How coordination of production and warehouse decisions affects the product flow between factories and warehouses for manufacturing firms

Abstract

In practice manufacturing companies have insufficient coordination and synchronisation between production planning and warehousing teams. The lack of coordination regarding production and warehousing decisions in the ordering strategy may result in unforeseen capacity issues at the warehouse due to misalignment between production plans and warehouse availability. These unforeseen issues can result in additional costs due to production line closure or last-minute stock reallocations. For this reason, it is relevant to study the effects of increasing interdepartmental coordination between production and warehousing departments on product flows between factories and warehouses in the supply chain of a manufacturing company. This thesis’ aim is to analyse the effects of coordinating the production scheduling department with the warehouse management department, against the most common practical case where the two entities hardly communicate. To this end, two optimization models are developed representing the warehouse and factory operations within a supply chain. The first model consists of a multi-period multiproduct lot size and warehouse optimization model for the decision on warehouse capacities while minimizing warehousing costs. The second model is a parallel non-identical machine scheduling model for the optimization of production schedules and the simultaneous minimization of the production costs. We compare the outcomes of the two models against a model where both decisions are integrated. The modelling decisions are taken in a setting with deterministic demand over time. An extensive sensitivity analysis aims to provide managerial guidelines for practitioners, to weigh which department can have greater impact on the total cost. Also, the integrated model can quantify the benefits of coordinating the production and warehouse departments. A case study at Kraft Heinz, a popular brand in the food industry, is used to provide a practical setting.