Supply Chain Design Considering Economies of Scale and Transport Frequencies

26 Pages Posted: 11 Mar 2010 Last revised: 9 Jan 2011

Kerstin Baumgartner

University of Cologne

André Fuetterer

University of Cologne - Department of Supply Chain Management and Management Science

Ulrich W. Thonemann

University of Cologne - Faculty of Management, Economics and Social Sciences

Date Written: August 7, 2009

Abstract

In this paper we consider a 3-echelon, multi-product supply chain design model with economies of scale in transport and warehousing that explicitly takes transport frequencies into consideration. Our model simultaneously optimizes locations and sizes of tank farms, material flows, and transport frequencies within the network. We consider all relevant costs: product cost, transport cost, tank rental cost, tank throughput cost, and inventory cost. The problem is based on a real-life example from a chemical company. We show that considering economies of scale and transport frequencies in the design stage is crucial and failing to do so can lead to substantially higher costs than optimal. We solve a wide variety of problems with branch-and-bound and with the efficient solution heuristics based on iterative linearization techniques we develop. We show that the heuristics are superior to the standard branch-and-bound technique for large problems like the one of the chemical company that motivated our research.

Keywords: Supply Chain Design, Economies of Scale, Transport Frequencies Iterative Linearization

Suggested Citation

Baumgartner, Kerstin and Fuetterer, André and Thonemann, Ulrich W., Supply Chain Design Considering Economies of Scale and Transport Frequencies (August 7, 2009). Available at SSRN: https://ssrn.com/abstract=1567609 or http://dx.doi.org/10.2139/ssrn.1567609

Kerstin Baumgartner

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

André Fuetterer

University of Cologne - Department of Supply Chain Management and Management Science ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Ulrich W. Thonemann (Contact Author)

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

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