An iterative approach for distribution chain design in agile virtual environment
| Pages | 815-834 |
| Published date | 01 August 2005 |
| Date | 01 August 2005 |
| DOI | https://doi.org/10.1108/02635570510607012 |
| Author | Hongze Ma,Reggie Davidrajuh |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
An iterative approach for
distribution chain design in agile
virtual environment
Hongze Ma
Logistics, Turku School of Economics and Business Administration,
Tucku, Finland, and
Reggie Davidrajuh
Department of Electrical and Computer Engineering, University of Stavanger,
Stavanger, Norway
Abstract
Purpose – The study sets out to explore the use of an iterative approach for designing distribution
chain in an agile virtual environment; in an agile virtual environment, quick adaptation to changing
market situation and automation of supply chain management processes are essential.
Design/methodology/approach – The iterative approach consists of two parts: the strategic model
and the tactical model. First, the strategic model (including number of distributors, location of
distributors) is determined. Then, based on the output of the strategic model, the tactical model (i.e. the
inventory planning at each node, and vehicle routeing between different nodes of the chain) is
determined. After determining the tactical model, the operation-related parameters from the tactical
model are input into the strategic model again, and the configuration of distribution chain is
re-optimized. Such iterations proceed until the design result converges.
Findings – The proposed iterative design process provides many advantages such as reuse of
knowledge, adaptive to changing market conditions, modular design, and optimal results guaranteed
by mixed mathematical usage. The proposed approach is also realizable as a supply chain
management software tool.
Originality/value – An important contribution of this study is the iterative process that uses three
different types of mathematics. For determination of the strategic model mixed integer programming
is used. Determination of the tactical model is effected using genetic algorithm and probability theory.
Keywords Distributionmanagement, Organizational structures,Inventory control,
Supply chain management
Paper type Research paper
1. Introduction
In this paper, an iterative approach is proposed for designing the distribution chain.
The proposed iterative process is most suitable for agile virtual environment in which
quick adaptation to changing market situation and automation of supply chain
management processes are essential.
The iterative approach consists of two parts: the first part is to determine the strategic
model and the second part is to determine the tactical model. The strategic model gets the
initial values for the configuration of the distribution chain (e.g. number of distributors,
location of distributors, etc.) from the ongoing or past collaborations of the virtual
enterprise. Mixed integer programming (MIP) is used for determining the strategic model.
In the tactical model, two issues are mainly considered: identifying routes for vehicles by
genetic algorithm, and determining parameters for inventory control by probability theory.
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/0263-5577.htm
Distribution
chain design
815
Industrial Management & Data
Systems
Vol. 105 No. 6, 2005
pp. 815-834
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570510607012
After determining tactical model, the newly calculated operation-related parameters
(e.g. the unit product delivering cost, average inventory level, etc.) are input again into
the strategic model in order to re-optimize the configuration of the distribution chain.
Such iterative process proceeds until the design result converges meaning the
difference between successive iterations is not remarkable.
1.1 Distribution chain design
A supply chain generally centered with the nucleus enterprise may be divided into
three parts: supply, production and distribution part (Davidrajuh, 2003a, b). To satisfy
customer demand, maximize its profit, and win the competition in the increasingly
globalized economy, first, the nucleus enterprise must analyze the market and
understand the customer demand, then, it may begin to plan its production process and
organize its supply chain. As the distribution part plays crucial role in the management
of a supply chain, separation of it from supply chain and dealing with it independently
is recommended (Ma and Deng, 2002). When designing a distribution chain, following
questions must be answered:
.Where to locate the retailers and wholesalers so as to deliver products to
customers efficiently, and maximize profit for the nucleus enterprise effectively?
.What kind of transportation channels and modes will be used?
.How many products need to be held at different locations?
The ultimate objectives for supply chain management are: to maximize profit for the
nucleus enterprise and its collaborators; and to satisfy customers’ requirements.
Distribution chain design is crucial to achieving these objectives. First, the revenue of a
supply chain is largely related to the places where the retailers are located; it is the
distribution chain design that decides where to locate these retailers. Second, logistic s
cost takes an important part in the total cost of a supply chain. In the proposed design
approach, a set of optimization methods is applied to minimize the logistics cost; by
maximizing revenue and by minimizing the cost, profit for the supply chain is
maximized. Finally, distribution chain is directly faced with customers. Both inventory
control and product delivery planning are related to customer service. These two issues
are addressed in the tactical model of the distribution chain design.
There are three levels of distribution chain design that can be distinguished
depending on the time horizon. The three levels are strategic, tactical and operational
design (Vidal and Goetschalckx, 1997). The strategic design considers time horizons of
more than one year; operational design involves short-term decision, often less than an
hour or a day; tactical design falls in between those two extremes with respect to the
time horizon. As strategic design has more significant effect on the mana gement of
distribution chain, it is the main concern of this paper. At the same time, to determine
the operation related parameters more precisely, the tactical model of a distribution
chain is also considered here.
1.2 Organization of this paper
In the next section (section 2), a literature review on mathematical approaches for
designing distribution chain is presented. In section 3, the iterative approach is
presented. In sections 4 and 5, design of the strategic model and the tactical model are
IMDS
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