Coordinated production and delivery for an exporter

This article considers an exporter who produces multiple products at geographically separated production plants to meet a stream of deterministic overseas demands over a planning horizon. Each production plant uses either a direct delivery mode, which sends pre-loaded cargos of a product directly from its production facility to the ocean port, or a consolidated delivery mode where products are consolidated into outbound ocean cargos at the facility of a third-party logistics firm and delivered to the ocean port. The exporter's problem is to develop a minimum-cost production and delivery plan for the entire supply chain over a finite planning horizon. The problem is modeled as a mixed-integer program and it is shown to be NP-hard even for the case with one production plant. Two distinct but related decisions characterize the problem, namely, the product delivery mode selection decision and the production scheduling decision. The natural separation of these decisions is exploited in a Benders decomposition solution procedure. An important finding of this study is that the exporter can extract the most value from integrating consolidated deliveries in the production and distribution plan when plants have modest production costs and demand variability is high. © 2015 "IIE".