Integrated Distribution & Production Planning

In traditional logistics concepts distribution planning and production planning are carried out completely independent of each other. Though the idea of SCM implies no separation of the planning according to functions, in many cases, especially when single sourcing is given, a hierarchical step-by-step approach – first distribution planning and afterwards production planning – is sufficient.

Depending on the supply chain this hierarchical approach might not be appropriate to exhaust the optimisation potential. This is mainly the case in multi-sourcing environments with multiple production sites where sourcing decisions are made according to the available capacity. The more the bottleneck is located at the beginning of the material flow, the more complex become the sourcing decisions and the decisions where stock is kept (probably even at semi-finished stage).

The example in figure 10.1 contains a planning problem that might illustrate the potential for integrated distribution and production planning. The supply chain contains two DCs and two plants, where DC XXW1 delivers GIN and DC XXW2 GIN and KORN. GIN is produced in both plants XX01 and XX02, KORN is only produced in plant XX02. The key component for both products is ALC, which is produced only in plant XX01 and is either processed there or sent to plant XX02. The DC XXW1 is supplied from both plants.