Managing demand uncertainty in supply chain planning

Abstract

In this work, we provide an overview of our previously published works on incorporating demand uncertainty in midterm planning of multisite supply chains. A stochastic programming based approach is described to model the planning process as it reacts to demand realizations unfolding over time. In the proposed bilevel-framework, the manufacturing decisions are modeled as ‘here-and-now’ decisions, which are made before demand realization. Subsequently, the logistics decisions are postponed in a ‘wait-and-see’ mode to optimize in the face of uncertainty. In addition, the trade-off between customer satisfaction level and production costs is also captured in the model. The proposed model provides an effective tool for evaluating and actively managing the exposure of an enterprises assets (such as inventory levels and profit margins) to market uncertainties. The key features of the proposed framework are highlighted through a supply chain planning case study.