IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v229y2013i2p540-551.html
   My bibliography  Save this article

Speciality oils supply chain optimization: From a decoupled to an integrated planning approach

Author

Listed:
  • Guajardo, Mario
  • Kylinger, Martin
  • Rönnqvist, Mikael

Abstract

We study a problem of tactical planning in a divergent supply chain. It involves decisions regarding production, inventory, internal transportation, sales and distribution to customers. The problem is motivated by the context of a company in the speciality oils industry. The overall objective at tactical level is to maximize contribution and, in order to achieve this, the planning has been divided into two separate problems. The first problem concerns sales where the final sales and distribution planning is decentralized to individual sellers. The second problem concerns production, transportation and inventory planning through refineries, hubs and depots and is managed centrally with the aim of minimizing costs. Due to this decoupling, the solution of the two problems needs to be coordinated in order to achieve the overall objective. In the company, this is pursued through an internal price system aiming at giving the sellers the incentives needed to align their decisions with the overall objective. We propose and discuss linear programming models for the decoupled and integrated planning problems. We present numerical examples to illustrate potential effects of integration and coordination and discuss the advantages and disadvantages of the integrated over the decoupled approach. While the total contribution is higher in the integrated approach, it has also been found that the sellers’ contribution can be considerably lower. Therefore, we also suggest contribution sharing rules to achieve a solution where both the company and the sellers attain a better outcome under the integrated planning.

Suggested Citation

  • Guajardo, Mario & Kylinger, Martin & Rönnqvist, Mikael, 2013. "Speciality oils supply chain optimization: From a decoupled to an integrated planning approach," European Journal of Operational Research, Elsevier, vol. 229(2), pages 540-551.
    • Handle: RePEc:eee:ejores:v:229:y:2013:i:2:p:540-551
    DOI: 10.1016/j.ejor.2013.03.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221713002154
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2013.03.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Feng, Yan & D'Amours, Sophie & Beauregard, Robert, 2008. "The value of sales and operations planning in oriented strand board industry with make-to-order manufacturing system: Cross functional integration under deterministic demand and spot market recourse," International Journal of Production Economics, Elsevier, vol. 115(1), pages 189-209, September.
    2. Bredstrom, David & Lundgren, Jan T. & Ronnqvist, Mikael & Carlsson, Dick & Mason, Andrew, 2004. "Supply chain optimization in the pulp mill industry--IP models, column generation and novel constraint branches," European Journal of Operational Research, Elsevier, vol. 156(1), pages 2-22, July.
    3. Erenguc, S. Selcuk & Simpson, N. C. & Vakharia, Asoo J., 1999. "Integrated production/distribution planning in supply chains: An invited review," European Journal of Operational Research, Elsevier, vol. 115(2), pages 219-236, June.
    4. Charles Audet & Jack Brimberg & Pierre Hansen & Sébastien Le Digabel & Nenad Mladenovi'{c}, 2004. "Pooling Problem: Alternate Formulations and Solution Methods," Management Science, INFORMS, vol. 50(6), pages 761-776, June.
    5. Frisk, M. & Göthe-Lundgren, M. & Jörnsten, K. & Rönnqvist, M., 2010. "Cost allocation in collaborative forest transportation," European Journal of Operational Research, Elsevier, vol. 205(2), pages 448-458, September.
    6. Clarence H. Martin & Denver C. Dent & James C. Eckhart, 1993. "Integrated Production, Distribution, and Inventory Planning at Libbey-Owens-Ford," Interfaces, INFORMS, vol. 23(3), pages 68-78, June.
    7. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
    8. M A H Dempster & N Hicks Pedrón & E A Medova & J E Scott & A Sembos, 2000. "Planning logistics operations in the oil industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 51(11), pages 1271-1288, November.
    9. Al-Othman, Wafa B.E. & Lababidi, Haitham M.S. & Alatiqi, Imad M. & Al-Shayji, Khawla, 2008. "Supply chain optimization of petroleum organization under uncertainty in market demands and prices," European Journal of Operational Research, Elsevier, vol. 189(3), pages 822-840, September.
    10. Ouhimmou, M. & D'Amours, S. & Beauregard, R. & Ait-Kadi, D. & Chauhan, S. Singh, 2008. "Furniture supply chain tactical planning optimization using a time decomposition approach," European Journal of Operational Research, Elsevier, vol. 189(3), pages 952-970, September.
    11. R. H. King & R. R. Love, 1980. "Coordinating Decisions for Increased Profits," Interfaces, INFORMS, vol. 10(6), pages 4-19, December.
    12. W. W. Cooper, 2002. "Abraham Charnes and W. W. Cooper (et al.): A Brief History of a Long Collaboration in Developing Industrial Uses of Linear Programming," Operations Research, INFORMS, vol. 50(1), pages 35-41, February.
    13. C. E. Bodington & T. E. Baker, 1990. "A History of Mathematical Programming in the Petroleum Industry," Interfaces, INFORMS, vol. 20(4), pages 117-127, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vladimir Pavlovich Klepikov & Vladimir Vladimirovich Klepikov, 2018. "Crude Oil Logistics, Production and Refining in Northern Europe," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 18-28.
    2. Farahani, Mohsen & Rahmani, Donya, 2017. "Production and distribution planning in petroleum supply chains regarding the impacts of gas injection and swap," Energy, Elsevier, vol. 141(C), pages 991-1003.
    3. Emah Patrick Etokudoh & Mehraz Boolaky & Mridula Gungaphul, 2017. "Third Party Logistics Outsourcing: An Exploratory Study of the Oil and Gas Industry in Nigeria," SAGE Open, , vol. 7(4), pages 21582440177, October.
    4. Pereira, Daniel Filipe & Oliveira, José Fernando & Carravilla, Maria Antónia, 2020. "Tactical sales and operations planning: A holistic framework and a literature review of decision-making models," International Journal of Production Economics, Elsevier, vol. 228(C).
    5. Klepikov, Vladimir Pavlovich & Klepikov, Vladimir Vladimirovich, 2020. "Quantitative approach to estimating crude oil supply in Southern Europe," Resources Policy, Elsevier, vol. 69(C).
    6. Pan, Lingying & Liu, Pei & Li, Zheng, 2017. "A system dynamic analysis of China’s oil supply chain: Over-capacity and energy security issues," Applied Energy, Elsevier, vol. 188(C), pages 508-520.
    7. Moradi Nasab, N. & Amin-Naseri, M.R., 2016. "Designing an integrated model for a multi-period, multi-echelon and multi-product petroleum supply chain," Energy, Elsevier, vol. 114(C), pages 708-733.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Ruoran & Deng, Tianhu & Huang, Simin & Qin, Ruwen, 2015. "Optimal crude oil procurement under fluctuating price in an oil refinery," European Journal of Operational Research, Elsevier, vol. 245(2), pages 438-445.
    2. Burcu B. Keskin & Halit Üster, 2012. "Production/distribution system design with inventory considerations," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(2), pages 172-195, March.
    3. Acar, Yavuz & Atadeniz, Sukran Nilvana, 2015. "Comparison of integrated and local planning approaches for the supply network of a globally-dispersed enterprise," International Journal of Production Economics, Elsevier, vol. 167(C), pages 204-219.
    4. Samir Elhedhli & Jean-Louis Goffin, 2005. "Efficient Production-Distribution System Design," Management Science, INFORMS, vol. 51(7), pages 1151-1164, July.
    5. Pereira, Daniel Filipe & Oliveira, José Fernando & Carravilla, Maria Antónia, 2020. "Tactical sales and operations planning: A holistic framework and a literature review of decision-making models," International Journal of Production Economics, Elsevier, vol. 228(C).
    6. Nats Esquejo & Kevin Miller & Kevin Norwood & Ivan Oliveira & Rob Pratt & Ming Zhao, 2015. "Statistical and Optimization Techniques for Laundry Portfolio Optimization at Procter & Gamble," Interfaces, INFORMS, vol. 45(5), pages 444-461, October.
    7. Peter, Brian & Niquidet, Kurt, 2016. "Estimates of residual fibre supply and the impacts of new bioenergy capacity from a forest sector transportation model of the Canadian Prairie Provinces," Forest Policy and Economics, Elsevier, vol. 69(C), pages 62-72.
    8. G. Rius-Sorolla & J. Maheut & S. Estellés-Miguel & J. P. Garcia-Sabater, 2020. "Coordination mechanisms with mathematical programming models for decentralized decision-making: a literature review," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(1), pages 61-104, March.
    9. Sağlam, Ümit & Banerjee, Avijit, 2018. "Integrated multiproduct batch production and truck shipment scheduling under different shipping policies," Omega, Elsevier, vol. 74(C), pages 70-81.
    10. Alayet, Chaker & Lehoux, Nadia & Lebel, Luc, 2018. "Logistics approaches assessment to better coordinate a forest products supply chain," Journal of Forest Economics, Elsevier, vol. 30(C), pages 13-24.
    11. Moradi Nasab, N. & Amin-Naseri, M.R., 2016. "Designing an integrated model for a multi-period, multi-echelon and multi-product petroleum supply chain," Energy, Elsevier, vol. 114(C), pages 708-733.
    12. Mula, Josefa & Peidro, David & Díaz-Madroñero, Manuel & Vicens, Eduardo, 2010. "Mathematical programming models for supply chain production and transport planning," European Journal of Operational Research, Elsevier, vol. 204(3), pages 377-390, August.
    13. Pudasaini, Pramesh, 2021. "Integrated planning of downstream petroleum supply chain: a multi-objective stochastic approach," Operations Research Perspectives, Elsevier, vol. 8(C).
    14. Akshay Gupte & Shabbir Ahmed & Santanu S. Dey & Myun Seok Cheon, 2017. "Relaxations and discretizations for the pooling problem," Journal of Global Optimization, Springer, vol. 67(3), pages 631-669, March.
    15. Lei Lei & Hua Zhong & W. Art Chaovalitwongse, 2009. "On the Integrated Production and Distribution Problem with Bidirectional Flows," INFORMS Journal on Computing, INFORMS, vol. 21(4), pages 585-598, November.
    16. Pokharel, Shaligram, 2008. "A two objective model for decision making in a supply chain," International Journal of Production Economics, Elsevier, vol. 111(2), pages 378-388, February.
    17. Yan, Xiaoming & Zhang, Minghui & Liu, Ke, 2010. "A note on coordination in decentralized assembly systems with uncertain component yields," European Journal of Operational Research, Elsevier, vol. 205(2), pages 469-478, September.
    18. Mario Guajardo & Kurt Jörnsten & Mikael Rönnqvist, 2016. "Constructive and blocking power in collaborative transportation," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 38(1), pages 25-50, January.
    19. Beatriz Andres & Vicente Javier Blanes, 2020. "A Negotiation Approach to Support the Strategies Alignment Process in Collaborative Networks," Sustainability, MDPI, vol. 12(7), pages 1-30, April.
    20. Ventura, José A. & Bunn, Kevin A. & Venegas, Bárbara B. & Duan, Lisha, 2021. "A coordination mechanism for supplier selection and order quantity allocation with price-sensitive demand and finite production rates," International Journal of Production Economics, Elsevier, vol. 233(C).

    More about this item

    Keywords

    Supply chain management; Integrated planning; Decoupled planning; Linear programming; Contribution sharing; OR in the oil industry;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:229:y:2013:i:2:p:540-551. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.