Coordination of production and distribution planning

This paper is a computational study to investigate the value of coordinating production and distribution planning. The particular scenario we consider concerns a plant that produces a number of products over time and maintains an inventory of finished goods at the plant. The products are distributed by a fleet of trucks to a number of retail outlets at which the demand for each product is known for every period of a planning horizon. We compare two approaches to managing this operation, one in which the production scheduling and vehicle routing problems are solved separately, and another in which they are coordinated within a single model. The two approaches are applied to 132 distinct test cases with different values of the basic model parameters, which include the length of the planning horizon, the number of products and retail outlets, and the cost of setups, inventory holding and vehicle travel. The reduction in total operating cost from coordination ranged from 3% to 20%. These results indicate the conditions under which companies should consider the organizational changes necessary to support coordination of production and distribution.