Optimal design of batch‐storage network considering ownership

Abstract

This article develops a model of multi‐national supply chain activities, which incorporates currency storage units to manage currency flows associated with activities such as raw material procurement, processing, inventory control, transportation, and finished product sales. The core contribution of this model is that it facilitates the quantitative investigation of the influence of macroscopic economic factors such as ownership on supply chain operational decisions. The supply chain system is modeled as a batch‐storage network with recycle streams. The supply chain optimization problem is posed with the objective of minimizing the opportunity costs of annualized capital investments and currency/material inventories, while taking into account the benefit to stockholders in the numeraire currency. The major constraints on the optimization are that the material and currency storage units must not be depleted. A production and inventory analysis formulation (the periodic square wave model) provides useful expressions for the upper and lower bounds and for the average levels of the currency and material inventory holdings. The expressions for the Kuhn‐Tucker conditions of the optimization problem are reduced to a subproblem that allows development of analytical lot‐sizing equations. The lot sizes of procurement, production, transportation, and financial transactions can be determined in closed form once the average flow rates are known. The key result we obtain is that optimal value of the economic order quantity changes substantially with variation in ownership, thus showing quantitatively that ownership structure does impact plant operation. © 2018 American Institute of Chemical Engineers AIChE J, 64: 2418–2425, 2018