Performance characteristics of stochastic integrated production-distribution systems

A conflict often arises between production and marketing or distribution in many firms. Production management would like batch sizes to be large and production smoothed so that additional set-up costs and work force change costs are minimized. Distribution management, on the other hand, would like batch sizes to be small, with frequent changeovers, so that production responds quickly to the changing picture of market demand. It is our purpose in this paper to analyze the management of materials in an integrated supply chain operation. We present a model of a simple integrated production-distribution system and examine its performance characteristics. We present an algorithm for obtaining near-optimal solutions. We limit our examination to a basic single-product, three-location network which consists of a single-station model of a factory, a finished goods stockpile, and a single retailer. This basic network serves to illustrate the key tradeoffs of interest.