A Simulation-based Optimization Approach to Logistic and Supply Chain Network Design

Abstract

The Department of Defense (DoD) operates a world-wide supply chain, which in 2017 contained nearly 5 million items collectively valued at over $90 billion. Since at least 1990, designing and operating this supply chain, and adapting it to ever-changing military requirements, are highly complex and tightly coupled problems, which the highest levels of DoD recognize as weaknesses. Military supply chains face a wide range of challenges. Decisions made at the operational and tactical levels of logistics can alter the effectiveness of decisions made at the strategic level. Decisions must be made with incomplete information. As a result, practical solutions must simultaneously incorporate decisions made at all levels as well as take into account the uncertainty faced by the logistician. The design of modern military supply chains, particularly for large networks where many values are not known precisely, is recognized as too complex for many techniques found in the academic literature. Much of the literature in supply chain network design makes simplifying assumptions, such as constant per-unit transportation costs regardless of the size of the shipment, the shipping mode selected, the time available for the delivery, or the route taken. This article avoids these assumptions to provide an approach the practitioner can use when designing and adapting supply chain networks. This research proposes a simulation-based optimization approach to find a near-optimal solution to a large supply chain network design problem of the scale faced by a theater commander, while recognizing the complexity and uncertainty that the practicing military logistician must deal with.