A Computer Modeling Approach to Manufacturing and Distribution Strategy

A major consumer products firm needed to consider alternative operations strategies including building additional distribution centers, building new manufacturing plants with varying investment levels and production capabilities, and adding of deleting contract manufacturers. This article emphasizes how the operations problem was first segmented into distribution and manufacturing subproblems and how heuristic and optimization procedures were used to generate a range of solutions for each subproblem. These solutions were then fed into a more general deterministic simulation model. Alternative strategies were evaluated primarily in a net present value criterion; however, ROI and payback were also examined. A resultant strategy with annual operating costs savings exceeding $1 million is discussed.