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


  • Guajardo, Mario

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kylinger, Martin

    () (Dept. of Production Economics, Linköping University)

  • Rönnqvist, Mikael

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)


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 nal 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 that both the company and sellers get a better outcome under the integrated planning.

Suggested Citation

  • Guajardo, Mario & Kylinger, Martin & Rönnqvist, Mikael, 2012. "Speciality oils supply chain optimization: from a decoupled to an integrated planning approach," Discussion Papers 2012/3, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2012_003

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    References listed on IDEAS

    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.
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    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.
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    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.
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    7. 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.
    8. 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.
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    Cited by:

    1. repec:eee:energy:v:141:y:2017:i:c:p:991-1003 is not listed on IDEAS
    2. 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.
    3. 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.

    More about this item


    Supply chain management; integrated planning; decoupled planning; linear programming; contribution sharing; OR in the oil industry;

    JEL classification:

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

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