Fundamentals of supply chain theory

TABLE OF CONTENTS List of Figures xxi List of Tables xxvii List of Algorithms xxix Preface xxxi 1 Introduction 1 1.1 The Evolution of Supply Chain Theory 1 1.2 Definitions and Scope 2 1.3 Levels of Decision Making in Supply Chain Management 4 2 Forecasting and Demand Modeling 5 2.1 Introduction 5 2.2 Classical Demand Forecasting Methods 6 2.3 Forecast Accuracy 15 2.4 Machine Learning in Demand Forecasting 17 2.5 Demand Modeling Techniques 23 2.6 Bass Diffusion Model 24 2.7 Leading Indicator Approach 30 2.8 Discrete Choice Models 33 Case Study: Semiconductor Demand Forecasting at Intel 38 Problems 39 3 Deterministic Inventory Models 45 3.1 Introduction to Inventory Modeling 45 3.2 Continuous Review: The Economic Order Quantity Problem 51 3.3 Power of Two Policies 57 3.4 The EOQ with Quantity Discounts 60 3.5 The EOQ with Planned Backorders 67 3.6 The Economic Production Quantity Model 70 3.7 Periodic Review: The Wagner-Whitin Model 72 Case Study: Ice Cream Production and Inventory at Scotsburn Dairy Group 76 Problems 77 4 Stochastic Inventory Models: Periodic Review 87 4.1 Inventory Policies 87 4.2 Demand Processes 89 4.3 Periodic Review with Zero Fixed Costs: Base-Stock Policies 89 4.4 Periodic Review with Nonzero Fixed Costs: (s; S) Policies 114 4.5 Policy Optimality 123 4.6 Lost Sales 136 Case Study: Optimization of Warranty Inventory at Hitachi 138 Problems 140 5 Stochastic Inventory Models: Continuous Review 155 5.1 (r; Q) Policies 155 5.2 Exact (r; Q) Problem with Continuous Demand Distribution 156 5.3 Approximations for (r; Q) Problem with Continuous Distribution 161 5.4 Exact (r; Q) Problem with Continuous Distribution: Properties of Optimal r and Q 170 5.5 Exact (r; Q) Problem with Discrete Distribution 177 Case Study: (r; Q) Inventory Optimization at Dell 180 Problems 182 6 Multiechelon Inventory Models 187 6.1 Introduction 187 6.2 Stochastic-Service Models 191 6.3 Guaranteed-Service Models 203 6.4 Closing Thoughts 217 Case Study: Multiechelon Inventory Optimization at Procter & Gamble 222 Problems 223 7 Pooling and Flexibility 229 7.1 Introduction 229 7.2 The Risk-Pooling Effect 230 7.3 Postponement 236 7.4 Transshipments 237 7.5 Process Flexibility 243 7.6 A Process Flexibility Optimization Model 253 Case Study: Risk Pooling and Inventory Management at Yedioth Group 257 Problems 259 8 Facility Location Models 267 8.1 Introduction 267 8.2 The Uncapacitated Fixed-Charge Location Problem 269 8.3 Other Minisum Models 295 8.4 Covering Models 305 8.5 Other Facility Location Problems 314 8.6 Stochastic and Robust Location Models 317 8.7 Supply Chain Network Design 321 Case Study: Locating Fire Stations in Istanbul 332 Problems 335 9 Supply Uncertainty 355 9.1 Introduction to Supply Uncertainty 355 9.2 Inventory Models with Disruptions 356 9.3 Inventory Models with Yield Uncertainty 365 9.4 A Multisupplier Model 372 9.5 The Risk-Diversification Effect 384 9.6 A Facility Location Model with Disruptions 387 Case Study: Disruption Management at Ford 395 Problems 396 10 The Traveling Salesman Problem 403 10.1 Supply Chain Transportation 403 10.2 Introduction to the TSP 404 10.3 Exact Algorithms for the TSP 408 10.4 Construction Heuristics for the TSP 416 10.5 Improvement Heuristics for the TSP 436 10.6 Bounds and Approximations for the TSP 442 10.7 World Records 452 Case Study: Routing Meals on Wheels Deliveries 453 Problems 455 11 The Vehicle Routing Problem 463 11.1 Introduction to the VRP 463 11.2 Exact Algorithms for the VRP 468 11.3 Heuristics for the VRP 475 11.4 Bounds and Approximations for the VRP 495 11.5 Extensions of the VRP 498 Case Study: ORION: Optimizing Delivery Routes at UPS 501 Problems 502 12 Integrated Supply Chain Models 511 12.1 Introduction 511 12.2 A Location-Inventory Model 512 12.3 A Location-Routing Model 529 12.4 An Inventory-Routing Model 531 Case Study: Inventory-Routing at Frito-Lay 534 Problems 535 13 The Bullwhip Effect 539 13.1 Introduction 539 13.2 Proving the Existence of the Bullwhip Effect 541 13.3 Reducing the Bullwhip Effect 552 13.4 Centralizing Demand Information 555 Case Study: Reducing the Bullwhip Effect at Philips Electronics 556 Problems 559 14 Supply Chain Contracts 563 14.1 Introduction 563 14.2 Introduction to Game Theory 564 14.3 Notation 565 14.4 Preliminary Analysis 566 14.5 The Wholesale Price Contract 568 14.6 The Buyback Contract 574 14.7 The Revenue Sharing Contract 578 14.8 The Quantity Flexibility Contract 581 Case Study: Designing a Shared-Savings Contract at McGriff Treading Company 584 Problems 586 15 Auctions 591 15.1 Introduction 591 15.2 The English Auction 593 15.3 Combinatorial Auctions 595 15.4 The Vickrey-Clarke-Groves Auction 599 Case Study: Procurement Auctions for Mars 608 Problems 610 16 Applications of Supply Chain Theory 615 16.1 Introduction 615 16.2 Electricity Systems 615 16.3 Health Care 625 16.4 Public Sector Operations 632 Case Study: Optimization of the Natural Gas Supply Chain in China 639 Problems 641 Appendix A: Multiple-Chapter Problems 643 Problems 643 Appendix B: How to Write Proofs: A Short Guide 651 B.1 How to Prove Anything 651 B.2 Types of Things You May Be Asked to Prove 653 B.3 Proof Techniques 655 B.4 Other Advice 657 Appendix C: Helpful Formulas 661 C.1 Positive and Negative Parts 661 C.2 Standard Normal Random Variables 662 C.3 Loss Functions 662 C.4 Differentiation of Integrals 665 C.5 Geometric Series 666 C.6 Normal Distributions in Excel and MATLAB 666 C.7 Partial Expectations 667 Appendix D: Integer Optimization Techniques 669 D.1 Lagrangian Relaxation 669 D.2 Column Generation 675 References 681 Subject Index 712 Author Index 725

DESCRIPTION Comprehensively teaches the fundamentals of supply chain theory This book presents the methodology and foundations of supply chain management and also demonstrates how recent developments build upon classic models. The authors focus on strategic, tactical, and operational aspects of supply chain management and cover a broad range of topics from forecasting, inventory management, and facility location to transportation, process flexibility, and auctions. Key mathematical models for optimizing the design, operation, and evaluation of supply chains are presented as well as models currently emerging from the research frontier. Fundamentals of Supply Chain Theory, Second Edition contains new chapters on transportation (traveling salesman and vehicle routing problems), integrated supply chain models, and applications of supply chain theory. New sections have also been added throughout, on topics including machine learning models for forecasting, conic optimization for facility location, a multi-supplier model for supply uncertainty, and a game-theoretic analysis of auctions. The second edition also contains case studies for each chapter that illustrate the real-world implementation of the models presented. This edition also contains nearly 200 new homework problems, over 60 new worked examples, and over 140 new illustrative figures. Plentiful teaching supplements are available, including an Instructor's Manual and PowerPoint slides, as well as MATLAB programming assignments that require students to code algorithms in an effort to provide a deeper understanding of the material. Ideal as a textbook for upper-undergraduate and graduate-level courses in supply chain management in engineering and business schools, Fundamentals of Supply Chain Theory, Second Edition will also appeal to anyone interested in quantitative approaches for studying supply chains.