The storage location problem in a coal supply chain: background and methodological approach

Abstract

Abstract In order to achieve two main objectives: (1) reduce risk and (2) increase the expected rate of return on invested capital, coal mining and coal trading companies have looked for new ways to improve their supply chain networks. Developments in the supply chain design and analysis have helped coal mining and coal trading companies expand their businesses, but at the same time, have forced them to consolidate their assets and downsize any underused storage facilities. In the coal mining industry, the problem of consolidation and downsizing becomes much more complicated due to the variety in quality parameters (hence many coal grades) involved, locational zones and different number of market players. Furthermore, for the last decade, the storage allocation and assignment problem has received a great deal of attention within the Logistics and Operation Research (OR) area. Yet, little attention has been given to the modeling of coal supply chains and the issue of strategic supply chain planning of coal-producing and coal-trading companies. Similar to the generic warehouse consolidation problem (WCP), in specific cases of coal-producing and coal-trading companies, storage facilities that are redundant or underutilized can be eliminated without causing a negative impact on customer and service levels. In this context, this paper discusses the background of the problem and proposes a mixed-integer linear programming (MILP) model mainly intended for storage and distribution network reconfiguration of a coal-producing or trading company. The model, which can be implemented in a high-level mathematical modelling system such as GAMS or AIMMS, captures the essential methodological features of a warehouse restructuring and/or consolidation problem and can be applied in practice.