Optimizing the Supply Chain Configuration for New Products

Authors:
Stephen C. Graves;Sean P. Willems
Affiliations:
Leaders for Manufacturing Program and Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139-4307;School of Management, Boston University, 595 Commonwealth Avenue, Boston, Massachusetts 02215
Venue:
Management Science
Year:
2005

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Abstract

We address how to configure the supply chain for a new product for which the design has already been decided. The central question is to determine what suppliers, parts, processes, and transportation modes to select at each stage in the supply chain. There might be multiple options to supply a raw material, to manufacture or assemble the product, and to transport the product to the customer. Each of these options is differentiated by its lead time and direct cost added. Given these various choices along the supply chain, the configuration problem is to select the options that minimize the total supply chain cost. We develop a dynamic program with two state variables to solve the supply chain configuration problem for supply chains that are modeled as spanning trees. We illustrate the problem and its solution with an industrial example. We use the example to show the benefit from optimization relative to heuristics and to form hypotheses concerning the structure of optimal supply chain configurations. We conduct a computational experiment to test these hypotheses.