
96
120 144 168
TQ3244
80
Vmax
60
40
40
20
0
72
40
40
40
48
Vmax
20
120 144 168
TQ3238
80
Vmax
60
24
35
28
21
14
7
0
120 144 168
24
0
0
120 144 168
40
20
Vmin
100
Vmin
TQ3217
60
120 144 168
TQ3233
60
40
168
5
0
90
Vmax
80
Vmax
60
161
29b
TQ3208
35
28
21
14
7
0
10
29a
0
100 105 110 115
40
20
145 154
80
40
20
15
40
20
95
20
10
90
100
20
60
26
0
90
95
TBN04
CANTAGALO
80
50
85
50
40
60
40
45
TBN03
60
D
100
0
40
PRESIDENTE
NORTH STAR
150
38
90
20
60
80
Vmax
60
65
75
RAVEN
VERGINA II
120
0
55
70 85
38
30
01b
45
0
60
01a
20
30
REBOUAS
40
0
10
45
MURIA
80
Vmin
20
0
Vmin
20
0
24
48
72
96
120 144 168
24
48
72
96
120 144 168
PROBLEM 1 GANTT CHART

11.0
OSBATII/S
34.8
53.3
35
OSBAT
58.2
TQ3244
28.0
27.8
2.2
28.0
2.8
27.8
48.8
19.6
25.4
17.4
OSVAT
2.2
34.4
16.9
SEGUA/E
41
65
2.8
48.8
42.4
63.6
67.7
6.1 (P4)
26.0 Hrs
63.6 (P2)
TQ3242
58.2
2.2
24.3 Hrs
TQ3241
42.4 (P2)
TQ3240
42.4
62.4
16.9
60
60
61.8
62.4
61.8
50.3Hrs
26.0 (P2)
59.1
60.4
16.9
66.0 (P2)
62.4 (P2)
24 Hrs
62.4 (P1)
62.4
6.2 (P2)
60.0
24 Hrs
60.0 (P4)
38.0 (P4)
46.4 Hrs
14.1
55.7 (P1)
29.4 (P4)
67.7
24 Hrs
27.8
16.9 (P1)
16.9
24 Hrs
28.9 (P3)
1.4 (P2)
TQ3237
51.1 (P3)
3.7 (P4)
TQ3235
26.5
58.7
TQ3239
TQ3238
62.4
2.6
11.5
63.6
48.8
70.2
65.1
19.6
28.0
TQ3243
19.6
33.9
11.9 (P4)
TQ3234
60.0 (P4)
0.6 (P4)
TQ3233
25.4
30L (P-4)
4.5 (P4)
58.7
24 Hrs
2.8
4.7 (P4)
TQ3219
TQ3218
15 (P4)
TQ3217
19.6
24 Hrs
11.5 (P4)
11.5
43.2 Hrs
55.5 (P4)
5.3 (P3)
TQ3215
24.7 (P3)
TQ3214
12.2 (P2)
17.4
TQ3208
P-4
60.4
37.8 (P2)
TQ3210
19.6
REBOUCAS
CANTAGALO
TBN01
PEDREIRAS
P-3
TBN02
RAVEN
TBN03
TBN04
PRESIDENTE
P-2
MURIAE
FRONT_BREA
P-1
0
24
48
VERGINA II
72
Tempo (horas)
NORTH_STAR
96
120
144
168
PROBLEM 1 REFINERIES AND PIPELINES

REPLAN+REVAP
1600
Max
1200
REPLAN+REVAP (detailed)
1000
RECAP+RPBC
600
950
400
900
200
350
Max
RECAP+RPBC (detailed)
340
800
330
400
Min
850
0
24
48
72
96 120 144 168
CL-5
GEBAST
320
Min
0
0
24 48
72
96 120 144 168
24
48
72
310
96 120 144 168
0
GEBAST
Profile Pipeline OSVAT_I e OSVAT_II
24
48
72
96 120 144 168
Profile Pipeline OSBAT_I e OSBAT_II
Flux de Oil
CL-6
CL-4
CL-5
CL-5
CL-5
Station
de
Rio
Pardo
CL-6
CL-5
CL-4
Flux de Oil
CL-5
CL-7
CL-7
CL-6
CL-6
CL-6
CL-7
0
24
SEGUA CL-3
CL-3
48
72
96
Tempo (hours)
120
144
CL-4
168
0
RPBC
Flow rate OSVAT_I e OSVAT_II (1000 m^3/h)
24
48
72
96
Tempo (hours)
120
Flow rate OSBAT_I e OSBAT_II (1000 m^3/h)
5
4
3
2
1
0
144
168
Station
de
Guaratuba
0
0
24
48
72
96
120
144
168
24
48
72
96
120
144
168
PROBLEM 4 GANTT CHART

RECAP/E
10.8
10.3
2.3
8.4
11.2
2.3
OSBATIV/E
8.5
12.6
11.2
8.4
4.6
TQ42
8.3
1.4
2.6
11.2
4.6
TQ41
1
8.5
7.5
15.2
TQ40
8.4
4.3
12.6
2.6
4.6
OSBATIII/S
1
0
7.5
24
8.3
1.4
48
72
Time (hours)
4.3
96
15.2
120
4.6
144
168
PROBLEM 4 TANKERS, REFINERIES AND PIPELINES

TQ41
TQ40
25
25
20
Vmax
20
15
15
10
10
Vmin
Vmax
Vmin
0
0
24 48 72 96 120 144 168

120
Max
TQ42
25
20
15
10
5
0
Vmax
Vmin
0
24 48 72 96 120 144 168
0 24 48 72 96 120 144 168

RECAP
RECAP (detailed)
80
80
70
40
Min
0
0
SEBAT
24 48 72 96 120 144 168 60
Profile Pipeline OSBAT_IV
Flux de Oil
CL-7
CL-7
24 48 72 96 120 144 168

Flow rate OSBAT_IV (1000m^3/h)
0,34
CL-7 CL-6
CL-6
0
0
RECAP
24
48
72
96
120
144
168
24
48
72
96 120 144 168
OUTLINE
Introduction
Planning Models
Scheduling models
Logistics
oil supply model
Conclusions
CONCLUSIONS
Problems can be modeled as large scale MILPs / non-convex MINLP;
The LP based Branch and Bound Method (solver OSL):
is satisfactory to generate good feasible solutions;
no guarantee of global optimum solutions for all instances;
The OA/ER/AP Method (solver DICOPT++):
is efficient to circumvent the non-convexity problem;
is satisfactory to generate feasible solutions;
has computational performance similar to MILP model.
Issues:
time representation
blending/pooling
transitions
CONCLUSIONS - CHALLENGES
Large Scale Systems - Main theoretical difficulties:
Complex problems with high combinatorial features;
NP-Complete Problems
Infeasible computational times
Large Scale Systems - Main practical difficulties

The understanding of the problem itself can constitute the major difficulty;
The cooperation between the modeler level and the plant floor level is essential
and remains as the main challenge for the Operational Research
Continuous work necessary due to the dynamic nature of scheduling problems.
ACKNOWLEDGEMENTS
Researchers
Engineers
Financial Support
M. Joly
R. Ms
L. Moro
R. Rejowski
P. Smania
C.A. Gratti
M. F. Lehner
M.V. Magalhes
A.C. Zanin
Petrobras
CAPES
CNPq
FAPESP
General Petroleum Supply Chain
Oil field
Infrastructure
Iyer et al. (1998).

Van den Heever and
Grossmann (2000).
Van den Heever et al.
(2000).
Ierapetritou et al. (1999).
Kosmidis (2002). Barnes et al. (2002).
International
Petroleum
Commerce
Operations
Research.
Crude Oil
Supply
Lee et al. (1996).

Pinto et al. (2000).
Ms and Pinto (2002).
Refinery Planning/
Scheduling
Ponnambalam (1992).
Bok et al. (1998).
Pinto and Moro (2000).
Distribution
Ross (2000).
Iakovou (2001).
Magato et al. (2002).
Stebel et al. (2002).
Rejowski and Pinto (2003).
Objective
Development of an optimization model

that is able to represent
a petroleum supply chain

to support the
decision making planning process

of
supply, production and distribution
Refinery - Processing Unit Model
QFu ,t =
Qu',s ,u ,t
( u',s )USu
Qu',s ,u ,t .PSu',s , p ,t
PFu , p ,t =
( u',s )USu
Qu',s ,u ,t
( u',s )USu
Feed mixing
QSu ,s ,t = QFu ,t . f u ,s ( PFu , p ,t ) + QGainu ,s ,v .Vu ,v ,t

uVOu
PSu ,s , p ,t = f u ,s , p ( PFu , p ,t | p PI u ,QFu ,t ,Vu ,v ,t | v VOu )
QSu ,s ,t =
Qu ,s ,u',t
u' UOu ,s
QFuL QFu ,t QFuU
VuL,v Vu ,v ,t VuU,v
Unit
model
Product splitting stream
Bounds
Supply, Distribution Storage Model
Supply, Distribution - Pipeline Model
QFu ,t =
( u',s )USu
Qu',s ,u ,t
QSu ,s ,t = Qu',s ,u ,t
QSu ,s ,t = Qu ,s ,u',t
QFu ,t QFuU
Supply Chain Model

Large Scale MINLP
PSC
Max Z = Cpu ,t .( QFu,t Volu ,t ) .Cpetu ,t .Lotu,t
uU dem t T
uU SB t T
[ Cru + ( Cvu,v .Vu ,v ,t ) ] .QFu,t Cinvu .Volu ,t

uU t T
vVOu
uU f t T
Cinvu .Volu ,t Ctu .QFu ,t

uU p t T
uU pipe t T
Supply Chain Model cont. from previous slide

subject to the models of:
units that compose refinery topology
processing units
refineries that compose the supply chain
petroleum and product tanks that compose refineries
petroleum and product tanks that compose terminals

tank
refineries and terminals that compose the supply chain
pipeline network for petroleum supply
pipeline pipeline network for product distribution

QF ,QS ,Q,Vol,Lot +
PF ,PS ,V
y {0,1}
Supply Chain Components
Petroleum Distribution Overview
Product Distribution Overview
RPBC flowsheet
Intermediate connections
Modeling Example
Tanks and CD1 Model

PSCD1,s , p ,t = PropCD1,s , p +PGainCD1,s,p .VCD1,V1,t
,s SOCD1 , p POCD1,s ,t
QS
CD1, p ,t + QGainCD1,s
,V1 t.VCD1,V1 ,t ,t
QSCD1,s ,t ==QFCD1,t .PF
= QQ
,
QS
tan k 1,,t petroleum,t

CD1,s
u' UOCD 1,s
tan
k 1, petroleum
,CD1,t
CD1,s
,u',t
p
s
Qtan
500
20000,t
k 1, YC3C4
petroleum ,CD1,t
C3C4
LN
YLN
HN YHN
K
YK
Q
Qu ', p etro leu m ,C D 1 ,t , t
F C D 1 ,t =
u ' {ta n k 1 ,2 ,3 }
LD
YLD
u ', p etro leu m ,C D 1 , p ,t . P r o p u ', p etro leu m , p

HD u ' {taYHD
n k 1 ,2 ,3 }
=
P
F
, t
C D 1 , p ,t
ATR
YATR
Q u ', p etro leu m ,C D 1 ,t

u ' {ta n k 1 ,2 ,3 }
p {Y C 3 C 4 ,Y L N ,Y H N ,Y K ,Y L D ,Y H D ,Y A T R }
Refinery Multiperiod Planning REVAP results

DICOPT
(NLP CONOPT++)
(MIP OSL, CPLEX)
Steep
Demand profile - GLN

Smooth
Smooth
Steep
Refinery Planning Model with Uncertainty

Discrete Scenarios
c1
P1%
c2
P2%
probc,t =1
cN
PN%
c C
Max Z = probc ,t Cpu ,t ,c ( QFu,t,c Volu ,t ,c ) probc ,t Cf u ,t ,cQSu,s,t,c

cC t T uU p
cC tT uU f sSOu
Cbu yu ,t ,c
[ Cru + ( Cvu,v .Vu ,v ,t )] QFu,t
cC t T u U f
vVO u
cC tT uU \ {U f ,U p }
Cinvu ,t ,cVolu ,t ,c
t T u U p
s.t. refinery constraints
Planning under Uncertainty - REVAP results
Proposed Strategies and Results

Primal subproblem
Dual subproblems
Multipliers update
Strategy 1
Fixed assigment
Lagrangean
Subgradient
Strategy 2
Fixed inventory
Lagrangean
Subgradient
Strategy 3
Fixed inventory
Surrogate
Subgradient
Strategy 4
Fixed inventory
Lagrangean
Modified Subgradient
700
CPU seconds
600
500
400
300
200
100
0
0
10
20
30
40
50
Number of time periods.

Problem RMP
Strategy 1
Strategy3
Strategy4
Strategy 2
60
Supply Chain Example

Cases:
1: Complete model
2: Pre-selection of some suppliers
3: Interruption of pipeline segment SG-RV
General constraints:
Planning horizon: one / two time periods
Supply of 20 oil types
Generation of 32 products (6 transported with pipelines)
Supply Chain Example Petroleum Selection

Case 1
Case 2
Case 3
Larab
Marlin
Rgn
Cabiun
Albaco
Bicudo
Condoso
Bonit
Cabiuna
Larabe
Coso
Supply Chain Example REVAP

1764
1933
1001
0
0
871
600
600
660
0
0
60
10905
11404
7551
0
0
6551
16945
16489
11400
Supply Chain Example RPBC

9824
10075
9924
5449
5177
5449
36
36
36
1389
1408
1389
15
15
15
Supply Chain Example Oil Supply

36000
36000
25992
54200
54200
54200
8500
8500
8500
35500
35500
35500
90200
90200
80192
Supply Chain Example Product Supply

17642
18311
362
4400
4400
11660
3345
2889
10800
24540
25208
0
6403
6403
6403
6545
6089
11000
20018
20019
20018
17700
17700
17700
Supply Chain Example Intermediate Streams
PFO1
A
60
224
666
48
0
58
0
53
0
PFO1
A
PFO4
A
Supply Chain Example Computational Results

Case
Number of time periods
Case 1
1
Case 2
1
Case 3
1
Constraints
2304 4607
2306 4611
2304 4607
Variables
2544 5087
2544 5087
2544 5087
Discrete variables
Solution time (CPU s)
Objective Value ($ x106)
195
390
116.8 656.2
20.4
41.3
195
390
195
390
152 915.6
157.8
2301
18.0
36.3
20.3
41.1
Conclusions
Mathematical programming
-General refinery topology
-General petroleum supply chain representation
-Representation of nonlinear properties and multiple periods
-Non-convex Large-Scale MINLP
Real-world applications
-General planning trends along multiple periods
-Analysis of scenarios (discrete probabilities)
-Intensive computational effort
Research needs
Modeling
9Upstream-Downstream Integration
9Multi country supply chains (royalties, tariffs)
9Modeling of uncertainties
Efficient solution methods

9Decomposition (spatial, temporal, functional)
9Approaches (Lagrangean Relaxation, Cross Decomposition)

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Part 3

Process and Supply Chain Operations

Strategic Framework to the Analysis of Supply Chain

Scope: a supply chain covers the flow of

Logistics related activity

Source: Cass Logistics

Logistics cost : 21%

Marketing cost: 27%

Manufacturing cost : 48%

Supply Chain Management: The

A typical box of cereal spends 104 days from factory to sale

A typical car spends 15 days from factory to dealership

Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995

P&G estimates it saved retail customers $65 million by collaboration

Objectives of a Supply Chain

Maximize overall value generated

Satisfying customer needs at a profit

Supply Chain Stages

Decision phases in a supply chain

Supply chain strategy or design

Supply chain planning

Location and capacity of production and warehouse facilities?

Supply chain operation

Decisions and execution of orders?

Cycle View of Supply Chains

Process view of a supply chain

Customer order cycle

Trigger: maximize conversion of customer arrivals

Process view of a supply chain

Replenish inventories at retailer at minimum cost

Process view of a supply chain

Includes all processes involved in replenishing

Process view of a supply chain

Several tiers of suppliers

Supply chain macro processes

CRM (Customer Relationship Management) all

ISCM (Internal Supply Chain Management) processes

SRM (Supplier Relationship Management) all processes

Push/Pull View of Supply Chains

Supply chain performance

Supply Chain Strategy

Finance, Accounting, Information Technology, Human Resources

Achieving strategic fit

Understanding the Customer and Demand

Quantity - lot size

Levels of Implied Demand Uncertainty

Implied Demand Uncertainty

Fischer (1997) Harvard Bus. Rev, March-April, 83

Supply source uncertainty

Supply uncertainty increases with...

Life cycle position of product

New products high uncertainty

Understanding the Supply Chain

to Quantity, Time, Variety, Innovation, Service level

INTEGRATED STEEL MILLS

Achieving Strategic Fit

Responsive and Efficient Supply Chains

demand at lowest cost

lower costs (high

Lead time strategy

reduce but not at

Product life cycle

Drivers of Supply Chain Performance