On planning production and distribution with disrupted supply chains

Abstract

This paper presents a model for short-term time-horizon production and distribution planning of a manufacturing company located in the middle of a supply chain. The model focuses on an unbalanced market with broken supply chains. This reflects the state of the current post-COVID-19 economy, which is additionally struggling with even more uncertainty and disruptions due to the Russian aggression against Ukraine. The manufacturer, operating on the post-pandemic and post-war market, on the one hand observes a soaring demand for its products, and on the other faces uncertainty regarding the availability of components (parts) used in the manufacturing process. The goal of the company is to maximise profits despite the uncertain availability of intermediate products. In the short term, the company cannot simply raise prices, as it is bound by long-term contracts with its business partners. The company also has to maintain a good relationship with its customers, i.e. businesses further in the supply chain, by proportionally dividing its insufficient production and trying to match production planning with the observed demand. The post-COVID-19 production-planning problem has been addressed with a robust mixed integer optimisation model along with a dedicated heuristic, which makes it possible to find approximate solutions in a large-scale real-world setting.