The effect of planning horizon and information sharing on the optimisation of the distribution network of a fast-moving consumer goods supply chain

Abstract

Background: The distribution network design is very important in optimising the supply chain performance and cost. There are different distribution policies that a company may have to select from, and consequently, the company should plan its resources and should select a planning horizon based on its choice.

Objective: The main objective is to design the distribution network of a fast-moving consumer goods company in order to optimise the transportation and inventory costs by determining the quantities to be shipped and the resources needed. This is analysed throughout different planning horizons and distribution policies.

Method: A mixed integer quadratic problem model is developed to optimise transportation and inventory costs by determining the quantities to be shipped, the quantities to be stored and the types of trucks to be used. The model is applied to four different distribution policies and the performance of each is tested across different time horizons.

Results: An analysis is carried out to optimise the distribution plan for each policy. The effect of the length of the planning horizon on the different plans is also shown.

Conclusion: The results show how each policy performs against the trade-off between the ease of using the policy and its cost of operation. Also, the length of the planning horizon is shown to drastically reduce the total cost and affect the operating conditions when the Vendor Managed Inventory (VMI) policy is considered.