EUROPEAN

JOURNAL
OF OPERATIONAL
RESEARCH
ELSEVIER

European Joumal of Operational Research 97 (1997) 337-347

Reducing overcapacity in chemical plants by linear programming

Gerd Ox6
Scientific Services Department, Operations Research Group, Ciba Ltd., CH-4002 Basel, Switzerland

Abstract

In 1993 the Operations Research group of CIBA Ltd. Basle was consulted by a company division to help in finding ways
to reduce production costs of their crop protection products. A subsequent study of the production and transportation
structure showed an opportunity to reduce the number of production lines dramatically and to reassign the products.
Furthermore, since transportation proved to cause a significant part of the overall costs, optimal distribution paths had to be
found in the same process. When the relevant cost factors were analyzed, the whole problem showed to be very well suited
for a linear approach, thus enabling us to use an established and powerful tool for the optimization task, Linear
Programming.
After building and refining the linear model, interactive sessions together with the customer resulted in an optimal future
European supply chain, reducing annual production costs by approximately 25%.
Keywords: Linear programming; Optimization; Facilities; Transportation; Location

1. Introduction

Before 1995, our customer, the crop protection

division of CIBA, was running the production process for their products on many plants scattered all
over Europe. Due to segmentation of the overall
supply chain costs, local optimization of various
supply chain processes took place, causing overall
costs to increase. These nonoptimized cost allocations gave rise to challenge the actual European
supply chain, with particular focus on the number of
production sites (CIBA plus third party locations)
and on optimizing product allocations.
1.1. Process structure

A closer look at the situation revealed a complex

structure of distributed product processing and transportation (Fig. 1). First of all, one has to distinguish
between chemical production of the active ingredi-

ents, and consequent post processing steps, which

consist of formulation (a mixing and milling process)
and packaging. Since the production of the active
ingredients is completely isolated from formulation
and packaging, it was not taken into consideration in
this project.
The 2-step post processing can either be carried
out on combined production lines, or on separate
formulation and packaging lines in the same or in
different plants. In the latter case, bulk packaging
and transportation between production sites is necessary. Finished goods can either be delivered directly
to the customers or stored intermediately in central
warehouses. The customers are each located in different European countries.
Due to the nature of the products, their need is
highly dependent on the season. Two prominent
demand peaks can be observed typically during the
year (Fig. 3). One is around March, when sales rise
to a maximum, and the other one at the end of the

0377-2217/97/$17100 Copyright 1997 Elsevier Science B.V. All rights reserved.

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G. Ox / European Journal of Operational Research 97 (1997) 337-347

338

I
r/////~

xehouse

[~\\\\~l

F//I///////////////////r//('////////4
V/////////////////////////////////A

factoryA

ac tiVelre(lie

[
[
customerX

~.I

livery its

V////A

formulation
kX\\\\l

== I==1
r/
/////////lJ~ ~\NXXN
v
t\\\\\'l

combined

formulatioW
packagiDg~//////////A

I
factory B

Fig. 1. Some possible production paths (number of factories and

customers are much reduced for simplicity).
year, caused by building up stocks due to forecasts.
Starting around June, customer deliveries decrease,
making supply chain capacity available for preseasonal distribution.
One of the main requirements in our project was
the ability to quickly react on changing demands of
the market and therefore realize short throughput
times and good logistics. Keeping a base stock of
high volume products in central warehouses should
enable the plant managers to set up quickly for
nonforecasted orders making use of spare capacity
available even during high demand periods.

1.2. Goal
The goal of our project was quite simple: to
choose an appropriate subset of the existing production plants and lines, and to optimize product allocation, transportation paths and central stock profiles,
such that the overall costs are minimal. All this has
to be achieved with respect to one basic requirement:
delivery must take place within some months (specified for each product) from the order.

2. Problem analysis
2.1. Technologies and subtechnologies
As the different products are numbered by the
hundreds, some sort of classification had to be intro-

duced to reduce the effort necessary for data acquisition. There already existed three major product
classes, called technologies according to the way of
their production, which, after further being subdivided, split up into 18 subtechnologies. All products
belonging to a subtechnology need the same equipment for formulation and packaging and thus behave
the same in the context of our problem. For the sake
of simplicity, we will use the word "technology"
instead of subtechnology in the rest of the paper.

2.2. Cost factors

Instead of trying to analyze all cost factors somehow involved in the process, it was decided to focus
on so called incremental costs only. These contain all
expenditures that can change if choosing another
alternative. Cost factors like active ingredients price
can be dropped since they remain the same no matter
where formulation and packaging is done. Thus it
has to be kept in mind that the final optimal value of
the objective function (see below) is expressing a
relative minimum.
It has to be kept in mind, that the goal of the
project was to optimize annual (running) expenses.
Investment and deinvestment costs as well as transfer prizes to move production of a product to a
different plant have not been modeled. Deciding
whether a certain scenario makes sense with respect
to all these costs requires a lot of knowledge from
experts. This is, therefore, dealt with outside the
optimization, as discussed in Section 2.3.
In each of the included cost factors, two components of a completely different nature can be distinguished: production volume independent (PVI) and
production volume dependent (PVD) factors (Fig. 2).
PVI's: Take a typical production line, like, for
instance, a packaging line for 5 liter jugs. Depreciation of this line does not depend on whether one is
using it or not. Another big block of PVI's are
general factory overhead costs, whose origin was of
no further significance for this project. They were
simply distributed to production lines by a measure
of the complexity of the corresponding process.
PVD's: Energy and raw materials are typically
production volume dependent. Transportation using
railroad services depends on volume alone. All these
costs increase almost linearly with the produced
volume. One of the biggest nonlinear factors were

G. Ox / European Journal of Operational Research 97 (1997) 337-347

costs

realcosts with stepscaused by additionalshifts

ed costs

Ivolume
I

independentC O S T S
I

~tmaximumcapacity
I

VOlUme

339

Firstly, the volumes to be transported between plants

or to customers usually are large compared to transportation units like, e.g., trucks. Secondly, we distinguished between transportation from a production
plant to a packaging plant, which is usually done
with bulk packaged material, and products delivery
to warehouses or to customers.
Duties were taken into consideration as significant
factors, too, but since no exact data was available at
the time, only guesses of these were added to the
transportation PVD costs.

Fig. 2. Volume dependent and independent costs.

the wages paid if a second and third work shift has

to be called in, which causes small jumps in the
volume/cost dependency. Being relatively small
compared to the overall sum of costs of a line, they
were neglected, though.
Let us discuss the cost factors taken into account
in our project in more detail.
2.2.1. Production costs
As mentioned above, these are typical examples
of mixed P V D / P V I components, together with an
additional small nonlinear cost factor. The stepsize
of the latter represents the cost of the smallest additional shift that can be called in, e.g. another shift for
one weekday or a complete third shift for the whole
week. If a production line is closed in the model, its
volume independent costs are of course no longer
taken into account. It has to be mentioned that every
production line has its own set of cost figures,
depending on many, not explicitly modelled, factors
like complexity, performance, staff wages and many
more. On the other hand, production costs do not
differ with the products that can be processed on a
certain line.
2.2.2. Transportation costs
If one looks at transportation costs in detail, these
can show a very complex structure. Depending on
the type of packaging, e.g. bulk or final packaging,
one obtains different transportation costs for the
same volumes. Furthermore, a vehicle like a truck
actually does show also volume independent costs,
just think of it travelling half empty. In our case,
these problems were of very minor importance.

2.2.3. Storage costs

These have shown to be the most inaccurate of
the available data and been subject to many discussions. Many of the warehouses are shared by several
product groups or even different company divisions.
This makes it impossible, within the scope of this
model, to take the overhead (PVI) costs into consideration or even saving overhead costs by closing
warehouses. Furthermore, some warehouses charge
handling costs higher than the actual storage costs,
while others have a pricing scheme linear with space
and storage time. We tried to express these prices
with a linear, volume and storage time dependent
function, with a different price factor for each warehouse. Handling costs were transformed based on
average storage times.
2.3. Alternatives
Finding alternatives to the given situation is an
iterative process that shows the close interaction
between OR methods and decisions made by production and logistics experts.
1. Choose a subset of plants from the set of existing
sites.
2. Test whether there is at least one possible allocation of the production volume onto the lines
within these plants. If there is no feasible allocation, goto 1.
3. Allocate the production volume in an optimal way
in terms of lowest overall costs, according to
Section 2.2.
4. From the resulting load figures, "close down" all
unused lines and decide which of the remaining
ones can take over production volume of other

340

G. Ox~ / European Journal of Operational Research 97 (1997) 337-347

sparsely used lines in the same plant. Exclude the

latter ones as well. All product volume independent costs caused by the excluded units are omitted in further optimization steps.
5. Goto 3 until no further lines can be excluded,
respecting a minimum required degree of flexibility for future allocation or product changes.
6. Goto 1 to find plant subsets with better optima.
In other words: a subset of the existing lines had
to be chosen to obtain a minimal production capacity
big enough to satisfy the annual demands with the
necessary flexibility and spare capacity, and with the
plant locations resulting in lowest possible transportation, production and storage expenses when
product allocations are optimized in a next step.
So the degree of freedom for our model consisted
of changing the plant subset and of choosing where
and when a product will be formulated, packaged
and stored. A "clean-up" step consisted of trimming
the production capacity in the necessary plants to the
minimum required after optimizing by closing down
idle formulation and packaging lines. Closing down
sparsely used production lines and - - as is necessary
in these cases - - moving the products allocated on
these to another suitable line is a step that requires a
great amount of knowledge about the chemical processes and the equipment and hence could not be
automated.
The above scheme is independent of the methods
chosen to accomplish each step. Principally, for small
problems of this kind, one could use expert knowledge alone as a guide towards the right decisions. As
explained in the next section, existing knowledge has
been taken advantage of extensively for some of the
decision steps, but the complexity of the problem at
hand demanded for sophisticated algorithms to be
used in steps 2 and 3. This is where Operations
Research methods were brought in and have proven
to be very powerful for this problem, too.
2.4. Method choice
Since all factors involved can be considered as
almost linear and the small nonlinearities were in
any case unquantifiable, it appears reasonable to use
a linear model. Linear Programming (LP) obviously
is the appropriate method to find optimal solutions of

such models. However: the original task consisted of

finding the best subset of lines and plants and the
most advantageous locations choosing from a set of
existing units, which could be considered as an
integer programming task with LP optimization of
each possible selection. Formally, a mixed integer
linear approach should be used to handle problems
of this kind, but two reasons kept us from going this
way.
Firstly, not every subset makes sense in terms of
legal aspects, company culture, and other difficult to
model decision factors. At this point, the expertise of
the customer had to be brought in. Many considerations had been made beforehand and could be used
when judging the attractiveness and feasibility of a
possible plant subset before optimizing. The whole
process of using the model to actually find a " b e s t "
solution consisted of many sessions of model runs,
together with the customer, who was continuously
suggesting new scenarios (possible plant subsets) to
be optimized.
Given this, the second reason not to use mixed
integer LP should become obvious: efficiency. As
one LP run for a given subset takes around 5 minutes, the interactivity of the model is lost when a
whole bunch of scenarios is automatically optimized
and compared to each other. Thus one would give
away the possibility of influencing the scenario
choice by available expertise.
At the very beginning of the project, time has
been excluded from the model, as one could easily
end up getting lost in detailed production planning
instead of keeping the overall optimization task in
mind. Furthermore, we feared that an additional
dimension could inflate the model to a size no longer
manageable. But the prominent seasonality of the
market demand (Fig. 3) forced us to drop this simplification and take some account of development over
time. A closer look at the available data showed a
structure not finer than a month, so the yearly demands could be sliced into 12 monthly demands for
each product. This could still be handled easily when
building the model.
2.5. Software tools
When it came to choose a suitable software tool,
transparency and readability of the linear model and

G. Ox / European Journal of Operational Research 97 (1997) 337-347

tons

3000 -

tomers are tsar,., where s is the source, d the

destination, t E T, m E M. s and d can be from
index sets of the following combination.

demand

amount delivered from warehouse

1000

JAN

FEB

MAR

APFI

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Fig. 3. Seasonality of the demand for one product class and

delivery from warehouse.

data description were crucial in this project. As
mentioned above, the customer's knowledge must
somehow be taken into account during the search for
an optimal choice of plants. We choose AMPL as the
modelling front end together with the CPLEX solver
kernel, both running on a SPARC station IPC. For
more detailed information on this software see [2]

and [3].

3. Mathematical model

3.1. Definitions
First we define the index sets used:
P
T
FL
FLp
PL
PLp
W
C
M

341

set of plants
set of technologies (or product classes)
all formulation lines
formulation lines in plant p
all packaging lines
packaging lines in plant p
set of warehouses
set of customers
the 12 months {JAN, FEB ....... DEC}.

M is meant to be a circular ordered set, thus

succ(DEC) = JAN and pred(JAN) = DEC.
Each customer has a certain demand of the different technologies every month, given by dctm, with
C ~ C, t ~ T, m ~ M. The amount of all products
processed during a month is called the line load and
written as lt,~, l ~ F L U PL, m ~ M, t ~ T, for both
formulation and packaging lines. This notation is
also used for warehouse stocks. Transportation between plants or to and from warehouses and cus-

s
FL, FL~,

d
PL, PLp

PL, PLp
PL, PL e
W

W
C
C

formulation site
to packaging site,
storing into warehouse,
direct delivery,
delivery from warehouse.

Every production line has a maximum monthly

throughput, which does not depend on the type of
product processed, and is tagged as usable or unusable for each technology.
c k capacity of line k,
Ult 1 if t can be produced on I, 0 otherwise.
This could as well be merged into one matrix c , , but
since u is a binary variable, this way of modelling
saves memory and helps AMPL to eliminate trivial
(in)equalities where u = 0.
Cost factors are subdivided into two classes, as
described in Section 2.2.
PVDz for production volume dependent costs,
PVIt for the independent part.
Note that the PVD values are not influenced by the
technology produced on a line.
Transportation costs are given for every
source/destination pair as shown above. They consist merely of a volume dependent part, which is also
true for warehousing.
trs~ costs per ton transported from source s to
destination d,
st w costs per ton and month of storage in warehouse w.

3.2. Objective function

Given the above, we are now able to write down
the objective: minimize the sum of all incremental
costs.
E
m~M,t~T

/mtPVDt +

I~FLuPL

+ ~
wEW

lwmtStw +

PVI,

IEFLUPL

Y'.

y'

p ~ P i~FLp
dEP j~PL a
p4=d

tij,~trij

G. Ox / European Journal of Operational Research 97 (1997) 337-347

342

+E

tiwtmtriw +

pEP iEPLp
wEW

E
wEW
cEC

twc..tr,.,c

considered to take place in the remaining days of the

monthly time slices, thus
E

Ira,=

IEFL

+ E

tictmtric)

(1)

pEP i~PLp
cEC

with respect to the restrictions described in the following section.

Most important of all requirements is to satisfy

the market demand in time. So the amount of products shipped directly from packaging lines or from
warehouses to the customers must exactly match
their requests for each technology every month.

E t,c,m+ E twc,m=dc,m,
(2)

The total amount of all technologies produced on a

line during one month may not exceed its monthly
maximum capacity.

m~M.

VI~FLUPL,

(3)

lET

More than that, the amount of a certain technology

produced cannot be higher than the specified capac ity, which may even be O, if the line is not suited for
it:

ltmtNClUh,

Vt~T,m~M.

(6)

Remember the set M of months is circular, so

m+l=l
for m = 12.
Next, everything put in a central warehouse or
shipped to the customer must match the exact amount
of products packaged that month.
sEPL

sEPL

dEC

dEW

IEPL

(7)
To keep track of the currently available stock in
central warehouses, a new sum is formed after every
month's production, transfers to the warehouse and
deliveries from the warehouse to customers, for each
technology (inventory balance equation).

wEW

VcE C,m ~ M , t ~ T.

~Itrm<Cl,

lt,,,+l,t,

E tsdt,,+ E tsar,,= E lint, V t ~ T , mEM.

3.3. Constraints

p E P IEPL e

E
IEPL

VIEFLUPL,

m~M,t~T.

(4)

Warehouses, too, have a limited capacity and can

only hold a certain number of palettes or tons of any
products:

Elwmt<__Cw, V w ~ W , m ~ M .

(5)

tET

Transportation capacity has been regarded as unlimited.

Since we included some redundancy in our description of the solution space, some restrictions
must be included to prohibit the excessive degrees of
freedom. First of all, products produced in one month
must be packaged the following month, since there
are no intermediate storages and transportation is

lwmt=lw,m-l,t

-I- E

ttwt,,- Y',

1EPL

twctm,

cEC

V w ~ W,m ~ M , t ~ T.

(8)

The remaining inequalities restrict material flow between production lines and warehouses. You can
only ship from a warehouse product that is on stock
there.

Y', tw~t~<lwmt, V w ~ W , t ~ r , m ~ M .

(9)

cEC

Any packaging line can receive its monthly input

from more than one formulation line, out of 1 or
more plants, and in many cases from formulation
lines in the same plant. Therefore the total quantity
of products received from other plants can be less,
but not more, than the amount packaged in this plant.
A similar restriction holds for the output of formulation.

Y"

]~, tpt,, < E It,,t, V p ~ P , m ~ M , t ~ T ,

dEP IEPLa
d~p

IEFLp

(lo)
Y"

E tipt,, < E It,.,, V p ~ P , m ~ M , t E T

sEP IEFLs
sg~p

IEPLp

(ll)

G. Ox/ European Journal of Operational Research 97 (1997) 337-347

For simplicity, the effects of combined formulation/

packaging lines have been neglected in this mathematical model description. In the implementation
with AMPL, the production line allocations bad to be
reduced by the corresponding amount, and transportation had to take account of less products being
moved between plants and lines.

4. Model implementation using AMPL

This section describes the realization of the model
with the notation of the AMPL frontend tool. For a
detailed description of the modelling language see

[2] and [3].

4.1. Sets

All variables in the model are indexed and represented by two- or more-dimensional data matrices.
The seven index sets are:
1. PLANTS. The 10 existing plants, where formulation a n d / o r packaging can be carried through,
labeled as P I , P 2 ..... P10 (please notice that,
for confidentiality, all item designations have been
modified).
2. TECHS. The 18 technologies or product groups.
3. F _ L I N E S {PLANTS}. Formulation lines,
subindexed for each plant; a total of 48 lines were
included.
4. P_LINES {PLANTS}. Same for the 69 packaging
lines.
5. WAREHOUSES. The 3 central European warehouses to choose from.
6. CUSTOMERS. One representative major sales
point for each of the 14 European countries considered.
7. MONTHS. Production allocation has been cut
into monthly slices, therefore all variables are
indexed with time as well.
4.2. Solution space

One of the most critical modelling steps consisted

of choosing a solution space with minimum model
redundancy, thus keeping the overall variable count
low enough to handle, but still maintaining readabil-

343

ity and clarity. Two classes of variables were used to

describe the allocation of products to lines and transportations between sites, warehouses and customers.
The variable definitions are shown here in AMPL
notation.
1. Product allocated to formulation lines in tons for
one month: var f_load {TECHS, p in PLANTS,
F_LINES [p], MONTHS}.
2. Product allocated to packaging lines in tons for
one month: var p load {TECHS, p in PLANTS,
P_LINES [p], MONTHS}.
3. Amount per technology stored in a warehouse for
one month: var w load {TECHS, WAREHOUSES, MONTHS}.
4. Amount per technologies moved from formulation to packaging site: var moved {TECHS,
PLANTS, PLANTS, MONTHS}.
5. Amount per technology moved from packaging to
warehouse: var stored {TECHS, PLANTS,
WAREHOUSES, MONTHS}.
6. Amount shipped directly from packaging to customer: var shipped {TECHS, PLANTS, CUSTOMERS, MONTHS}.
7. Amount shipped from warehouse to customer: var
unstored {TECHS, W A R E H O U S E S , CUSTOMERS, MONTHS}.
Notice the use of index sets themselves depending
on another index, like " p in PLANTS, F L I N E S
[ p ] " . This corresponds to our mathematical index
set notation FLp and PLt,.
It is clear that the values of some variables could
be derived, given the other values, which represents
some redundancy. Omitting all dependencies would,
however, decrease the model transparency.
4.3. Cost factors

Cost factors have been aggregated into PVI and

PVD types, resulting in 4 numbers for each formulation and packaging line, f_x {p in PLANTS,
F_LINES [ p]} and p_x {p in PLANTS, P_LINES
[p]}, respectively, x meaning one of:
varcost:

all linear volume dependent costs per ton

and month;
stepwise: stepwise increasing, but linearized costs,
e.g. shifts;

344

GFO:
deprec:

G. Ox~ / European Journal of Operational Research 97 (1997) 337-347

volume independent general factory overhead share;

depreciation for one month.

Since central warehouses are shared between several company divisions, the expenses of storing a
palette of products for one month were calculated
from the sum of building depreciation and monthly
expenditures, divided by the number of palette places.
As one palette always weighs in the order of 500
kilograms regardless which product is packed on it,
computing palette spaces from tons is trivial.
Transportation costs were given in costs per ton
for each origin/destination pair that can be combined given the 14 customer locations and the union
of the sets of packaging sites and central warehouses,
and for each formulation/packaging sites combination.

4.6. Constraints
Writing down the constraints in AMPL notation
following Eqs. (2)-(11) is straightforward and not
explicitely shown here. It is to be noted, that the
language allows for any (in)equalities of the type
" = ", " < " and " > ", arbitrarily intermixed.
Instead of rewriting the model for each scenario, a
separate set containing only the used plants was
introduced. The constraints are simply indexed over
this set instead of all plants, as the following example of a constraint in AMPL notation shows:
subject to f_cap { p in USED_PLANTS,
f in F L I N E S [ p], m in MONTHS}:
sum{t in TECHS} f_load[1, p , f , m]
< f_capacity[ p, f ];

4.4. Parameters
The set of parameters mainly consists of cost
factors, as described above, and capacity limits. The
maximum throughput of a packaging or formulation
line can either be a product independent capacity or
0, if a certain product cannot be processed on this
unit. Modelling this has been accomplished by introducing two indexed parameters, one giving the maximum capacity of each line and for each technology,
the other simply holding a binary value, indicating
whether a certain product can be processed on the
unit or not.
The true capacity of a line for any technology can
now be given by f_capacity [p, f ] * fusable[ p, f,
t], where p means plant, f formulation line and t
technology, f c a p a c i t y and f__usable being the said
parameters c t and u~, for the formulation lines.

4.5. Objective function

Although only volume dependent costs are relevant in the reallocation and rerouting process, the
selection of a plant subset results in volume independent factors to be saved. To keep the formulation of
the objective function independent of the current
scenario, all PVI expenses are included but indexing
was performed over the subset of plants only.

This example constraint corresponds to inequality

(3).
The definition of the plant subset is kept in a
separate data file, greatly simplifying the selection of
a new scenario:
# plant subset definition
set SELECTED_PLANTS "= P2 P4 P 6 P7;
set SELECTED_WAREHOUSES = W 1 W3;

4.7. Model size

To give an impression of the complexity of the
model, one can sum up the number of all variables of
the solution space, which gives a total of about
93,000 variables. Most of these were caused by the
high degree of freedom for transportation and delivery paths. Variable "shipped", as described in Section 4.2, can be given as an example: considering the
cardinalities listed in Section 4.1, one obtains the
size of this 4-dimensional variable as TECHS X
PLANTS X CUSTOMERS XMONTHS as 18 X l0
X 14 X 12 = 30240. Please notice that when computing the size of " f _ l o a d " and " p _ l o a d " , one has
to be aware that these are 3-, and not 4-dimensional.
The index " p in PLANTS" is merely a subgrouping
of the lines given with "F_LINES [ p ] " and
"P_LINES [ p ] " , respectively.

G. OxE / European Journal of Operational Research 97 (1997) 337-347

Similarly, the number of parameters can be obtained as roughly 5,800. This gives an impression
about the amount of data needed to run the model.
Fortunately, the biggest part of these were the demand figures for each customer, technology and
month, which were available in electronic form from
forecasts and past year's sales figures.
The number of single constraints is approximately
35,000. More than 70% of these stem from Eq. (4),
simply limiting the line loads by their maximum
capacity.
These figures, however, may not be interpreted as
a direct measure of the number of program variables
and constraints really used during the model run.
AMPL highly optimizes by eliminating trivial
(in)equalities, which results in a significantly smaller
LP problem.

5. Practical problem solving

5.1. Using the model
Out of the many possible subsets of plants, only
about 20 have been chosen to undergo the optimization process of reallocating the products and rerouting transportation. Many what-if studies have been
carried through with these scenarios to get a feeling
for their robustness against market demand changes,
machine failures, and introduction of new products.
As one basic demand was the ability to quickly react
upon demand changes, the amount of preproduced
goods, that are kept in central warehouses until
delivery, has to be limited. A measure of preproduction can be obtained by the ratio of the amount of all
products delivered from warehouses, to the total
amount of delivered products. The bigger this value,
the more products are produced ahead of delivery
time. In our approach, it is not possible to retrace the
"history" of each delivered order and so the exact
production start time cannot be computed.
AMPL provides extensive reporting facilities to
extract the data of interest after a model run. Of
major interest, in addition to the actual savings in
comparison to other alternatives, were the actual
product allocations, delivery schemes and warehouse
activities. As the way in which each order from a
customer can be split up and produced is quite

345

complicated (Fig. 4), it was necessary to know exactly from which warehouses and packaging sites
this order is delivered.
Table 1 shows a typical output after optimizing a
scenario. These tables are sorted by plants and lines,
each containing the allocation of products (rows) to
the line over the months (columns). Line 1 in plant
2, as an example, formulates 183 tons of product P3
in September.
Similar lists can be obtained for warehouse stock
profiles, deliveries, transportation and more in any
desired level of aggregation or detail.
5.2. Results
An arrangement of 23 formulation lines and 30
packaging lines in 3 plants, and 1 central warehouse
gave the best results. Some of the lines in these
plants were not used in the optimal allocation scheme,
so the independent cost of these can be saved by
closing them down. The biggest savings originate
from cutting these costs down, consisting mainly of
depreciation and general factory overhead. It is difficult to determine exactly for how much of these
savings OR methods can take credit, because the
model first helped the experts to find feasible scenarios and then took over the fine tuning to reduce
production, transportation and storage costs of a
given scenario. It can be estimated, though, that the
allocation optimization contributed to the overall
savings with about 20%.

formula~onsite B,
line (]1

forrnulalJonsite C,
line C1

( ~

~ .

10 tons,
~Februa.=ry ~

/
18 tons, April /

12 tons, April

10 tons, March

\
J
~
packagingsite B, 30 tons, May

line B2

packagingsite A,

~50~

),,.._J
/
20 tons, May

(stockis ~ns of
P by end of Apnl)

/
ons of product P by end of May

customer

Fig. 4. The flow of a single order.

346

G. Ox~ / European Journal of Operational Research 97 (1997) 337-347

Table 1
Part of the monthly allocation scheme for formulation operations
f load[t, 'Plantl ', 'Linel ', m][ * ,* ]
:
JAN
FEB
MAR
P1
83
211
0
P2
998
2456
2415
P3
25
0
252
P4
101
0
0

APR
0
2 164
503
0

MAY
80
1 851
16
117

JUN
167
1 412
28
426

JUL
84
547
21
118

AUG
38
524
17
506

SEP
19
503
41
376

OCT
12
556
41
186

NOV
76
580
86
428

DEC: =
67
2 179
115
259

f_load[ t, 'Plant2',
:
JAN
P2
0
P3
286
P4
6

'Linel ', m][* ,* ]

FEB
MAR
274
145
0
147
18
0

APR
292
0
0

MAY
195
80
17

JUN
40
199
53

JUL
204
59
29

AUG
243
0
49

SEP
82
183
27

OCT
0
292
0

NOV
158
130
4

DEC: =
251
0
41

f load[ t, 'Plant2',
:
JAN
P3
167
P4
0
P6
0

'Line2', m][ *,* ]

FEB
MAR
167
167
0
0
0
0

APR
70
96
1

MAY
167
0
0

JUN
167
0
0

JUL
167
0
0

AUG
17
150
0

SEP
167
0
0

OCT
147
20
0

NOV
111
0
0

DEC: =
167
0
0

f_load[ t, 'PianO',
:
JAN
P 12
62
P13
64
P14
0

'Line 1', m][ *, * ]

FEB
MAR
135
333
61
0
23
0

APR
262
71
0

MAY
116
132
0

JUN
84
249
0

JUL
87
98
22

AUG
61
37
0

SEP
66
15
252

OCT
119
125
14

NOV
185
34
21

DEC: =
139
12
8

So both in the feasibility test and in the optimization process, the model made a significant contribution to the final result, saving annual production and
transportation costs in the order of 25%.

6. Conclusions
The combination of the customer's expertise and
OR methods was the major key to success in this
project. It clearly revealed the power of interdisciplinary work teams when it comes to the application
of otherwise academical methodologies to real life.
Data quality, the user's engagement in the modelling
process and the availability of people from production, logistics and marketing were crucial prerequisites to achieve results like the one presented here.

Acknowledgements
I would like to thank Dr. R.W. Lang, head of the
PUMA project and customer of the OR study, and

his team, for the invaluable cooperation during data

analysis, modelling and optimization phase.
I would also like to thank Prof. Dr. R.W.
Schmenner, professor at the School of Business,
Indiana University, who acted as a consultant in this
project and challenged the use of OR methods a lot.
My appreciations to all who helped me in proof
reading this paper and in improving its readability.

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347

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