In this example, we will learn how to define BOMs and production for the product that has additional by-products. These by-products cannot be produced by themselves but have their demand and selling prices. Also, we will see how to conduct production planning, taking into account demand and penalties for all these products.
A company acquires sunflower oil factories in Russia and Ukraine to merge their supply chains.
The maximum monthly throughput of each factory constitutes 20000 tons of sunflower seeds.
These are zero waste factories producing sunflower husk and pressed cake as by-products. Production structure can be represented as:
The supply chain comprises:
- 80 customers in Russia, Ukraine, Turkey and Egypt
- One factory in Russia and one in Ukraine
- Two suppliers in Ukraine and one in Russia
- Four ports: in Russia, Ukraine, Turkey and Egypt
We want to choose optimal locations for:
- Three distribution centers in Russia
- Two distribution centers in Ukraine
- One distribution center in Turkey
- One distribution center in Egypt
Products are delivered to Turkey and Egypt by sea through ports in Odesa (Ukraine) and Novorossiysk (Russia).
The by-products (husk and pressed cake) are also processed:
- Husk is pressed into briquettes and is sold as fuel
- Pressed cake is sold as animal food
Demand differs for each product:
- Sunflower oil — the total annual demand constitutes 12 liters per capita. If we analyze it by the type of oil, then we will get the following figures: refined oil — 70%, unrefined — 30%.
- Pressed cake — the average demand constitutes 82 tons per week per customer.
- Husk — the average demand constitutes 49 tons per week per customer.
Demand for sunflower oil and its by-products changes during the modeling period of three years:
- It is constant during the first year for all products.
- It increases for Oil by 30% in August and September during the second and the third years.
- It decreases for Pressed cake by 30% from April to October during the third year.
Find optimal locations (from the list of available locations) for the required number of distribution centers.
Analyze the data within the three years on Demand fulfillment, Production utilization./p>
As mentioned earlier, both factories are producing not only the main product but also the by-products, which do not have their BOM, or production defined. So, they can be produced only when the main product is made. The BOM table contains information on the main products, by-products, number of the required components, and the amount of products produced. These BOMs represent the production structure of factories shown earlier.
The Production table contains data on the products that are produced in the factories (production costs, BOMs' names).
Note that the products, defined in this scenario, are measured in tons, while vehicle capacity, certain transportation policies, and facility expenses are set to m3 unit. That is why we define conversion rules for every product in the Unit Conversions table.
Results offer us several supply chain configurations with detailed statistics, which show that:
- During the first year demand for sunflower oil was completely satisfied, while the demand for the by-products was partially satisfied.
If we had produced additional batches to fully satisfy demand for the by-products, we would have created a glut of the main product, thus making the supply chain less profitable.
- During the second year demand for oil increased in August and September.
Part of the demand in these months was not satisfied. Alongside this, the level of satisfied demand for the by-products increased, since more oil was produced.
- During the third year the level of satisfied demand decreased and remained low from April to October).
In August and September demand satisfaction dropped even lower because the increase in demand for sunflower oil coincided with the decrease in demand for pressed cake.
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