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Novel models and solutions to optimally run supply chains

The emergence of new production and information technologies have spurred competition and increased consumer demand, resulting in dwindling product life cycles and unstable markets. An EU initiative devised solutions to effectively manage supply chains.

Industrial Technologies

Today's broad range of supply chains is increasingly put at risk. Companies need to employ emerging enabling technologies and innovative methods and procedures to better manage the supply and demand of modern-day supply chains. To help achieve this, the EU-funded OPTCHAIN (Optimal mechanisms to match supply and demand in contemporary supply chains) project conducted research in order to develop innovative optimisation models and efficient solution mechanisms. These tools will enable supply chains to match demand and supply through demand management and sourcing decisions. Researchers developed algorithms for a class of stochastic knapsack problems that maximise expected profit allocating items with random sizes to a knapsack. They devised a customised branch-and-bound algorithm for obtaining an optimal binary solution, and an efficient and high-performing heuristic solution based on optimality conditions. An extensive numerical study assessed the efficiency and quality of the proposed methods, identified optimal selection strategies and examined solution results for different levels of risk and penalty cost. The OPTCHAIN team created algorithms for issues that occur during supplier-related decisions in matching supply with demand. It examined firms' optimal procurement strategies where supplies can be purchased via traditional contracts, option contracts or spot markets. Another numerical study examined the sensitivity of procurement strategies to risk attitude, demand and spot price volatilities, correlation between demand and spot prices, and option contract terms. Various optimisation models were proposed for the best selection of a supply portfolio under various risk measures. A risk assessment technique known as Conditional Value At Risk showed the most promise. OPTCHAIN's impactful optimisation solutions will assist managers who make key tactical and strategic decisions such as market and supply portfolio selection, thus boosting companies' competitive position in the global marketplace. Uncertainties, product prices, lead times and supply shortages will decrease with better supply and demand match in supply chains.

Keywords

Supply chains, supply and demand, OPTCHAIN, optimisation models

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