A Multi-Level Production-Inventory-Distribution System Under Mixed Make to Stock, Make to Order, and Vendor Managed Inventory Strategies : An Application in the Pulp and Paper Industry

In today's competitive environment, most companies tend to adopt a hybrid manufacturing strategy to provide more reliable services to a wide range of customers. Based on a real-world case study, we investigate a production-inventory-distribution system of a company in a complex supply chain. In such a system, the company manage production, inventory, and transportation decisions, where different products are produced at mills or stored at external warehouses are shipped to customers using multiple modes of transportation. At a tactical planning level, the company wants to know which production strategies, including make to stock (MTS), make to order (MTO) or vendor managed inventory (VMI) strategy, should be chosen for each customer and then how to coordinate the production, inventory, and distribution activities according to the strategy assigned to the customers. Moreover, the objective is not only to optimize its cost, but also satisfy the VMI customers on time and keep the target service level for MTO customers. The company can also control the purchase acceptance rate for MTS customers to better use the capacity. We develop a rolling horizon planning approach to deal with the dynamics of customers’ demands under different forecasting scenarios. To check the validity and efficacy of the developed model, we perform numerical experiment under both static and rolling horizon based on adapted data from a real-world application from the pulp and paper industry in Canada. We also highlight some insights into the impact of various problem parameters on the tactical and operational decisions that can be considered for practical implementation