A production capacity optimisation model for a global supply chain coordinator

A supply chain coordinator (SCC) serves as an intermediary between raw material suppliers, contract manufacturers, and end customers who are typically large retailers. The SCC may not actually own a physical manufacturing plant or supply raw material, but performs a crucial coordinating role in a supply chain by orchestrating the purchase of raw material and contract manufacturing of customised products for distribution to globally dispersed retailers. In this intermediary role, the SCC exploits global differences in manufacturing costs at various candidate facilities, but also bears operational risks if the demand at end retailers is significantly different from projected forecasts. This research addresses a facility choice, capacity selection, productions and transportation decisions faced by a SCC who tries to fulfil a multi-period, counter-seasonal demand at a guaranteed service level. A mathematical programming model is developed that integrates the various decision variables. The use of the model as a contract negotiation tool is also illustrated.