Fundamentals of Supply Chain Theory, 2nd Edition

Chapter 12 Integrated Supply Chain Models

12.1 Introduction

We have discussed various aspects of managing a supply chain, and most of the earlier chapters focus on one important decision in the supply chain while assuming the other decisions have already been made. For example, when we discuss inventory models, we ignore the facility location decision and its associated costs, whereas in the chapters dealing with location models, we ignore the inventory and shortage costs, as well as the demand uncertainty and the effects that reorder policies have on inventory and shipping costs. One reason for this disconnect is that the decision‐maker may not possess detailed information about the future costs and other parameters in the supply chain when making facility location or network design decisions. Another reason is that the more decisions that are included in a single model, the more complex and hard to solve the model becomes. On the other hand, ignoring inventory, transportation, and other costs when making strategic decisions can lead to suboptimality. Significant cost savings can often be attained by optimizing several of the major cost drivers that can influence the performance of the supply chain.

Recall from Chapter 1 that supply chain decisions can be classified into three levels: strategic, tactical, and operational. Often, decisions are made at each level sequentially. For example, we might first optimize facility locations (a strategic decision) with the expectation ...