A Convex Dynamic Approach for Globally Optimal Profit in Supply Chains

Mojtaba Azizian,Mohammad Mehdi Sepehri,Mohammad Ali Rastegar

doi:10.3390/math10030498

Abstract

Supply chain finance aims to coordinate multiple stakeholders to maximize the flow of cash and internal and external funding along the supply chain, as shown in prior research. From a regulatory standpoint, the goal of this paper is to maximize the profitability of an entire supply chain. As a result, a constrained finite time Linear Quadratic Regulation (LQR) approach is provided for determining an entity’s optimal profit state in a supply chain. The framework is represented by discrete-time linear dynamical equations for each entity in the supply chain network, taking state and input variables into account. The problem is formulated in terms of a convex quadratic programming optimization for which several numerically efficient algorithms are readily available. In order to validate the approach, it was tested on two topologies. The first topology is a fully connected supply chain with six nodes; the second is a simple topology based on the Iranian pharmaceutical supply chain. The results indicate that the proposed approach successfully planned production and financing decisions within the simulated supply chain and obtained globally optimal profit for all supply chain stakeholders.

Highlights

A supply chain (SC) is a collection of organizations’ operations that are linked and interact, both directly and indirectly, to transform inputs into outputs that are provided to the ultimate customer [1]
This paper proposes a constrained finite-time Linear Quadratic Regulation (LQR) approach for determining an entity’s optimal profit state in a SC
We focused on the optimization of the total profit in two different topologies of SC networks

Summary

Introduction

A supply chain (SC) is a collection of organizations’ operations that are linked and interact, both directly and indirectly, to transform inputs into outputs that are provided to the ultimate customer [1]. The field of supply chain management concerns itself with the collaboration and coordination of several stakeholders to optimize the flow of goods, information, and finance along the entire SC [2]. Financial flows along the SC form an essential part of the continuum of the business operation [4,5], and despite the potential of supply chain management (SCM), relatively few companies utilize interorganizational network settings to drive financial performance in a collaborative way [6]. The frameworks of financial supply chain management (FSCM) and supply chain finance (SCF) have advanced dramatically. Chain finance strives to coordinate several stakeholders in order to optimize the flow of cash and internal and external funding along the supply chain.

Literature Review

Model Description

Simulation

Topology 1

Conclusions