RPN D1.3 V1.0

RobustPlaNet Shock-robust Design of
Plants and their Supply Chain Networks

Project acronym: RobustPlaNet
Call and Contract: FP7-2013-NMP-ICT-FOF(RTD)
Grant agreement no.: 609087
Project Duration: 01.10.2013 30.09.2016
(36 months)
D1.3: Formalization of the multi-level

(plant-supply chain) decision making
problem
Organisation name of lead partner for this deliverable: MTA-SZTAKI
Deliverable nature: <Report (R) Prototype (P) Demonstrator (D) Other (O)>
Dissemination level: PU Public PU
(Confidentiality) Restricted to other programme participants
PP
(including the Commission Services)
Restricted to a group specified by the consortium
RE
Confidential, only for members of the consortium
CO
Contractual delivery date: M9
Actual delivery date: 31.07.2014
File: RPN_D1.3_v1.0_Final.docx
FP7-2013-NMP-ICT-FOF(RTD) Formalization of the multi-level (plant-
Project number: 609087 supply chain) decision making problem
Additional document information

Workpackage WP1, Design of innovative business approaches and service models
Tasks: Task 1, Mechanisms and boundaries of the supply chain and plant level
decision making interactions
Contributing SZTAKI, KIT, TWENTE, KNORR, VPN
partners:
Authors: D. Gyulai, B. Kdr, A. Pfeiffer, B. Csji, P. Egri, J. Unglert, N. Stricker
Version: 1.0
Total number of 58
pages:
Keywords: Plant and supply chain level decision making, modelling methods, decision
support
Versioning and contribution history
Version Organization Comment Date

V0.1 SZTAKI Initial structure, draft version 10.04.2014
V0.5 SZTAKI Completed with SC and Plant sections 13.06.2014
V0.8 SZTAKI First complete draft 09.07.2014
V1.0 SZTAKI Final version 31.07.2014
All rights reserved: The document is proprietary of the RobustPlaNet consortium members. No copying or
distributing, in any form or by any means, is allowed without the prior written agreement of the owner of
the property rights. This document reflects only the authors view. The European Community is not liable
for any use that may be made of the information contained herein.
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Table of contents
Executive summary ............................................................................................................................... 4
1 Introduction .................................................................................................................................. 5
1.1 Scope and objectives ........................................................................................................................ 5
1.2 Deliverable structure ........................................................................................................................ 5
1.3 Challenges calling for robust approaches......................................................................................... 5
2 Multi-level decision making: interdependencies and scopes ........................................................... 8
2.1 The supply chain planning matrix..................................................................................................... 8
2.2 Hierarchy of planning systems ......................................................................................................... 9
3 Boundaries of the multi-level decision making problem ................................................................ 10
3.1 Overview of supply chain level decisions ....................................................................................... 10
3.1.1 Supply chain planning ............................................................................................................. 10
3.1.2 Supply chain coordination and control .................................................................................. 12
3.2 Overview of plant-level production planning ................................................................................. 15
3.2.1 Hierarchy and scopes of production planning tasks............................................................... 15
3.2.2 Production planning ............................................................................................................... 16
3.2.3 Master planning (MP) ............................................................................................................. 16
3.2.4 Aggregate planning................................................................................................................. 16
3.2.5 Classification of lot-sizing problems ....................................................................................... 17
3.3 Production execution control ......................................................................................................... 19
3.3.1 Shop floor control ................................................................................................................... 20
3.3.2 Functional components of SFCs ............................................................................................. 21
4 Formalization of the planning and control problems ..................................................................... 22
4.1 Supply chain level decision making problem: Coordination contracts .......................................... 22
4.2 Analytical formalization of the plant-level planning problems ...................................................... 24
4.2.1 Uncapacitated lot-sizing ......................................................................................................... 24
4.2.2 Capacitated lot-sizing ............................................................................................................. 25
4.2.3 Aggregate planning for flexible flow lines .............................................................................. 26
4.2.4 Aggregate planning for reconfigurable production systems .................................................. 28
4.3 Stochastic Resource Allocation ...................................................................................................... 28
5 Conceptual framework to support decisions in RobustPlaNet ....................................................... 32
5.1 Currently applied SC management frameworks ............................................................................ 32
5.2 KPI-s related to supply-chain and plant level planning objectives ................................................. 33
5.2.1 Key performance indicators ................................................................................................... 33
5.2.2 Customer facing KPI-s ............................................................................................................. 34
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5.2.3 Internal facing KPI-s ................................................................................................................ 35

5.3 Simulation and Navigation Cockpit: Overview ............................................................................... 37
5.4 Applied software tools and algorithms .......................................................................................... 38
5.4.1 Data processing and statistical computing ............................................................................. 38
5.4.2 Mathematical modeling applications ..................................................................................... 39
5.4.3 Discrete-event simulation applications .................................................................................. 40
5.4.4 Analytical tool: Flowline ......................................................................................................... 41
5.4.5 Computational synthesis design tool (CSD)............................................................................ 42
5.5 Model interfaces and data requirements ...................................................................................... 42
5.5.1 Master input data ................................................................................................................... 42
5.5.2 Output data ............................................................................................................................ 44
5.5.3 Standards for data representation ......................................................................................... 45
5.5.4 ANSI/ISA 95 ............................................................................................................................. 45
5.6 Validation procedure of the decision-support model and framework .......................................... 47
5.6.1 Domain-independent validation............................................................................................. 47
5.6.2 Domain-dependent validation................................................................................................ 48
6 Application of the model on the use-case scenarios ...................................................................... 50
6.1 Daimler ........................................................................................................................................... 50
6.2 Knorr-Bremse ................................................................................................................................. 51
6.3 Voestalpine ..................................................................................................................................... 52
6.4 Supply Chain use case (ITC, FESTO) ................................................................................................ 53
7 Conclusions ................................................................................................................................. 55
References.......................................................................................................................................... 56
List of figures ...................................................................................................................................... 58
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Executive summary
The project aims at developing an innovative technology-based business approach, new methods and tools
to solve the problems of the existing rigid supply chain mechanisms and to achieve more collaborative and
robust production networks able to timely deliver innovative product-services in very dynamic and
unpredictable, global environments.
The project takes an overall view from the beginning, trying to analyze, model and harmonize the plant level
and supply chain level decision processes to achieve a more stable behavior of lower and upper level
production entities in less predictable and disturbed environment. The development of the projects
objective is based on four major pillars, namely (i) innovative supply services, (ii) innovative product-services
enabled by ICT, (iii) innovative methodologies for decision-making integrating the plant and the supply
network level and (iv) innovative business and assessment models for value creation based on partnership.
This deliverable was assembled in the Task 1.3 of the project as a part of the WP1 activities and can be
regarded as a task in establishing pillar iii from the above list. The main aim of the deliverable is to summarize
both the supply chain and plant level related structures, models and planning methods with special
emphasis on the interaction between these elements and the option to integrate them into a common
framework for supporting the plant and supply chain related planning decisions making in an integrative
way considering the multi-level decision making aspects. This is achieved with a multi-level view following
the well-established decision hierarchy structure of production systems. The supply chain related planning
and the plant level related planning are separated in two different sub-sections both outlining the main
problems and methods which are relevant in the RobustPlaNet project. Most of the planning problems are
analytically formalized and form the base of the solution algorithms to be developed in the second part of
the project. The most relevant Key Performance Indicators of the planning levels are also detailed in the
deliverable.
Finally the document suggests a functional framework, including both the plant and supply chain level
structures, together with the location of methods and tools to be used in the supporting of planning
decisions. This framework is now the conceptual backbone of the Simulation and Navigation Cockpit, the
final decision-support ITC system of RobustPlaNet. The deliverable is concluded with how the framework is
correlated with different demonstration use-cases of RobustPlaNet.
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1 Introduction
1.1 Scope and objectives
The main aim of the deliverable is to summarize both the supply chain and plant level related structures,
models and planning methods with special emphasis on the interaction between these elements and the
option to integrate them into a common framework for supporting the plant and supply chain related
planning decisions making in an integrative way considering the multi-level decision making aspects. The
deliverable is focusing on analyzing the interdependencies between the manufacturing and supply chain
dimensions of the decision making hierarchy.
First, the supply chain planning topics and coordination mechanisms are introduced, in order to define the
boundaries of the overall decision support framework. Then the scope and tasks of the plant-level
production planning is described by introducing the three main levels of the decisions at this stage.
Most of the planning problems are analytically formalized and form the base of the solution algorithms to
be developed in the second part of the project. The most relevant Key Performance Indicators of the
planning levels are also detailed in the deliverable.
Final aim of the deliverable is to set-up the functional framework, including both the plant and supply chain
level structures, together with the location of methods and tools to be used in the supporting of planning
decisions. This framework will be the conceptual backbone of the Simulation and Navigation Cockpit, the
final decision-support ITC system of RobustPlaNet.
1.2 Deliverable structure

Apart from the introduction, the deliverable is partitioned in five main sections. The introduction gives an
overview about the challenges of todays production planning calling from robust approaches.
In the first two main sections the interdependencies between the decision making problems and the
boundaries of the multi-level decision making problem are introduced depicting the main decision making
levels and the planning problems to be solved.
Fourth chapter gives the formalization of the specific problems of RobustPlaNet both on supply chain and
plant level. Specifically, the plant level production planning covers the well-established hierarchy of
strategic, tactical and operative planning problems.
In the fifth section we give an introduction into the functional framework that is the conceptual basis of the
Simulation and Navigation Cockpit and also included the most relevant KPIs for RobustPlaNet. Finally the
deliverable concludes in section five with how the framework is correlated with different demonstration
use-cases of RobustPlaNet.
1.3 Challenges calling for robust approaches

Today, industrial companies are challenged by a highly dynamic and uncertain environment, which requires
them to develop and manufacture products at a high level of flexibility and quality at low costs. Due to
these challenges, companies are forced to specialize in order to reduce production costs [36]. At the same
time, they have to intensify their collaborative activities in order to keep their level of service offering. More
than a decade of intensified research in the field of enterprise networks reveals further reasons for an
increasing amount of networks and collaborations (e.g., [42], [20], [28]), emphasizing mostly emerging
market opportunities. Providing reliable solutions for different levels of production networks has become a
major concern for managers in industrial companies [8][44].
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Studies reveal a high rate of failure in collaborative projects in the manufacturing industry [27]. One of the
main reasons accordingly is the underestimation of the systems complexity and, consequently, the
application of less robust approaches. Managers often ignore this, while matching the type of the
collaborative system set-up with the type of the task and the environment. In addition, even if they do take
robustness aspects into consideration, there is a lack of knowledge about the effects of complexity issues
on the system (at the plant-, enterprise- as well as collaborations levels) that might lead to insufficient
results. Reliable models and instruments for managers to handle both the internal complexity of the
environment (including shop-floor activities) and the external complexity of the collaboration network as
well as the economic environment should be used.
Consequently, one of the main research areas of the RobustPlaNet project is to develop new methods for
the real-time management of complex technical and economic systems (including production networks)
that can address various complexity issue, such as changing, uncertain environments.
The complexity of manufacturing processes and systems have come in the foreground of research in the
past decades [37]. Examples of research aiming to identify complexity issues in production networks are as
follows. Decoupled models of product and process complexities were described in [15], where the quantity
of information, diversity of information and the information content were considered as main influencing
factors. This approach was later extended to take the human factors into account [16]. As regard to supply
chains or production networks, even bigger complexity is to be faced. In [7], a focal buyer company with its
supply base (the part of the supply network which is actively managed by the focal company), was treated.
In the supply base complexity was conceptualized in three dimensions: the number of suppliers in the base,
the degree of differentiation among them, and the level of inter-relationships among the suppliers. The
authors concluded that though a reduction in complexity may lead to lower transaction costs and increased
supplier responsiveness, in some circumstances it may also increase supply risk and reduce supplier
innovation. Consequently, reducing supply base complexity, in general, may be cost-effective, but blindly
reducing it, may potentially decrease the buyers overall competitiveness. The operational complexity of
suppliercustomer systems is modeled from an information-theoretic perspective in [41], capturing, in
relative terms, the expected amount of information to describe the state of the system. The operational
complexity was found to be associated with the operational costs of the supply chain, as shown by queuing
model- and simulation-based investigations [46]. However, dependency between the complexity index used
and the costs was found in case of make-to-stock production, but not in the make-to-order case [17].
Here, we recall some results of a previous EU-funded research project, COLL-PLEXITY1, which tried to make
a paradigm-shift when focusing on the complexity drives, i.e., the fundamental issues causing failures and
insufficient results in production networks. During the COLL-PLEXITY project several abstract complexity
drivers were identified [37], [25] that could be the main driving forces of various problems and failures in
collaboration networks. The identified six main drivers were as follows
(1) Uncertainty (e.g., limited information, unpredictable environments)
(2) Dynamics (e.g., dynamic changes, both at the plant, the enterprise and the collaboration levels)
(3) Multiplicity (e.g., a large number of participating elements and influencing factors)
(4) Variety (e.g., many types of elements that should all be addressed)
(5) Interactions (e.g., communication loads, confidentiality issues)
(6) Interdependencies (e.g., feedback loops, stability issues)
1
http://www.coll-plexity.net/
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According to the approach of COLL-PLEXITY, a system is called complicated if it has any of the six properties
above, e.g., if it has a large number of elements or it has significant uncertainty. On the other hand, a
complex system must have the first two properties and at least one of the last four:
[ (1) & (2) ] & [ (3) v (4) v (5) v (6) ],
where & represent logical conjunction (and) and v logical disjunction (or).
Note that these complexity drivers are abstract, e.g., the issues of people, culture, politics, geography or
weather can all be regarded as different influencing factors.
In order to efficiently manage complex production systems, such as world-wide supply chains, the related
complexity drivers should be clearly identified and taken into account by a suitably designed robust
approach, in order to increase performance and reduced failure rates.
Some typical issues which raise the complexity of the system are illustrated on Figure 1.
Environment 1 Complexity drivers

- uncertainty
- dynamics
? - variety
Complexity drivers
Collaboration 2 - uncertainty
- multiplicity
- interactions
- interdependencies
Complexity drivers
Network 3 - uncertainty
- dynamics
- multiplicity
- variety
- interactions
- interdependencies
Figure 1. Typical complexity drivers on various levels, as identified by the COLL-PLEXITY project.
The environment is, e.g., typically dynamic and path dependent; at the enterprise level, we have
coordination (e.g., resource allocation), information sharing and path dependency issues; finally at the
collaboration level, we have dynamic co-operations, information sharing issues, integrated innovation and
path dependency problems, as it was pointed out by the COLL-PLEXITY project.
When aiming for a robust production system, we need to prepare the systems to various phenomena
causing disturbances in the system. These factors are often resulting from various complexity drivers, e.g.,
uncertainty, dynamic changes, interactions, etc., Therefore, starting the research with evaluating which kind
of complexity drivers we want our system to be robust against should be the first step of such robust
research. During the RobustPlaNet project, we will focus on uncertainty, dynamics and interactions only and
leave other drivers (such as multiplicity and varieties) for further research.
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2 Multi-level decision making: interdependencies and scopes

2.1 The supply chain planning matrix
By definition, a supply chain consists of a set of organizations, often legally separated, and linked by
materials, information, and financial flows that produce value in the form of products and services for the
ultimate customer. It can also consist of the geographically dispersed sites of a single and large company.
Along this supply chain, raw materials have to be purchased, intermediate and finished products have to be
produced or transformed, and finished products have to be sold and distributed.
Therefore a SC is usually modeled as a network composed of vendor nodes; plant nodes where products are
produced or transformed; distribution center nodes where products are received, stored, and dispatched
but not transformed; market nodes where products are sold or consumed; and transportation arcs
connecting the nodes and supporting both the physical and information flow.
Figure 2. The supply chain planning matrix [31]

Supply Chain Planning (SCP) is defined as an integrated planning approach used to organize the SC activities.
The planning activities in the supply chain embrace the planning and control activities on the network, plant
and system levels as well as the supporting areas as for example the logistics. The planning activities in the
supply chain can be illustrated by a matrix, where the horizontal axis represents the integrated flow of
materials and information. Along the vertical axis, the planning tasks are aligned according to the time
horizon of the decisions (Figure 2). The supply chain planning activities involve the decisions taken over the
materials, capacities, inventories as well as the information that belongs to the production and production
management processes.
Besides the planning tasks that occur in the supply chain management, the coordination and control are
also important issues. The coordination of supply chains is responsible for the collaboration among the
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partners to improve the efficiency considering factors like delivery reliability, and faster logistics decision
making at the network level.
2.2 Hierarchy of planning systems

The planning functions in manufacturing environments are generally described by the three-level hierarchy
presented in Figure 2. The levels of decision making are called strategic (or long-term), tactical (medium-
term), and operational (short-term). Every member of the hierarchy is responsible for realizing the
objectives that characterize the given level, and the decisions made at a certain stage become constraints
for the lower levels [1][2][22].
Accordingly, planning on the strategic level concerns long-term decisions that determine the market
competitiveness policy. Departing from the choice of plant locations and capacities, these decisions include
make-or-buy choices, supply network planning, and capacity/facility planning. Based on demand forecasts
and other market information, the required capacities of the machine resources, workforce, transportation
means, etc. in the factory are also determined on this level. The decisions are brought by the senior
management, over a planning horizon covering several years.
In contrast, the planning tasks of the tactical level are already directly related to customer orders, let them
be contractual or only forecasted. The master planning module is responsible for the acceptance (or
possibly, the rejection) of the orders, as well as for setting their due dates. Then, production planning assigns
the production activities to time on an aggregate timescale. This assignment serves as the basis of the
medium-term material plan that defines what and when raw materials should be purchased from the
suppliers, and the capacity plan that determines the required amount of capacities per resources and
aggregate time units. The capacity plan is of interest because the production capacities set on the strategic
level can be temporarily increased by overtime, hired workforce, or subcontracting, or they can be
decreased by granting leave to the workers. Depending on the industrial sector, the horizon of tactical
planning ranges from 1 month to 1 year.
Finally, production scheduling on the operational level unfolds the first segments of the production plan
into detailed resource assignments and operation sequences. Scheduling is performed on a detailed
problem representation, for individual operations, with respect to fixed capacities. Under the production
scheduling module, the presence of real-time execution control is often required. This can take place in the
form of a Production Activity Controller, or a Manufacturing Execution System that provides feedback about
shop-floor status.
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3 Boundaries of the multi-level decision making problem

3.1 Overview of supply chain level decisions
3.1.1 Supply chain planning

Supply chains are unique and complex, local planning at the nodes is done in many different ways
independently, thus there is no one-size-fits-all solution. Instead, there is a need for a portfolio of business
relations which can be represented on a range of colors: from cold (traditional markets, competitive
auctions), through warm (coordination, cooperative planning), to hot (virtual enterprises, full integration).
Although relations between manufacturers and end customers are usually cold, the relationships with
suppliers (upstream firms) are usually richer and more complex.
Figure 3. Different extensive procurement and cooperation strategies in a value-added network by duration and
intensity of collaboration [35]
The supply chain strategy can be categorized into push, pull, and hybrid push-pull [39]. In a push system the
supply is based on long-term forecasts, therefore it requires excessive inventories and safety stocks,
furthermore it cannot react quickly to the changes in the market. According to the pull strategy, the
production is demand driven, and in a pure pull system, firms do not hold any inventories. However, there
are some drawbacks of the pull approach, too. On one hand, it is more difficult to take advantage of
economies of scale. On the other hand, pull systems are difficult to implement with long production lead-
times, since quick reaction to the market demand is impossible. In a push-pull supply chain the combination
of the two approaches is applied: while the long lead-times and relatively low uncertainty suggest a push
strategy upstream, the volatility of the end-market necessitates pull strategy on the other end of the chain.
The appropriate strategy depends on several factors [39]. The most important ones are summarized as
follows:
Demand uncertainty: Low uncertainty allows applying a push system.
Economies of scale (EOS): If EOS can significantly reduce the costs, then push is more beneficial.
Lead-time: If production and transportation lead-times are significantly greater than acceptable
response times, this suggests applying push strategy.
Innovation speed: Assuming high demand uncertainty, the pull or the push-pull approaches are
appropriate. If the innovation speed (production-introduction frequency) is highlike in the PC and
fashion industries, this suggests focusing on modular product architecture and pure pull strategy.
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Otherwise, like in the furniture and tire production, applying a combined push-pull is worth
considering.
Besides the push strategy, there can be other reasons for holding inventory, e.g., the price fluctuation of the
materials. Unfortunately, inventories are accumulated at the most expensive point of the supply chain as
end-products [17]. For example, in the U.S. automotive sector so much finished cars have been kept in
inventories, that they would have been enough for satisfying average demand for 60 days. Japanese car
manufacturers perform significantly better, e.g., Toyota keeps finished goods to cover demand for a 30 days
shorter period than General Motors. European automotive companies face similar problems. Customers
expect to have their orders fulfilled in a couple of days, and they demand very high service levels.
Therefore, inventory management is one of the most important optimization problems in supply chains. On
the operational and tactical level this includes lot-sizing, which will be detailed in Section 3.2.5, while on the
higher level, inventory positioning techniques are applied. Inventory positioning is a strategic issue in
complex supply networks that aims at minimizing overall inventory cost, while guaranteeing a given service
level for the customers. Inventory positioning determines the required inventories along the supply chains,
therefore it also used for appointing the push-pull boundary in combined systems. There are examples from
the automotive industry for 30% reduction in inventory levels after repositioning of the inventories, while
at the same time, preserving the high standards of the service [39].
Both inventory management problems are affected by the same factors [39]:
Characteristics of the customer demand,
Replenishment lead-time,
Number of different products in consideration,
Length of the planning horizon,
Cost factors (including fixed and variable), and
Service level requirements of the customers.
A related strategic supply chain design decision is the facility location problem, which deals with locating
new facilities, such as retailers, warehouses, or factories, in order to increase the efficiency of the
distribution system [40]. Fortunately, cost minimization and robustness are not completely antagonistic
goals for such problems as Simchi-Levi stated: supply chain cost is always flat around the optimal
strategy [39]. Therefore there are several near optimal solutions, which allow introducing redundancy and
flexibility into the system, thus increasing robustness.
This phenomenon is illustrated in Figure 4, where the number of plants of a supply network should be
determined. As the figure shows, a network consisting of 23 plants would be optimal; however, having 30
plants is almost as cheap as the optimal solution. With 30 plants the network is more robust, e.g., in case a
natural disaster disables a factory, the remaining network might be still operable.
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Figure 4. Cost trade-offs in supply chain design [39]
3.1.2 Supply chain coordination and control

Supply chain coordination aims at improving efficiency by sharing risks and benefits, increasing information
sharing, and aligning different objectives among the supply chain partners. Basically there are two types of
supply chain risks [39]:
Predictable risks are uncertainties that have historical data, therefore statistical forecasts can be
created and used for predicting future events. Such uncertainties include customer demands,
supplier performance, scrap production, etc. In several cases the variance of predictable risks can
be leveled by aggregating fluctuating forecasts and centralization, the so-called risk-pooling. It is
well known for example, that by consolidating inventories, both the average inventory level and the
required safety stock level decrease (but of course this can increase transportation time from the
inventory) [38]. Widespread dimensions for aggregation include product families, regions, time
units, and capacities.
Unpredictable risks have no sufficient historical data, thus they are difficult to forecast and happen
as vis major events e.g., natural disasters, geopolitical risks, strikes. The impact of such shocks can
only be decreased by increasing the general robustness of the whole system by introducing
flexibility and redundancy. The main types of flexibility are (i) product design flexibility (e.g., modular
architecture), (ii) process design flexibility (e.g., flexible contracts), and (iii) system design flexibility
(e.g., applying capacity redundancy). Fortunately, in several cases a minimal increase in flexibility
can capture most of the benefit of a much higher degree of flexibility. An example can be seen in
Figure 5, where 5 plants have to produce 5 products. When there is no flexibility, each plant is
dedicated to a single product, and in case a plant falls out, it brings along the complete shortage of
the related product. On the other extreme, total flexibility means that each plant can produce each
product. Such flexibility is very robust against risks, but it is also very costly. An acceptable trade of
can be the setting, where each plant is able to produce two products in an appropriate manner. For
example, if plant 1 falls out, its demand for product A can be fulfilled by plant 5, and for product B
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by plant 2. If the new demand for product A is too much for plant 5, it can delegate some demand
for product E for plant 4, and so on along the chain.
Figure 5. Achieving flexibility through system design

In conventional, non-cooperative buyer-supplier relations, the buyer orders components and pays
proportionally to the quantity delivered. It can be shown, that in such a situation, uncertainty is amplified
as we traverse upwards the chain, this variability of orders is the so-called bullwhip effect. The main causes
of this phenomenon are price fluctuations (e.g., promotions), lack of information, inflated orders (in order
to avoid shortages), economies of scale (batch ordering), transportation times, and forecast uncertainties.
Figure 6. Open order quantities and inventories / backorders in a supply chain: the bullwhip effect [35]
The bullwhip effect can be decreased by increasing information visibility along the supply chains, but
information sharing is sometimes not in the interest of the partners, since this means giving away
knowledge. Therefore some kind of inspiration is required for the supply chain members to cooperate.
Mechanism design (MD) is a special subfield of microeconomics, with a rather unique engineering
perspective [27]. It borrowed key concepts of game theory, like strategies, equilibrium and rationality, but
instead of being interested in the output of a given game, it aims at determining the rules of the game in
order to achieve certain behaviors. Accordingly, MD can resolve dilemmas and suboptimal performance in
traditional games, such as the prisoners dilemma, by aligning the objectives of the players. The founders of
the theory were recently awarded with Nobel Prize, and it has already been successfully applied in designing
and analyzing practical auction mechanisms for electronic markets. Since this theory considers strategic
interactions of self-interested agents with incomplete (private) information, it offers promising applicability
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also in supply chain research. In the following, we briefly overview the theory of mechanism design with the
purpose of attracting the attention of the kind reader and giving a new aspect to handling the issue of
information and risk/benefit sharing. A more formal introduction can be found in [27].
MD considers a set of agents (or players), where each may have private information not known by others
this is called its type. Although an agent does not know the others types, it may have some belief about
themthis differentiates the games with strict- and non-strict incomplete information. Each agent also has
a set of strategies, which represent a complete contingent plan, a decision rule or a single action. Every
agent chooses a strategy from its strategy set, and the execution of all the selected strategies results in a
specific outcome of the system. Agents have their own utility functions (e.g., profit) depending on their type
and the outcome, and the rational players intend to maximize their utilities by choosing the most
appropriate strategies. Non-cooperative game theory studies the outputs in such situations by determining
the optimal strategies, which constitute equilibrium.
The usual equilibrium concepts can guarantee that none of the agents can increase its utility by changing its
equilibrium strategy unilaterally. However, such equilibrium can be suboptimal in the sense that it is not
Pareto-optimal, i.e., there exist a better outcome which provides higher utility for some agents and not
smaller for the others. If a Pareto-optimal solution is not equilibrium, it cannot be achieved by self-interested
agents; the well-known dilemmas of game theory are based on this property.
The goal of the MD is to assure the optimality of the equilibria by constructing the rules of the game
properly. This means that the mechanism regulates the available strategies and the outcome given by the
chosen strategies of the agents. Note that although the mechanism usually constraints the possibilities of
the agents, it guarantees always better utility than without the regulations. The MD approach can be used
in several optimization problems which involve decentralized decision making. The specific form of the
mechanism varies over the environment: for software agents it might be the execution environment, while
in commodity markets it is usually a legal regulation.
In several cases the utilities of the agents are considered to be in a special form called quasi-linear. This
means that the utility has two parts: a valuation of the outcome (depending on the agents type) and a
money transfer between the agents. For a specific example, let us consider a situation with an OEM and a
supplier. In this case, the utility of the OEM might be the income minus the assembly costs (valuation) minus
the payment for the supplied parts (transfer), while the utility of the supplier is the payment (transfer) minus
the production and material costs (valuation) (see also our example in the Introduction). If we however
include an end customer to the game, then the income of the OEM belongs to the transfer part, since it is
paid between the agents.
What kind of mechanism is desirable in such quasi-linear games? It is a natural assumption that the sum of
the transfers is zero, i.e., the mechanism does not take nor give money to the agents. This latter property is
called budget-balance. Another property is the efficiency: will the mechanism maximize the sum of the
valuations over the possible outcomes? It can be easily seen that efficiency and budget-balance together
imply Pareto-optimality. A further requirement can be individual rationality: is there any guarantee that the
utility of the agents is above a predefined minimum level, (e.g., the profit of the players is non-negative)?
These three properties are conflicting in classic mechanism designas it was proved by the Nobel
Laureates, but are feasible in information elicitation mechanisms.
The buyer-seller relationship is perhaps the most well-studied MD situation in the economics, called the
principal-agent problem. Two famous dilemmas of this setting are the moral hazard and the adverse
selection. The former one describes the situation where the principal delegates some task to an agent whose
efforts to perform it appropriately cannot be observed. The goal of the principal is to inspire the agent to
better work. This model and the solution ideas can be directly applied for supply or outsourcing relations.
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The adverse selection problem studies the information asymmetry about a certain characteristic, instead of
an action. As the famous model of the market for lemons (used cars) has shown, such situation can lead
to the collapse of the market. To solve these dilemmas, the contract (or agency) theory has developed
specialized forms of agreements including alternative offers or guarantees. Such constructions provide the
foundations of the insurance business.
Recently, similar models have become applied in supply chain research resulting in the improvement of
conventional contract types, considering not only the profit of an individual enterprise, but the mutual
benefit of the partners [6].
3.2 Overview of plant-level production planning
3.2.1 Hierarchy and scopes of production planning tasks

Focusing on the plant level in the supply chain planning, the decisions are about harmonizing the customer
order-stream with the available capacities, inventories and materials by optimizing a cost function usually
consisted of the operational, material and personnel costs. Another key issue when discussing the plant-
level production planning is the decision about the in-plant production and the usage of external capacities
in the form of outsourcing (make-or-buy decisions). According to the APICS Dictionary (The Association for
Operations Management), the production plan is defined as follows:
A production plan is the agreed-upon plan that comes from the overall level of manufacturing output
planned to be produced. Production planning is the process of developing the production plan.
A production plan is usually stated for each product families of the company in cumulated amounts for each
planning period that are depend on the planning horizon. These amounts are called production lots that
gives the quantity of units that can be produced or purchased within the lowest unit cost range. The key
challenge in production planning is to carry out such models that harmonize the continuous-nature order
stream with the discrete-nature production plans that usually rely on a set of planning periods, and consider
a wide range of factors.
Figure 7. Manufacturing planning and control processes within the temporal ranges in the MRP II concept [24]
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The starting point for planning the production is the sales plan which contains the quantity to be delivered
for every product and every planning period (gross primary requirements). In particular, customer orders
and projected sales flow into the sales plan. The latter are usually set by the marketing and sales
department. Beyond that, the sales plan also includes all additional requirements such as spare parts, demo
models, or prototypes. It is critical here that all sources of demands are covered. The gross primary
requirements are compared to the available inventory in order to determine the net primary requirements
and with that the production program, and the safety-stock is also considered here [24].
3.2.2 Production planning

Production planning is responsible for the creation of an optimized production plan for each production site
of the supply chain. Thus, the objective is to ensure the correct customer service level and the delivery
reliability, while optimizing the capacity utilization and minimizing the inventory costs simultaneously. The
planning horizon of this task lies within weeks and months, while the time granularity lies within weeks or
days. A rough production plan for each production site with integrated volume, schedule and capacity
planning is created, which is derived from the production master program in the network planning task.
When planning the material requirement volumes, a bill of material explosion needs to be performed before
the program can be forwarded to the supply-planning task. This entails a detailed list of all the parts that
are required to manufacture a product with its distinguished features. In the planning of the production
runs all production orders, which should be manufactured internally, are scheduled by taking restrictions
such as capacity restrictions, shifts and the utilization of alternative resources into account. Such a plan is
created on a machine group level, since its detailed planning is the duty of the production scheduling task.
This results in design parameters for the expected use of capacities, which deliver the basis for capacity or
capacity group requirements planning. In this phase the production batch sizes are calculated. This planning
task can also be applied in multi-stage production processes.
Results of the production plan are the amount of required materials, capacity requirements as well as a
rough production plan. It also contains the allocation of capacities and the required materials for the
manufacturing of orders in a production period.
3.2.3 Master planning (MP)

Considering the medium-term horizon of the production planning section in the supply chain planning
matrix, activities are called master planning (often referred to as tactical planning) that has to synchronize
the flow of materials in the complete supply chain. The boundaries of the problems are usually derived from
the results of the strategic level planning tasks, and on the other hand, master planning has to create targets
for short-term operational planning that allow a well-integrated coordination of decentralized, locally
operating planning units (like procurement, production, distribution) [1]. Typical objectives of these
planning tasks are the maximization of the net revenues or the minimization of the costs considering the
whole supply chain. The time horizon of the master planning tasks comprises at least one seasonal cycle,
typically one year, and the horizon is subdivided into equal length time buckets (usually weeks or months).
3.2.4 Aggregate planning

As opposite to MP, the Production Planning and Scheduling (PP&S) modules mainly concentrate on a single
plant. The overall objective is to establish a detailed, daily or even minutely schedule for each resource of
the plant. However, this usually cannot be achieved in a single step. Thus, traditionally at least two levels of
planning are distinguished, aggregate production planning and detailed scheduling [1]. Aggregate
production planning is similar to the master planning in nature, however, the boundaries of the problems
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are within a single production plant. The time horizon of the planning is usually some weeks or months, and
the horizon is discretized with time buckets similarly to the previous case.
In aggregate planning, the key questions are the amount of products to produce and the corresponding
stock levels for each planning periods. In operations management and inventory theory, these problems are
referred as lot-sizing and lot-scheduling problems. The first production planning and scheduling models
were developed in the beginning of the 20th century, when the Economic order quantity (EOQ) is first
introduced by Harris. An important step was the generalization of the EOQ when Wagner and Whitin
presented the dynamic lot-size model. The dynamic lot-size model that takes into account that demand for
the product varies over time, and determine how many units to order to minimize the sum of setup cost
and inventory cost. Production planning models became more sophisticated with the introduction of the
first material requirement planning (MRP) systems in the 1960s. Later, the introduction of the
manufacturing resource planning (MRP II) system and the enterprise resource planning formed the basis of
the Advanced Planning Systems (APS).
Figure 8. The development of software systems for logistics

The MRP model introduced the most fundamental lot-sizing problem, namely the single-item uncapacitated
lot-sizing problem (LS-U) that corresponds to the planning of a single item to meet some dynamic demand
over a discretized planning horizon. The problem consider the fixed and variable production costs as well as
the inventory holding costs. The production capacity in each period is disregarded in the model, and is
therefore assumed to be infinite. As an extension of the LS-U, the Master Production Scheduling model can
be characterized as a basic, tactical level planning problem that determine the optimal amount of a set of
products to produce or keep in stock.
Considering the above basic examples, it can be concluded that the tactical level planning problems has a
broad and various range, based on the factors that are considered in the given problem. These factors
include the available (and planned) capacities including the machines as well as the human staff. Another
key issue is the cost-optimal inventory control policy, namely to decide the amount of products make to
order (MTO) or make to stock (MTS). In multi-product lot sizing problems, other important parameters are
the cost of the setups, availability of the materials or the option and number of delays called backlogs. Based
on these characteristics, the tactical level production planning/lot sizing problems can be classified by
applying the PROB-CAP-VAR model [45].
3.2.5 Classification of lot-sizing problems

According to the above statements, the lot sizing models can be classified with the PROB-CAP-VAR model
introduced by Wolsey [45] [31]. The purpose of the classification is to provide some specific algorithms and
methods that are based on some reformulations, and able to provide shorter running times than the general
mixed integer programming (MIP) algorithms as for example the branch-and-bound method.
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3.2.5.1 Problem types

The first field of the classification model, PROB, refers to the type of the problem, considering different
balance equations among the planning periods. In the first field, there is a choice of four problem versions:
PROB=[LS, WW, DLSI, DLS].
Problem LS is the problem of finding the production plan for the single item, meeting the demand in every
period, and satisfying the capacity restrictions; that is, the production is less than or equal to a certain upper
bound in every period, that minimizes the inventory and production costs. The LS model also consider an
initial stock level, fixed and variable production costs.
The problem instances WW are similar to the LS ones, except that the variable production and storage costs
are so-called Wagner-Whitin costs. This means that, if set-ups occur in two consecutive periods, then it is
more costly to produce in period t and stock till period t+1, than to produce in period t+1. The distinction of
these problem instances from the LS ones is beneficial, since it allows to reduce the running time of the
optimization algorithms, and to simplify the reformulation of the planning models.
The Discrete Lot-Sizing with Variable Initial Stock (DLSI) instances are also similar to the LS ones, with the
restriction that there is either no production, or production at full capacity in each period.
The Discrete Lot-Sizing (DLS) problem is a DLSI without an initial stock variable.
3.2.5.2 Capacities
Following the classification method of the PROB-CAP-VAR model, the tactical level planning problems can
be subdivided according to the capacity constraints considered in the model. Accordingly, there are three
options to select in the field CAP: CAP = [C, CC, U]
In the first case C, the capacities vary over time, thus these problems are called capacitated lot-sizing
problems. In the Constant Capacity instances, the capacities are equals in each planning periods. In the
third, uncapacitated case there is no limit on the amount of the item produced in each planning period. That
means the capacity in each period suffices to satisfy all the demands up to the end of the horizon.
3.2.5.3 Setups and backlogs

Considering the field VAR, the lot-sizing problems can be subdivided further based on some additional
constraints that occur in real-life planning problems. Generally, this field can refer to twelve identical
problem classes.
In several cases, a-priori delays are allowed to occur in the production plan, however, they are strictly
penalized by additional costs that are proportional to the backlogged amount of work. This can be done by
introducing the term backlog that refers to an accumulation over time of work waiting to be done or orders
to be fulfilled. In order to handle the backlogging in the planning model, additional variables, costs as well
as constraints are required.
In case of flexible or reconfigurable resources that can produce more kinds of products, changeovers are
required to setup the machines from the production of a product to another one. These setups require extra
times and costs that may influence critically the production plan. In order to provide cost optimal plan even
beside changeovers, additional decision variables are required called start-up variables that can refer to
both cost and time dimensions of the changeovers. These models are more difficult to solve, however, they
may provide more reliable results and feasible plans.
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3.2.5.4 Materials, safety stocks

In many real-life problems, the demand is and output of a forecasting procedure, therefore it is not known
with certainty. In order to handle this uncertainty, safety stocks are required that can provide the continuous
supply even in case the demand exceeds the supply. Similarly, the introduction of additional parameters
and variables can harmonize the production with the availability of the raw materials. By this way, the
material provision and production may be planned simultaneously, however, it requires more complicated
models considering the number of the variables and thus occur longer running times.
3.2.5.5 Planning problems with combined objectives

Similarly to the previous example, the tactical planning problems that consider longer horizon, larger time
resolution and aggregated values , are commonly represented by mathematical models that have an
objective function composed of different factors and thus the model provides a plan with the optimal
combination of different factors.
In the industrial practice, the production is often planned together with the capacities, in order to provide
feasible and cost efficient resource assignment and investment policy on the medium-term [3][4]. In that
cases, the production plan relies on a variable amount of capacities considering human operators as well as
machines. The change of the capacities (to avoid high fluctuations and significant investments) is controlled
by specific constraints that provide the balance among the investment constraints and financial objectives.
Other important issue is the shift planning of the human staff that means the pattern-based work allocation
in order to ensure the balanced workload even besides fluctuating order stream.
The plant level tactical planning models in the RobustPlaNet project are going to be defined to solve
aggregate production planning problems that determine optimal capacity assignment, lot-sizes and
production smoothing (by means of overtime, subcontracting, seasonal inventory, back-logging or external
purchasing). Due to the discrete nature of the time horizon and the necessary setups that occur when
performing the plan, the lot-sizing problems are usually represented by mixed-integer programming models.
Section 4.2 introduce the most general problem instances according to the PROB-CAP-VAR model, and the
modeling techniques of the lot-sizing problem for flexible and reconfigurable systems.
3.3 Production execution control
Figure 9. Manufacturing control model [24]

Manufacturing control tasks include releasing orders, controlling capacities and sequencing. The release of
orders entails determining the time point and the sequence in which the orders are dispatched for
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production. It therefore sets the actual input for the production whereas the capacity control ascertains the
workers hours and how long which operator works on which machine. It thus influences the actual output
of the production1. Sequencing determines the succession in which orders are processed on a workstation.
Generating orders determines the planned values for the input and output of the production as well as the
planned sequence and is therefore a logical component of production planning. It frequently includes many
subtasks such as production program planning, material resource planning and scheduling due dates and
capacities. However, in make-to-stock productions the order generation is to some extent conducted using
very simple procedures, for example, the Kanban Control. These methodsespecially because of how
quickly decisions have to be madeare frequently classified as manufacturing control methods, although
they actually carry out planning tasks. Generally they do not explicitly determine the planned values.
However, based on the logic of the procedure and the choice of the parameters it is possible to derive useful
planning values.
3.3.1 Shop floor control

The shop floor is an elementary part of a production system. The value-added activities of the enterprise
are carried out on this level, and in order to fulfil these activities various functions must be performed.
In the term shop floor control, control means the implementation of planning instructions. The shop floor
control system receives manufacturing orders from the planning department where capacity planning and
mid-term scheduling are carried out. Taking the load of the resources into account, the shop floor controller
tries to optimize the sequence of orders and allocates them accordingly. The SFC system must have an
overall view about production orders and the total resource load to achieve optimal processing. Therefore,
theoretically, a shop floor control system merges technological and logistical tasks because it must
co-ordinate economic goals taking the technological constraints into consideration.
The control could be defined as a continuous surveillance and adaptation of the original plans during the
execution phase. According to the goals to be achieved, this activity is based on the comparison of the plan
to actual reality and if necessary could result in the correction of the plan. In the SFC system the short term
refinement and detail of the original master plan is carried out.
Often no distinction is made between shop floor control and manufacturing control (MC), however, there
are dissimilarities between them. Opposite to SFC, manufacturing control may consider several inter-related
shops or plans. Basically it can be regarded as a generalized SFC that covers similar tasks but with a broader
space and/or time domain. Along operative tasks, manufacturing control may consider mid- and long-term
objectives of the manufacturing system.
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Enterprise LAN
Communication
Scheduler Database
Human
Interface
Decision
Making
Dispatcher Monitoring
Data Collection
Lists
Logs. Reports
Shop Floor Communication
Shop Floor LAN
Figure 10. Functional components of a Shop Floor Control System
3.3.2 Functional components of SFCs

The functional structure of a traditional SFC system is illustrated in Figure 10. The hardware included in the
shop floor controller depends on the size of the production system, but usually a workstation is used as a
central computer. The shop floor controller is a multitasking system; it must simultaneously process a large
amount of data received from the planning department via local corporate network, from the user interface
and from the monitoring unit. Data is stored locally in the SFC database that could be an integrated part of
the corporate information system.
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4 Formalization of the planning and control problems

4.1 Supply chain level decision making problem: Coordination contracts
Effective supply contracts help firms achieve global optimization by allowing buyers and suppliers to share
risks and potential benefits. [39]
Model parameters
Retail price (R): the unit price of the products on the market.
Wholesale price (W): the unit price of the products paid for the supplier.
Production cost (C): the unit production cost of the supplier.
Salvage value (V): the unit salvage value for the remaining products at the retailer.
Goodwill penalty cost (G): the unit cost for shortage.
Variables
Demand (D): stochastic variable.
Order quantity (Q): decision variable of the retailer.
Assumptions
Two players: the retailer (decision maker) and the supplier
Complete information
Risk neutral (expected profit maximizing) players
One period (newsvendor model)
The retailer applies Make-To-Forecast
The supplier applies Make-To-Order (with forced compliance)
VCR
The demand is stochastic with probability distribution function f[x], cumulative distribution function F[x],
expected value and standard deviation and we assume that F[x] is strictly increasing.
We use the following notation:
Expected sales: S[Q]
Expected remaining inventory: I[Q]
Expected lost sales: L[Q]
Payment transfer between the retailer and the supplier: T
Expected profit of the supplier:
Expected profit of the retailer:
Total supply chain profit:
The unique optimal order quantity of the supply chain can be derived as:
There are many variants of the contracts differing in the payment transfer T, some widespread forms of
them are briefly described below. Since the retailer decides about the order quantity, we denote its decision
with . The supply chain is said to be coordinated, if = .
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Wholesale Using a wholesale contract, the retailer pays after the quantities ordered: The optimal
order quantity of the retailer becomes: The supply chain is coordinated if W=C, but
then the profit of the supplier is zero.
The problem with the wholesale contract is that the retailer takes all risks and this results in an order
quantity lower than the supply chain optimal.
Buyback/return With these types of contracts the supplier offers that it will buy back the remaining obsolete
inventory at a discounted price. This supports the sharing of inventory risk between the partners. A variation
of this contract is the backup agreement, where the customer gives a preliminary forecast and then makes
an order less or equal to the forecasted quantity. If the order is less, it must also pay a proportional penalty
for the remaining obsolete inventory.
In order to inspire the retailer ordering more, the supplier offers to buy back the remaining obsolete
inventory with the unit buyback price B (VBW). For the retailer, this seems a higher salvage value,
therefore it is equivalent with the following expected payment:
The retailer's optimal order quantity becomes The buyback contract coordinates the
supply chain with the following parameter: .

Buyback agreements are widespread in the newspaper, book, CD and fashion industries.
Revenue sharing: With revenue sharing the customer pays not only for the purchased goods, but also shares
a given percentage of her revenue with the supplier.
In order to inspire the retailer ordering more, the supplier offers lower wholesale price, but takes (1-P)
percentage of the retailer's revenue. This results the following expected payment:
The retailer's optimal order quantity becomes The revenue sharing contract
coordinates the supply chain with the following parameter:

It can be proved, that the optimal revenue sharing and buyback contracts are equivalent, i.e., they generate
the same profits for the partners.
This contract is successfully used in video cassette rental and movie exhibition fields.
Options: The option contracts are originated from the product and stock exchange. With an option contract,
the customer can give fixed orders in advance, as well as buy rights to purchase more (call option) or return
(put option) products later. The options can be bought at a predefined option price and executed at the
execution price. This approach is a generalization of some previous contract types.
We illustrate the call option here, where the retailer buys Q call options with unit price W, and when the
demand materializes, it can buy at most Q products with E unit execution price. The payment is then
The retailer's optimal order quantity becomes The call option contract coordinates the
supply chain with the following parameter:
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Sales rebate: This contract specifies two prices and a quantity threshold. If the order size is below the
threshold, the customer pays the higher price, and if it is above, she pays a lower price for the units above
the threshold.
The retailer pays W unit price if Q is smaller than a predefined limit L, and pays a smaller W unit price for
all products above the limit. This results the following expected payment:
Quantity discount: Under quantity discount contract, the customer pays a wholesale price depending on
the order quantity. This resembles to the sales rebate contract, but there is no threshold defined. I instead
of a W price, the retailer pays according to a decreasing function T=W[Q]. The mechanism for specifying the
contract can be complex. The contract has been applied in many situations, for example, in an international
supply chain with fluctuating exchange rates.
Quantity flexibility: In this case the customer gives a preliminary forecast and then it can give fixed order in
an interval around the forecast.
The retailer buys Q products with W unit price, but if D<Q, the supplier buys back at most K Q products at
unit price W, where 0K1. This results the following expected payment:
Such contracts are widespread in several markets, e.g., among the suppliers of the European automotive
industry.
Two-part tariff In this case the customer pays not only for the purchased goods, but in addition a fixed
amount called franchise fee per order. This is intended to compensate the supplier for his fixed setup cost.
VMI contract: This contract can be used when the buyer does not order, only communicates the forecasts
and consumes from the inventory filled by the supplier. The VMI contract specifies that not only the
consumed goods should be paid, but also the forecast imprecision, i.e., the difference between the
estimated and realized demand. In this way, the buyer is inspired to increase the forecast quality, and the
risk of market uncertainty is shared between the partners.
Profit sharing with coordination contract
Let us now consider the contract with the channel coordinating parameters. We have seen that with the
wholesale price contract, the channel coordinating parameter results in zero profit for the supplier. With
the buyback, revenue sharing and option contracts, the channel coordinating B*, P* and E* parameters
depend on the wholesale price. Therefore W can be considered as the parameter that controls the allocation
of the optimal supply chain profit between the partners.
4.2 Analytical formalization of the plant-level planning problems
4.2.1 Uncapacitated lot-sizing

The uncapacitated variant of the lot-sizing problems is the simplest production planning problem involving
time-varying demand, and fixed set-up costs. The importance of the problem instance is justified by the fact
that the more complicated problems can be derived from the LS-U by adding the problem-specific
constraints and reformulating the objective function.
The problems is described as follows: there is a planning horizon of n=NT periods. The demand for the item
in period t is dt 0 for t = 1n. For each period t, there are unit production costs pt, unit storage costs ht
for stock remaining at the end of period t, and a fixed set-up cost qt which is incurred to allow production
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take place in period t, but is independent of the amount produced. The MIP model of the problem can be
formulated as follows:
the volume produced in period t
the volume in stock at the end of period t
binary variable that indicates whether a setup is occurred in t or not

max + +
=1 =0 =0
subject to
1 + = +
; M is large positive number
+1
+ , , [0,1]

0 = 0 , =
The uncapacitated lot-sizing formulation has a lower range of applicability in industrial practice due to the
level of abstraction, however, it has a high significance from mathematical point of view, since this special
problem class can be solved by utilizing the special structures of the problem class. By this way, the
uncapacitated lot-sizing problems can be solved with dynamic programming (forward or backward
recursion), shortest path algorithms or linear programming algorithms. Therefore, some practical problems
with special structure can be reformulated in a way that some parts of the original problem can be modeled
as an uncapacitated lot-sizing problem and can be solved with significant less computation efforts.
4.2.2 Capacitated lot-sizing

Opposite to the uncapacitated case, the capacitated lot sizing problems (LS-C) have significant practical
importance due to the fact that finite capacities influence highly the optimal plan, therefore such models
are applied by most production planners. The problem class have two main subclasses, namely the constant
capacity case and the capacitated case where capacities vary over time (can be different in each time
bucket). In the simplest case of this problem type, the MIP model is almost the same to the previous case,
with the exception that the second constraint is changed to involve the finite capacities in each time bucket:
; Ct is the capacity limit in time t
4.2.2.1 Backlogs
In addition to the finite capacities considered in practical cases, an important factor that can be handled by
the lot-sizing models is the existence of backlogs. They are allowed in several companies, however, penalized
by additional costs. The standard formulation of PROB-CAP-B problems as a mixed-integer program requires
the introduction of additional decision variables rt that are the backlogs at the end of time periods. This
cumulated shortfall rt in satisfaction of the demand in period t is charged at a cost bt per unit. it is assumed
that r0 = 0. The classical reformulation of the problem LS-C-B is the following.

max + + +
=1 =0 =0 =0
subject to
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1 1 + = +

+1
+ , , , [0,1]

4.2.2.2 Setups
Similarly to the backlogs, the setups (in the PROB-CAP-VAR model they are referred to as start-ups) also
have practical importance, since machine resources usually require some settings before the usage
moreover the preparation of the materials and other resources can be included in the setups as well. From
modeling point of view, setups entail additional costs and reduce the effective working time (capacity) that
can be included in the MIP model as well. The basic formulation for LS-C-SC requires the introduction of new
variables:
zt = 1 if there is a start-up in period t; that is, there is a set-up in period t, but there was not in period t-1,
and zt = 0 otherwise. The resulting formulation for LS-C-SC is

max + + +
=1 =0 =0 =0
subject to
1 + = +

1

1 1
+1
+ , ; , [0,1]

In addition to the time dimension of the start-ups, the incurred costs can be added to the model as well by
the following constraint, where STt means the time requirements of the startup in t.

4.2.3 Aggregate planning for flexible flow lines

The above general models form the mathematical as well as practical basis for the novel, robust lot-sizing
approaches that are in the scope of the RobustPlaNet. Based on the different characteristics of the use-case
scenarios, more identical solutions are needed to solve the arising problems on the plant level. The main
classes of the approaches rely on the special characteristics of the different production system structures.
Flexible flow lines are capable of producing some products with different parameters by adjusting the
resources to the production requirements of the specific products. Considering the lot-sizing models for
these lines, the typical problem is to determine the volume of products to produce in each time bucket
considering a fixed planning horizon (usually some weeks divided into shifts) and a deterministic, discrete
demand volume per product and period. Due to the interdependencies among production planning and
scheduling problems of the flexible flow lines, they are often combined with each other.
In case production and workforce planning are combined in the same model, the general objective is to
minimize the total production costs concerning a certain period. The objective function is usually composed
of the salary of the operators, the cost of inventories, tardiness and setups.
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A general difference from the lot-sizing models introduced in the previous sections that in case of paced
(e.g. with conveyor belt) assembly lines, the available capacities and required capacities can be given easily
in the takt (cycle) times. In case the line is unpaced, moreover the number of workers is less than the number
of workstations, the capacity requirements cannot be represented in a general way. In these cases,
additional parameters are required that enlarge the problem sizes and require higher computation efforts.
In addition to this, diverse reject rates and the rework option also increase the complexity of the planning
models due to the fact that the capacity requirements cannot be considered in a traditional way. To tackle
these problems, the following aggregate planning model is introduced that determine the optimal
production plan and the number of human operators simultaneously even besides the above mentioned
factors by introducing the capacity requirements as a general function of the products produced in the same
time bucket. These functions can be approximated by statistical learning methods (regression), and can be
embedded in the planning models. An important goal of the RobustPlaNet project is to define such robust
planning models for flow assembly lines that combines regression methods with production planning
methods.
N=1n set of resource types
P=1p set of products
T=1...t set of time buckets
Li due date of order i
li inventory holding cost of order i
pi product of order i
vi delivery cost of order i
cit deviation cost of order i in shift t
Q(p) capacity requirement function
s length of a shift
r cost of a setup
w cost of an operator per shift
Decision variables:
xit production of order i in shift t
ypt production of product p in shift t
ht number of operators working in shift t
( ) <
= {
( )

min + +
=1 =1 =1 =1 =1
subject to

= 1
=1
, =

()
=1
[0,1] ,
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4.2.4 Aggregate planning for reconfigurable production systems

Several different lot-sizing approaches exist that focus on dedicated and flexible assembly systems, but their
applicability on modular systems is limited due to the different natures of the underlying processes. On the
other hand, the existing methods are usually based on some assumptions as for example the deterministic
process times, capacity requirements or production costs. Within the RobustPlaNet, one of the main goals
is to implement such aggregate planning methods for modular systems that are robust against fluctuating
customer orders and face such challenges like the variance of the production parameters and dynamic
nature of the processes.
The general objective of the mid-term plans is the maximization of the profit or minimization of the cost
corresponding to the execution of the calculated plan. The objective functions are usually composed of
different factors. On the one hand, production-related costs like the deviation costs of the order fulfillment
(represented by tardiness or delivery performance), operation costs of the machines and control of the
human operators strongly depend on the calculated plan. On the other hand, the optimal number of the
resources and the cost of the manpower are capacity related factors that affects highly not only the costs
but the systems performance as well.
The following model provides the optimal solution for the simultaneous production and capacity planning
for a modular reconfigurable system. The problem is solved on a discrete time horizon with time units
corresponding to individual shifts. The planning problem is formulated as a MIP as follows.
J=1l set of resource types
P=1m set of products
T=1...n set of time buckets
ej purchase price of machine j
oj operation cost of machine j per shift
h cost of an operator per shift
pp processing time of product p
sp setup time of product p
rjp the required number from resource j by product p
Decision variables:
Nj=1...l required quantity of resource j
xtp the number of lines producing p in t

min + +
=1 = =1 =1 =1 =1
subject to

( + ) ,
=1

=1
0 {0,1} 0
4.3 Stochastic Resource Allocation

Resource allocation is one of the fundamental problems of manufacturing, for example, it appears in diverse
areas such as production control, warehousing, fleet management, personnel management or managing
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various collaborative industrial projects. Here, we define resource allocation as the problem of allocating a
finite set of resources to interconnected tasks. For simplicity, we assume that the resources are reusable
(such as factories, shops, machines, furnaces, conveyors, pipelines, material storages, personnel, etc.) and
that the tasks are atomic (i.e., they cannot be interrupted and continued later on). Here, we briefly
investigate resource allocation problems in which the given objective (e.g., a combination of performance
indicators) should be optimized under the presence of disturbances. We will describe a stochastic
formulation of the problem which not only include the natural constraints of these problem, but also
incorporates uncertainties. Such models are natural candidates to formalize and analyze various robust
controllers and strategies on different levels of the production network.
Figure 11. Solution of a traveling salesman problem, i.e., Hamilton-circuit.
m1 t11 t22 t32

machines
m2 t12 t14 t33
m3 t21 t31 t13 t23
time (tasks)
Figure 12. Solution of a job-shop scheduling problem displayed on Gantt charts.

Typical (deterministic) problems that can be seen as resource allocation include the traveling salesman
problem (TSP) [29], the job-shop scheduling problem (JSP) [30], container loading problem (CLP) [12], and
many others. TSP can be informally defined as given a number of cities and the costs of travels between
them, which is the least-cost round-trip route that visits each city exactly once and then returns to the
starting city. In JSP we have a set of machines and a set of jobs which consist of task sequences. For each
task there is a machine that can process that job and there is a processing time. The goal is to find a schedule,
i.e., a feasible (see later) task-to-starting-time assignment. In CLP the problem is to load homogeneous, box-
shaped items into a rectangular container having constrains on the center of gravity of the container. TSP
and JSP are illustrated on Figures 1 and 2 respectively. Note that even these deterministic variants of
resource allocation are very challenging, e.g., NP-hard [29].
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A fundamental concept of resource allocation is feasibility. A general resource allocation problem (which
includes TSP, JSP, CLP as special cases) is feasible if and only if it satisfies four properties [9]:
1. All tasks are associated with exactly one (resource, time point) pair.
2. Each resource executes, at most, one operation at a time.
3. The precedence constraints of the tasks are kept.
4. Every operation-to-resource assignment is valid.
Where precedence constraints are requirements that a particular task must be finished before another given
task can be started; and an operation-to-resource assignment is valid if the resource is capable of executing
the given task. Figure 3 illustrates feasibility for the case of JSP.
machines
mi tk1 tn1 mi tk1
mj tk1
time (tasks) time (tasks)

(1) a resource is associated with two tasks at a time (2) a task is executed twice
machines
mi tk1 mi tk1
mj tk2 mk1 i
time (tasks) time (tasks)

(3) the precedence constraints are violated (4) a task is associated with an improper machine
Figure 13. Feasibility - an illustration of the four forbidden properties, using JSP as an example.
Classical resource allocation problems (such as TSP, JSP, CLP) is of high theoretical importance, e.g., for the
fields of combinatorial optimization. They have a huge number of exact and approximate solution methods,
e.g., in the case of scheduling problems [30]. However, these methods primarily deal with the static (and
often strictly deterministic) variants of the various problems and, typically they do not take uncertainties
and changes into account, therefore, they do not ensure the robustness of the achieved solutions. For
example, a schedule on a shop-floor may need changes after a machine broke down or after a task is delayed
for some reason.
Since in real world applications resource allocation is uncertain, these should be incorporated into our
model, in order to design robust controllers. Intelligent manufacturing which is able to face such
uncertainties and can adapt to various environments received high research [25].
One of the classical approaches is to make resource allocation problems stochastic by modelling task
durations are random variables [30]. Other possibilities include uncertain resources states which allows,
e.g., modelling of machine failures [9]. Figure 4 illustrates uncertain durations for the case of JSP as well as
uncertain durations and arrival states in case of TSP.
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? ? ? ?
machines mi tkn
?
time (tasks) ?
Figure 14. Uncertainties in case of JSP (left) and in case of TSP (right). In the latter, the initial state, the durations and
the arrival vertex (city) could be uncertain, as well.
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5 Conceptual framework to support decisions in RobustPlaNet

5.1 Currently applied SC management frameworks
In order to specify the requirements towards the SC planning and control model that will be integrated in
the Simulation and Navigation Cockpit, a brief overview about the currently applied systems is provided.
An important difference between current ERP and SCM systems is that SCM systems have more planning
power, for example the Advanced Planning and Scheduling (APS) software package allows for sequential
planning. The APS software allows for simulated planning by means of integrating all parameters into the
planning process. The result of this process is that the material requirements plan, production plan, schedule
and capacity plan are executed at the same time. Another weak point of the ERP systems is the limited
simulation and optimization possibility. Thus, the ERP systems only support the user with the creation,
analysis and evaluation of various scenarios. The above mentioned aspect is of vital importance in SCM
software, as the simulation of various scenarios helps to overcome the bottlenecks in a supply chain since
they can be identified at an early stage.
Figure 15. Concept and some of the tasks performed by SCM software [35]
ERP systems form the basic architecture for todays SCM software solutions and are considered to be
absolute minimum requirement in the use of SCM systems. They provide the critical transactional data
(capacity, scheduling and order data) for the planning phase as well as the necessary restrictions for the
SCM tools. Thus, the transactional data and the given restrictions of the ERP system are used in the supply
chain planning process, which can also be simulated. The results from the simulations are transmitted back
into the ERP system. This however is not a trouble-free process, as the data is sent back to various ERP
systems that operate in different organizational networks. These networks are also made up of Warehouse
Management Systems (WMS) and legacy systems, of which the latter is classified as an organizations
historical system that contains transactional data.
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In short, the SCM system has to provide data to numerous ERP systems that exist in various complex
organizational network structures. The integration of all these systems is an essential criterion if the SCM
software is to be efficient.
5.2 KPI-s related to supply-chain and plant level planning objectives

In order to define the planning models so as to provide optimal results that match the requirements of the
management goals, the objective functions are based on key performance indicators.
5.2.1 Key performance indicators

A performance indicator or performance criterion is the specific characteristic to be measured for estimating
the concerned performance and the procedure that collects, measures, and compares a measure to a
standard for a specific performance indicator is called performance measurement system.
In general, performance indicators have two main classes: the local and the global indicators. Global
indicators measure the overall performance of the company of the supply chain, whereas the local ones
characterize a specific set of resources or processes, and usually have minor effects on the global measures.
Besides, KPI-s are usually classified based on the target areas the regard and the most important KPIS are
specific at each company and department. However, KPI-s are useful things to evaluate the performance of
a company, there are some general problems related to their application in practice.
General KPI-s can be applied in various cases, however, they are sometimes so general and qualitative in
meaning that no practical steps can be derived from them without making additional assumptions (e.g.
customer satisfaction). Sometimes, the complexity of the measurement processes leads to the inefficient
applicability of some KPI-s, since the combination of inexact measurements yields the results that are too
complex to interpret. The measurement processes may also be inaccurate that results in distorted and
unreliable results. There are some KPIs whose absolute value has no individual meaning, but the trends and
changes of it that can be obtained only by performing means of measurements, which can lead to long-
lasting procedures.
Figure 16. Processes of the SCOR reference model [23]

Based on the measurements place in the supply chain, KPI-s may be faced with the customer or can be
calculated only for internal use to evaluate the processes within the boundaries of the company.
Furthermore, key performance indicators are usually classified based on the target area of the performance
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measurement that they are derived from [34]. The key performance indicators are classified and defined
precisely by the supply chain operations reference (SCOR) model that is a supply chain diagnostic tool and
provides a cross-industry standard for supply chain management. The purpose of the SCOR model is to
define a companys current supply chain processes, quantify the performance of similar companies to
establish targets to achieve best-in-class performance, and identify the practices and software solutions
that will yield best in class performance [23]. In the following section we define the most relevant KPIs for
the RobustPlaNet project collecting both plant- and supply chain level indicators, nevertheless, it should be
noted that a very comprehensive list of KPIs is listed in the deliverable D3.1, Supply chain decision support
framework.
5.2.2 Customer facing KPI-s
5.2.2.1 Delivery
Delivery performance
Number of products delivered on confirmed delivery date divided by number of confirmed products.
The calculation of the delivery performance is company-dependent.
Fill rate
Fill Rate definitions and calculations can vary greatly. In the broadest sense, Fill Rate calculates the
service level between 2 parties. It is usually a measure of shipping performance expressed as a
percentage of the total order.
Perfect order fulfillment
The percentage of orders meeting delivery performance with complete and accurate documentation
and no delivery damage. Components include all items and quantities on-time using the customers
definition of on-time, and documentation packing slips, bills of lading, invoices, etc.
Lot size (batch size)
Average order quantity
5.2.2.2 Responsiveness
Order fulfillment lead time
Number of days from order receipt to customer delivery
5.2.2.3 Flexibility
Supply chain response time
Number of days for the supply chain to respond to an unplanned significant change in demand without
a cost penalty
Supply chain flexibility
The agility of a supply chain in responding to marketplace changes to gain or maintain competitive
advantage.
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5.2.3 Internal facing KPI-s
5.2.3.1 Production
Volume
An essential factory floor metric relates to the amount of product produced. The volume typically refers
to either the amount of product produced since the last machine changeover or the production sum for
the entire shift or week. Many companies will compare individual worker and shift output to invoke a
competitive spirit among employees.
Performance rate
Performance rate measures speed losses (based on its design speed) of the resource caused by the
stoppages, idles and reduced speed operations.
Target
Many organizations display target values for output, rate and quality. This KPI helps motivate employees
to meet specific performance targets.
Takt Time
Takt time is the amount of time, or cycle time, for the completion of a task. This could be the time it
takes to produce a product, but it more likely relates to the cycle time of specific operations. By
displaying this KPI, manufacturers can quickly determine where the constraints or bottlenecks are within
a process.
Overall Equipment Effectiveness (OEE)
OEE is a metric that multiplies availability by performance and quality to determine resource utilization.
Production managers want OEE values to increase because this indicates more efficient utilization of
available personnel and machinery.
OEE = Availability x Performance rate x Quality
Variance in work content
It is the standard deviation of the operations times.

Downtime
Whether the result of a breakdown or simply a machine changeover, downtime is considered one of the
most important KPI metrics to track.
Availability/Uptime
The opposite of downtime, it represents the percentage of scheduled time that the resource is available
to operate.
Capacity utilization
Utilization is the ratio of the actual time worked for a resource to the time available.
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5.2.3.2 Cost
Supply chain management costs
The direct and indirect cost to plan, source and deliver products and services.
Work-in-process-inventory turnover
Sales divided by average work in process.

Stock-inventory turnover
Annual cost of inventory issues (i.e., sales) divided by average inventory

Value-added productivity
Direct material cost subtracted from revenue and divided by the number of employees, similar to sales
per employee
Cost of goods sold (COGS)
The cost associated with buying raw materials and producing finished goods. This cost includes direct
costs (labor, materials) and indirect costs (overhead).
Warranty/return processing cost
Direct and indirect costs associated with returns including defective, planned maintenance and excess
inventory
5.2.3.3 Quality
Quality
It represents the good units produced as a percentage of the total units started.
Scrap rate
Scrap rate means the percentage of failed assemblies or material that cannot be repaired or restored,
and is therefore condemned and discarded.
Reject Ratio
Production processes occasionally produce scrap, which is measured in terms of reject ratio. Minimizing
scrap helps organizations meet profitability goals so it is important to track whether or not the amount
being produced is within tolerable limits.
Rework rate
Rework is an activity that attempts to fix, correct, or repair the rejected products. If rework cannot be
done or is unsuccessful, the defective units are usually scrapped [18].
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5.3 Simulation and Navigation Cockpit: Overview

In order to tackle the above described challenges and implement an efficient simulation and planning
framework that supports the everyday planning processes and provide such plans that are robust against
the changes and disturbances, state-of-the-art modeling techniques and algorithms are required to combine
with each other. Within the RobustPlaNet, a Simulation and Navigation Cockpit (SNC) is planned to provide
the software background for comprehensive modeling and simulation applications that are required to plan
the production and the supply chain activities.
The SNC can be seen as a software application framework that provides a comprehensive solution for
production planning and control by integrating the specific solver modules that are required by the end-
users. The modules have the ability to collaborate with each other by utilizing the shared information
beyond the user interface. In order to reach this, a general data structure has to be defined that is able to
represent the supply-chain and production process information coming from databases of the identical
users (companies). To perform the necessary calculations in the background, mathematical modeling
applications are integrated in the SNC that applies state-of-the art statistical models to process the large
amount of data, and solver algorithms for calculating the plans. Besides, another important requirement is
to visualize the results in an efficient way that means the user might want to have a dashboard that can be
configured flexibly based on the specific requirements. Another important requirement toward the cockpit
is to provide a data-exchange functionality that can co-operate with the enterprise and manufacturing
execution systems.
Figure 17. The overall conceptual model of the RobustPlaNet Simulation and Navigation Cockpit
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As presented in Figure 17, there are several layers and different actors and components interlinked together
to support the planning decisions. According to the approach of the project there are two main layers
providing data into a common database; (i) the Factory and sensor data layer from which real executional
related, historical production data is fed into the data manipulation layer and the (ii) supply chain related
data from which SC related information is provided as input for planning.
Execution related data is provided from Manufacturing Execution Systems (MESs) databases. Due to the
fact that these data are usually incomplete, sometime coming from manual input from the line, there is a
need for a pre-filtering and formatting before storing the central database of the Cockpit. The central
storage place, together with the filtering functionality is called the Data Manipulation layer.
The second input for the Data Manipulation layer comes from the supply chain level and consist all the
information related to products, customer orders, forecasts, etc. Usually these inputs are provided by the
ERP systems together with the master data of both the supply chain and plant level structures. These master
data include the bill of materials, routings, and description of resources and their abilities, production times
and necessary human operators with their abilities and availability calendars which are all plant level data.
Nonetheless, and as mentioned earlier, the master data from ERP systems also includes the supply chain
level information like suppliers, customers, inventory levels, etc. which all are needed for higher level
planning decisions. Data filtering for ERP/Supply Chain related data is less requested as usually these data
are most consistent and maintained inside the strict ERP system.
In the conceptual framework of the Cockpit we have the central database including the specified input for
the prepared models represented by the Background models for planning and forecasting box in Figure
17. In this side level we build all those models, methods and algorithms which will support the calculation
of the plans and/or provide forecasts. Simulation models, mathematical algorithms for scheduling, capacity
planning methods, inventory forecasts will all go into this level. As most of the tools applied for solving
planning problems together with the well-known simulation modelling software have their own, internal
data representation, the relevant subset of data from the central database which is necessary to solve or
forecast are also replicated on this lowest modeling and solving level. Having a calculation done or a
simulation run finished, the results as main calculated KPIs are stored back into the Central Database and
are available for graphical or textual representation.
The user interface of the Simulation and Navigation Cockpit is placed on the higher level Figure 17 having
access to the representation of the relevant data from the Central Database, e.g. the input of simulation
scenario, to the graphical and textual representation of calculation results and last but not least also all the
possibilities to initiate planning calculation and/or simulation-based forecasts.
5.4 Applied software tools and algorithms
5.4.1 Data processing and statistical computing

An important part of the SNC is the data pre-processing module in the data manipulation layer that is aimed
at receiving the data from the different sources, transforming them into the internal data representation of
the cockpit, and processing for further purposes if required. This module is also responsible for the export
of the plans and displaying the selected results on the dashboard of the cockpit. The module has not only
data management functionalities since it forms the basis of the planning applications by the statistical
learning functionalities.
Several applications are available for such purposes, however most of the accurate ones are available only
with a commercial license except the R, which is a free software programming language and software
environment for statistical computing and graphics. R provides a wide variety of statistical (linear and
nonlinear modelling, classical statistical tests, time-series analysis, classification, clustering etc.) and
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graphical techniques, and is highly extensible. One of R's strengths is the ease with which well-designed
publication-quality plots can be produced, including mathematical symbols and formulae where needed.
Great care has been taken over the defaults for the minor design choices in graphics, but the user retains
full control. R is an integrated suite of software facilities for data manipulation, calculation and graphical
display. It includes
an effective data handling and storage facility,
a suite of operators for calculations on arrays, in particular matrices,
a large, coherent, integrated collection of intermediate tools for data analysis,
graphical facilities for data analysis and display either on-screen or on hardcopy, and
a well-developed, simple and effective programming language which includes conditionals, loops,
user-defined recursive functions and input and output facilities.
The term "environment" is intended to characterize it as a fully planned and coherent system, rather than
an incremental accretion of very specific and inflexible tools, as is frequently the case with other data
analysis software. In order to make the data processing and statistical modeling easier, RStudio offers a free
and open source integrated development environment (IDE) for R, and support the development of the
modules from the early stage up to the integration [33].
Figure 18: Windows interface of the RStudio [33]

Within the project, the goals are to utilize the data transformation capabilities of R and to define statistical
learning models that support the supply-chain planning activities. Due to the flexible programming
functionalities, accurate computing methods and extensibility, the data processing modules that are
implemented in R can be combined with the other modules of the cockpit.
5.4.2 Mathematical modeling applications

The mathematical modeling and optimization techniques that are introduced in the previous chapter are
useful tools to calculate robust and reliable plans, however, the implementation of the models and solution
procedure require efficient algorithms and software applications. Mathematical programming and solver
algorithms have a very broad literature, and the most reliable solutions are already implemented in the
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commercial and open-source software. Thus, the RobustPlaNet is not aimed at implementing novel solver
algorithms, but to apply the available frameworks to build up and solve new models that are able to calculate
more robust plans than the already available ones.
As usual, mathematical programming software have two main classes: the commercial and the open source
modeling environments. Basically, they apply the same solver algorithms in the background, however, the
difference might be significant when comparing them. Commercial software have huge design and
programming efforts in the background, and usually resulted by thousands of development hours. The most
commonly applied mathematical programming applications were started to develop decades ago, and the
latest scientific results were continuously integrated in the solver algorithms. Therefore, they outstrip the
open-source application that rely on more or less the same algorithms, however, there are less efforts in
the implementations that worth a lot in case of such applications. The significant differences in the
benchmarks among the applications is usually caused by the combination of minor effects (e.g. numerical
errors like rounding). Due to the fact that the solver algorithms usually have big computational requirements
and performs a long sequence of calculations, the minor effects are magnified and their impact on the final
results becomes major. Therefore, the commercial software applications are preferred over the open-
source ones in the RobustPlaNet, however, a comprehensive benchmark is required before the
implementation and integration to select the option that best meets the requirements of the project goals.
Most of the mathematical programming software rely on declarative programming that is a style of building
the structure and elements of computer programs that expresses the logic of a computation without
describing its control flow. Many languages applying this style attempt to minimize or eliminate side effects
by describing what the program should accomplish in terms of the problem domain, rather than describing
how to go about accomplishing it as a sequence of the programming language primitives (the how is left up
to the language's implementation) [13]. When implementing the mathematical programs in a declarative
language, the code contain the equations similarly to their algebraic form, and does not include the
behavioral relationships. Utilizing this declarative formalism, the computer is able to perform algebraic
manipulations to best formulate the solution algorithm. This technique provides a flexible way of model
building since the data representation, model formalization and calculations can be handled separately, thus
the model can be broadened with additional constraints easily.
As for the solver algorithms, the production planning problems are usually formulated as linear or mixed
integer programming models that can be solved by different algorithms. Simplex methods provide accurate
solutions for linear programs, however, they cannot handle problems that contain integer variables. For
these purposes, branching- and heuristics-based algorithms are applied. Another fundamental difference
between these problem types is while linear programs can be solved in polynomial time, the problems with
integer constraints are NP-complete, therefore, there is no polynomial time algorithm that finds the optimal
solution. However, currently available solvers that are integrated in commercial or non-commercial
software are quite accurate to solve MIP models even in case of a relatively large number of decision
variables. The main difference among them is the running time of the algorithms that can be very different
when solving the same problem instances with a relatively large complexity.
5.4.3 Discrete-event simulation applications

An important module of the cockpit is the one that provides discrete-event simulation to evaluate the plans
resulted by the mathematical optimization module. Discrete-event simulation is a generic Digital Enterprise
Technology (DET) for evaluating the performance of manufacturing systems and analyzing the underlying
processes. The greatest benefit of using DES is to make detailed experiments without having the real
production systems.
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In many of the practical cases, simulation and optimization are combined to make the right decisions,
qualitatively as well as quantitatively. Decision makers often formulate optimization models, containing all
relevant factors, such as destination function, conditions and destination description. These processes
require large amounts of processing power the more detailed the model is. Besides, the results and
acceptance of operations research processes are often not satisfactory. In addition to linear optimization
models nowadays simulation is increasingly used for making the right decisions. It offers reasonable
solutions for complex problems but does not automatically create the actual optimum.
Similarly to the above described solutions, the most powerful simulation software are available with
commercial licenses. They provide building blocks to simulate the real production facility in a virtual
environment, and usually contain other important functionalities like programming interfaces, special
libraries and dashboard modules.
Besides the implementation of the simulation models of the production systems in commercial software
environments, an important goal of the RobustPlaNet is to provide a building block library for the SNC to
simulate the target assembly system in the own simulation module of the cockpit. The benefit of
implementing such library beside the own license is that the user interface and the communication of the
module can be combined directly with the cockpit, therefore the simulation analysis would require much
less computation efforts and thus the running time could be decreased significantly.
5.4.4 Analytical tool: Flowline

As mentioned in the previous sections, analytical methods for the evaluation of performance of production
system make use of equations for modelling the characteristic of the system itself and the existing relations
between system components. For complex systems, the number of equations to be written and solved
becomes huge. Therefore, approximate analytical methods based on the decomposition approach are
developed in our research activity. The entire system is decomposed in a certain number of subsystems,
easier to be analysed than the original one. Relations between the subsystems are captured by appropriate
decomposition equations. Available decomposition-based analytical methods allow evaluating the
performance of a wide variety of systems:
synchronous or asynchronous lines with
multiple failure modes machines and
buffers having finite capacity
assembly/disassembly systems
closed loop and multiple closed loop systems
split and merge systems
multi-product systems
Figure 19: Decomposition and Performance window in Flowline
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Flowline is a software developed by the Production System research group in Politecnico di Milano, for the
performance evaluation of production systems. The software takes in input the production system layout,
the dynamic of the material flow, the capacity of the buffers, the failure and repair parameters and the
machine cycle times. By running the decomposition method, the software is able to provide in output the
main performance measures, in terms of average system production rate, average lead time, average buffer
levels and system WIP (Work in Progress). Moreover, Flowline calculates the probabilities of blocking and
starvation for each station, linked to the failure modes of the other machines which caused the propagation
of these phenomena.
5.4.5 Computational synthesis design tool (CSD)

The CSD developed by the University of Twente is a synthesis system for creating and evaluating different
supply chains. The decision support tool is application domain specific that includes a core module that need
be customized for the specific applications (e.g. existing versions of the tool were developed for spring or
factory layout design). The software defines a solution space (consists of a set of candidate solutions) that
is explored to find the best solutions according to the specified objectives. Each created solution should be
able to fulfil prescribed requirements for the output of the supply network. The tool will give insight to the
users because various solutions can be compared based on their performances, behaviours and robustness.
The production of different solutions is achieved by varying the number of players (topology) of the network,
by the players (the suppliers) receiving different operational strategies or operational properties, or by a
combination of the before mentioned approaches. To determine the behaviour of a network a traditional
simulation tool can be utilized. However connecting an advanced tool provided by the research partners
also is a possibility.
A part of the development is the enhancement of a generic synthesis toolbox to support the building of
domain-specific applications. In this case the domain will be supply-chains. Three components are to be
added to the toolbox: 1) a generic description of the supply chain model, 2) supply chain design knowledge
and 3) a simulation tool. The resulting tool will support exploration of the generated solutions in a graphical
environment. Furthermore, it will be able to receive scenario data of the supply chain (for existing or
simulated situations), and it will be capable of producing files with supply chain descriptions and simulation
results.
The cockpit software will comprise multiple parts, all of which to be developed or under development. For
a successful creation it will be beneficial to aim at a loosely coupled set of tools. It will be demonstrating
functionality and potential interoperability to the industry. Therefore the contribution will be a stand-alone
tool (executable), capable of sending and receiving data via a file-interface. The tool is user centred and
utilizes multiple windows for interaction and visualization (of different solutions simultaneously).
5.5 Model interfaces and data requirements

An essential component of the proposed Simulation and Navigation Cockpit introduced in section 5.3
is the data manipulation layer that receives the data from the MES and ERP systems and transfer the results
to the GUI and the cockpit (Figure 17). The multi-level decision support model requires data gathered from
both the supply chain levels as well as from the shop floor. The computational modules that realize the
analytic formulations of the mathematical models can receive data only from the with the interface modules
that transform the data in the module specific formats.
5.5.1 Master input data

The input master data are necessary for operating the multi-level decision making models (supply chain
planning, coordination, production planning and scheduling), and composed of both supply chain as well as
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plant and shop-floor related parts. These data are stored in a well-structured common database, therefore
the specific tables can be mapped and interlinked with each other in case the calculation models requires
so. The potential requirements for sharing various types of information are as follows:
Product related data
Individual products or products groups
Classification information: volume, frequency
Minimal and incremental production quantity/packaging unit
etc.
Production technology related data
setup time
throughput-time
capacity constraints
material requirement
etc.
Inventory information
Types of inventories: components, work-in-process, materials, in-transit etc.
Ownership: customer, supplier, consignment, etc.
Safety stock policy
Inventory handling rules: Reorder point (ROP)
Order quantity, min-max limits etc.
etc.
Network configuration/partner information/market characteristic
Partner data
Business model/relationship characteristic: order-based, VMI, CPFR, etc.
Service level requirement/tolerance
etc.
Plans concerning the intended behavior of network partners
Forecasts
Firm orders, flexible options, bids, acceptance/acknowledgment, etc.
Production plans
Scheduled demand
Delivery plans
etc.
Resource capacities
capacity of human and machine resources

Delivery-related master data
Delivery time
Min/max deliverable quantity
etc.
Financial data
Prices: price, discounts, etc.
Costs: production, inventory holding, setup, material, transportation, etc.
Penalties: order cancellation, shortage penalty, etc.
Bills/invoices: instant, monthly, etc.
Salvage value
etc.
Historical data
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Production
Delivery
Inventory
etc.
Maintenance data
maintenance-critical components
failure types
maintenance activities
5.5.2 Output data

The output data is resulted by the planning and forecasting models, and can be used for different purposes
e.g. forwarding them to the SC-level decision maker via the cockpit interface, or applying them for shop-
floor control by the shop-floor level decision maker. While the input data is more general, the output of the
planning and forecasting modules are more application domain and use-case specific. The output data
include the followings (categorized according to the use-cases):
Daimler
machine state model
status indicators
prediction of the future parameter values
maintenance plan
maintenance times
maintenance actions
effect of the maintenances on the KPI-s
Knorr
Production planning
Time-indexed production plan (e.g. with 1 shift resolution)
Capacity allocation
Number of operators
Shift patterns
Stock levels
Job release time
Production control
Optimal workload level
Optimal capacities
Optimal testing sequences for the identical products
Voestalpine
equipment management strategy
product-cell assignment
cell components
redesign policy
planning and scheduling
lot-sizes
master schedule
capacity requirements
Supply Chain use case
production levels
inventory levels
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re-scheduling policies
coordination contracts
5.5.3 Standards for data representation

In order to have a database that is able to store domain specific information, a uniform representation is
required that is able to handle multiple sources and defines the relationships among the domains. Different
standards exist for such purposes:
In-house communication standards
ISO/TS 184
ANSI/ISA-95
Electronic data exchange standards
UN/EDIFACT, UN/CEFACT
RosettaNet
ebXML
Central platforms for production networks
SupplyOn
myOpenFactory
Miscellany
VICS
SAP Automotive
5.5.4 ANSI/ISA 95
According to the preliminary benchmark, the ANSI/ISA-95 (International Society of Automation, s.d.), or ISA-
95 seems to best suit the simulation and navigation cockpit, as it provides comprehensive data exchange
features:
Information exchange between business logistics systems and manufacturing operations systems
Models of activities in manufacturing operations systems
Models of exchanged information within manufacturing operations systems
The ISA 95 is an international standard for the integration of enterprise and control systems developed by
an ISA Committee of volunteer experts. It can be used to determine which information, has to be exchanged
between systems for sales, finance and logistics and systems for production, maintenance and quality. This
information is structured in UML models, which are the basis for the development of standard interfaces
between ERP and MES systems. The ISA-95 standard can be used for several purposes, for example as a
guide for the definition of user requirements, for the selection of MES suppliers and as a basis for the
development of MES systems and databases [19]. This standard has been developed for global
manufacturers. It was developed to be applied in all industries, and in all sorts of processes, like batch
processes, continuous and repetitive processes.
The objectives of ISA-95 are to provide both consistent terminology that is a foundation for supplier and
manufacturer communications providing consistent information models as well consistent operations models,
which is a foundation for clarifying application functionality and how information is to be used. There are 5
parts of the ISA-95 standard.
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ANSI/ISA-95.00.01-2000, Enterprise-Control System Integration Part 1: Models and Terminology

consists of standard terminology and object models, which can be used to decide which information should
be exchanged. The models help define boundaries between the enterprise systems and the control systems.
They help address questions like which tasks can be executed by which function and what information must
be exchanged between applications.
ANSI/ISA-95.00.02-2001, Enterprise-Control System Integration Part 2: Object Model Attributes

consists of attributes for every object that is defined in part 1. The objects and attributes of Part 2 can be used
for the exchange of information between different systems, but these objects and attributes can also be used
as the basis for relational databases.
ANSI/ISA-95.00.03-2005, Enterprise-Control System Integration, Part 3: Models of Manufacturing

Operations Management focuses on the functions and activities at level 3 (Production/MES layer). It
provides guidelines for describing and comparing the production levels of different sites in a standardized
way.
ISA-95.04 Object Models & Attributes Part 4 of ISA-95: Object models and attributes for Manufacturing
Operations Management defines object models that determine which information is exchanged between
MES activities (which are defined in part 3 by ISA-95). The models and attributes from part 4 are the basis
for the design and the implementation of interface standards and make sure of a flexible lapse of the
cooperation and information-exchange between the different MES activities.
ISA-95.05 B2M Transactions Part 5 of ISA-95: Business to manufacturing transactions defines

operation between office and production automations-systems, which can be used together with the object
models out part 1 & 2. The operations connect and organize the production objects and activities that are
defined through earlier parts of the standard. Such operations take place on all levels within a business, but
the focus of this technical specification lies on the interface between enterprise- and control systems. On the
basis of models, the operation will be described and becomes the operation processing logically explained.
Within production areas activities are executed and information is passed back and forth. The standard
provides reference models for production activities, quality activities, maintenance activities and inventory
activities.
B2MML (Technology, s.d.) (Business To Manufacturing Markup Language) is an XML implementation of the
ANSI/ISA-95 family of standards (ISA-95), known internationally as IEC/ISO 62264. B2MML consists of a set
of XML schemas written using the World Wide Web Consortium's XML Schema language (XSD) (W3C, 2004)
that implement the data models of the ISA-95 standard. B2MML is meant to be a common data definition to
link ERP and supply chain management systems with manufacturing systems such as Industrial Control
Systems and Manufacturing Execution Systems. B2MML is published by the XML Working Group of The
Forum for Automation and Manufacturing Professionals.
ISA-95 defines 4 levels in industrial companies, defined according to [19] as they follow:
Level 0, 1 en 2 are the levels of process control. Their objective is the control of equipment, in order to
execute production processes that end in one or more products.
Level 3 could be called the level of MES (manufacturing execution system) activities. Level 3 consists of
several activities that must be executed to prepare, monitor and complete the production process that is
executed at level 0, 1 and 2. For example activities like detailed scheduling, quality management,
maintenance, production tracking, and so on.
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The highest level (level 4) could be called the level of ERP (Enterprise Resource Planning) systems. At this
level financial and logistic activities are executed. These activities are not directly related to production. For
example long term planning, marketing and sales, procurement.
Considering the RobustPlaNet, the ISA 95 standard can be applied as the general data representation in the
Simulation and Navigation Cockpit in order to interlink the planning and forecasting models with each other
and with the data manipulation layer.
Figure 20: Levels and functions of the ISA 95 (according to [5])
5.6 Validation procedure of the decision-support model and framework

The validation of the multi-level decision support methods include the evaluation of the novel mathematical
models as well as the indirect validation of their integration in the simulation and navigation software.
Important to note, that the validation criteria of both the decision support framework as well as its individual
computational modules are strongly domain-dependent, whereas the user-interface of the cockpit can be
validated and evaluated domain-independently.
Thus, similarly to the introduction of the output data (section 5.5.2), the validation of the decision-support
framework will be described according to the specific application domains. However, still there are some
general points that concern for all domains.
5.6.1 Domain-independent validation

Domain-independent validation procedure includes general methods for evaluating the implemented
models as for example statistical methods. The process validation is usually defined to determine whether
a model within its application domains accurate enough within its range of applicability. General validation
methods rely on a validation team that can involve or not the developers. In order to avoid the subjectivity
during the validation in the project, a statistics-based validation process is proposed, that rely on the
comparison of the target, pre-defined KPI-s.
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The main idea of the validation process is to compare data gathered from the real systems and results of
simulations run applying statistical analysis. The simulation will be performed by the specific module, and
will apply the results of the planning and forecasting models as input. The data gathered from the existing
manufacturing system is the recorded historical data regarding the predefined validation parameters (KPI-
s). In the validation method it is vital to represent the states of the system/network before the existence of
the robust approaches as well as after applying them. In case the historical values of the KPI-s cannot be
gathered directly from the historical data, both states of the system need to be implemented in the
simulation module to ensure the comparability of the results (Figure 21).
As the production system runs in an uncertain environment, the simulation models must consider them as
stochastic variables. For the comparison of the suggested validation method results of several simulation
runs are used as a result set. In the test described below numerous statistical attribute of the dataset were
examined to decide the validity of the simulation model.
Figure 21: General structure of the domain-independent validation procedure
5.6.2 Domain-dependent validation

As for the domain dependent validation of the multi-level decision support framework, two main application
fields of the system are the supply chain planning and coordination (ITC use-case) and production planning
and scheduling (Knorr, VPN and Daimler use-cases) that involves all application domains of the project as
well as all use-case scenarios.
The validation of the SC-related parts of the model are going to rely on the historical data given mainly by
FESTO, and the other partners that are involved in the supply chain use case. As the objective is to reduce
the propagation of the disturbances in the entire supply chain, the historical data used for the evaluation
have to reflect the AS-IS and robust states of the production system and network that are subject to changes
and disturbances. Systematic design of experiments is required to analyze the complex interdependencies
among the partners in the supply network that face with the disturbances, means that three main scenarios
have to be analyzed. The first case is the top-down disturbance propagation, in which the changes occur on
the network level, directly influencing efficiency of the coordination mechanisms. However, these changes
affects indirectly the system- as well as the hardware levels. The second case is the opposite of the first one
that means a bottom-up disturbance propagation. In this scenario, the hardware level is directly exposed to
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changes (e.g. machine breakdowns, capacity shortages etc.) that influence the upper levels of the hierarchy.
The third case is a general scenario, in which disturbances occur at random levels and their effects can be
linked with each other. The goal of the validation is to compare the historical (non-robust) supply chain KPI-
s with the robust versions for all three scenarios covering both coordination and planning decisions.
Regarding the validation of the production planning and scheduling part of the decision making model and
framework, the general requirement is to acquire historical data from the industrial partners that are
recently used in their current production planning systems. The validation procedure in this case will be
simpler than the previous case, as the goal is to compare the currently applied tools with the ones developed
within the RobustPlaNet. Similarly to the previous case, the target KPI-s will provide the basis for the
benchmark, and the scenarios have to include the plant-level-relevant changes and disturbances that occur
in the everyday production. These factors have to cover machine-, human-, material- as well as operation-
and control-related disturbances.
An essential part of the evaluation procedure is the investigation of the maintenance planning module
developed for Daimler. In this case, the target of the experiments will be the machine selected as the scope
of the use case scenario. It will be subjected to disturbances and thus maintenances according to the defined
policies, and their combined effect on the whole systems behavior will be observed.
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6 Application of the model on the use-case scenarios

In order to demonstrate the novel methods developed within the RobustPlaNet, four use-case scenarios are
set-up at the industrial partners, each focusing on different application domains. The goal of the use-case
scenarios is to give practical examples how the robust supply chain planning and scheduling can be exploited
to real production environments.
6.1 Daimler
The first use-case scenario can be seen as a special application of the planning methods, as the Daimler
Trucks focus on increasing the availability and reliability of its machining centers by planning the
maintenance activities carefully not to disturb the production, that would occur increasing downtimes. The
main target of this demonstrator will thus be the validation of the opportunistic maintenance services and
the related software. The shop floor and plant level will be focused in this use case. Therefore, the Daimler
use-case disregards the SC planning activities, however, some of the robust resource allocation and
scheduling approaches could increase the robustness of the maintenance activities.
The desired result of the scenario is to implement a robust planning and scheduling method for the
maintenance activities that utilizes the data gathered from the sensor-based production monitoring system.
The results of a comprehensive data analysis combined with the experience of the maintenance staff result
in a set of selected components that tend to require services and relevant to monitor. The lifetime of the
critical components can be predicted by the machine state model that can be defined by the knowledge
about the possible deterioration states and maintenance activities. The state of the critical components can
be monitored by the installed sensors that provide the maintenance input data towards the Simulation and
Navigation Cockpit.
In order to define a robust maintenance policy for the target machine, a novel maintenance planning module
will be defined that utilizes the machine state model and predicts the behavior and lifetime of the critical
components. Based on the predictions, a maintenance planning algorithm can be defined that determine
the maintenance times for the regarded components and different maintenance actions.
M1 M2 B2 M3 M4 M5 M6
Monitoring and data gathering system (sensors, supervisors,..)
F(x) F(y)
Control System
parameters model
Optimization and
0.9
0.8
0.7
0.6
0.5
0.4
Reconfiguration
0.3
0.2
0.1
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0
Figure 22: Integrated data collection, performance analysis and maintenance optimization framework
The core of the maintenance planning module is planned to rely on the opportunistic maintenance scheme
in which preventive maintenance is carried out at opportunities. That is possible by applying the machine
state model, which can be represented by a Markovian state transition model. Data gathering from a sensor
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network is of paramount importance to derive such models for all the degrading machines in the system
and to build by composition the system level model. In the operational phase, this sensor network will
enable to infer on the machines state, and to activate system level optimal maintenance actions, according
to the schematic framework provided in Figure 22.
6.2 Knorr-Bremse
The Knorr-Bremse use-case scenario focuses on implementing novel lot-sizing and master scheduling
methods for the assembly lines of the company. The structures of the production lines operated in the
Kecskemt plant are quite similar, therefore a pilot assembly line is selected for the demonstration,
however, the results might be exploited easily on the other lines later. The selected flow assembly line
consists of manually operated workstations, an automated test bench with five slots, final assembly stations
and a rework station. On the line, three product families are produced (LA80, LA82, EL9) which are all air
dryers for commercial vehicles.
The operation mode of the line is one-piece flow with and working in an unpaced way, which means that
there is no conveyor belt for the material flow but the operators pass the products from one station to
another. The number of operators is less than the number of workstations the number of workstations, and
the assembly tasks have to be performed under a product-specific takt time. The bottleneck is always based
on the currently assembled product, since they have identical takt times and require different processing
times at the workstations. At the end of the line, an automated testing station checks the quality of the
products. The products that do not pass the test proceed to a manual rework station that is separated from
the line. After the rework, the repaired products are put in the testing station again.
The customer orders for the products are available for a certain planning horizon that is split up into a set
of time buckets (shifts). Each customer order can be characterized by an order volume and a due date.
Make-to-stock option is available in every time bucket, therefore in case of capacity shortage, orders can be
fulfilled from stocks, however, holding inventory is associated with extra costs. Order fulfilment after the
due date is possible (backlog) but also penalized with extra costs. The decisions also involve the allocation
of the capacities in particular the personnel, the production sequence and balancing the inventory levels
with production and supply.
The goal is to define a robust mid-term production plan that is able to cope with changes and disturbances
that occur in the everyday production. Further purposes of the method is to provide an optimal plan that is
based on the minimization of the production costs on a certain horizon, increase the utilization of the
capacities (machines and human operators) and provide pattern-based shift schedule. In order to develop
a production planning method as described above, the efficient co-operation between the logical and
physical layer of the production system must be ensured. This means that in the mathematical model has
to rely on the production log data that reflect the real work contents instead that of the norm times that
are pre-defined for each product.
Such robust planning and lot-sizing approaches can be implemented by applying an aggregate planning
model for reconfigurable production systems that is similarly to the one introduced in the previous chapter.
The challenges resulted by the diverse reject rates, capacity control policies and capacity requirements
might be tackled by introducing multivariate function in the MIP models that can be approached by
statistical learning models. Performing a comprehensive data analysis on the MES data, new statistical
algorithms will be developed for on-line analysis and pre-processing of these data for planning input. In the
second phase new planning, scheduling and re-scheduling algorithms will developed with which more
effective and more robust plans will be calculated and provided for local planers and line dispatchers. A
possible structure of the robust planning methodology is depicted by Figure 23.
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Figure 23: Map of the data and production planning processes (TO-BE state)
6.3 Voestalpine
Within the RobustPlaNet, the main goal of the Voestalpine Polynorm is to develop robust equipment
strategies in the assembly segment that are able to cope with their main challenges like shorter product
lifecycles, mass customization and decreasing production volumes per part type. In order to define the
optimal strategies, a set of possible solutions/concepts has to be defined that can be evaluated according
to different criteria. The problem specific version of the CSD is capable of defining the candidate solutions
that are technologically feasible and meet the specified requirements. The best equipment strategies can
be found by exploring the solution space and evaluating the concepts according to the key performance
indicators.
As for the input of the software tool, an important aspect of the planning is the mid-term forecast of
assembly technologies. Also suitable means of performance measurement have to be identified in order to
compare the as-is-production system to the generated solutions. By navigating through the solution space
the user should be able to develop an understanding of how decisions for particular configurations affect
the relevant KPIs. Therefore the process should allow to compare the different decision options, to make
trade-offs and find the optimum solution. The most promising solutions (setups) should then be used for a
more detailed simulation and production planning.
From plant-level planning point of view, the goal of the Voestalpine use case is to demonstrate novel lot-
sizing and master scheduling approaches that can be applied to plan the production in the modular,
reconfigurable assembly cells of the company. Concerning this use case, special challenges can be found in
varying production volumes, which depend on the current phase of the product lifecycle and represent a
major issue for equipment planning. This challenge affects assembly by creating a conflict between placing
universal (many variants) or dedicated (high volume) production cells on the limited shop-floor space.
The development and use of production and capacity planning and a simulation environment should result
in a setup, which is fine tuned and has optimized features. Mathematical production and capacity planning
models are going to be as the first steps towards the cost optimal solution. Within these models, the
dynamic assembly processes will be harmonized with the supply chain by considering the modular
reconfigurable cells as well as the dedicated ones. The objective function is going to be composed of the
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company-defined KPI-s such as the total equipment performance that is maximized while satisfying the
customer orders. The optimized production plan(s) give the time indexed production schedule for the
assembly segment by allocating the production orders to the dedicated and reconfigurable capacities and
time intervals (shifts). For the evaluation of the proposed production plans discrete-event simulation will be
applied that provides the analysis of the production system by considering the unpredictable and stochastic
effects.
By applying MIP formulations, an optimal sets of products can be determined that should be assigned to
reconfigurable or dedicated cells. As the structure and operation/control logic of the reconfigurable
assembly cells are quite different from the dedicated ones, such novel planning modules should be defined
that meet the planning requirements in that cells. Similarly to the Knorr-Bremse case, the Voestalpine also
focus on the tactical level (aggregate) planning, as well as on the capacity planning and allocation of the
reconfigurable resources.
The ideal output of the planning module in this case is the cost-optimal assignment of the products
(especially the end-of-lifecycle ones) to the reconfigurable and dedicated resources, as well as the optimal
lot sizes and applied reconfiguration policies (Figure 24).
Assembly Order
Cell assignment
cells volumes
Dedicated Reconfigurable
Production planning
Resources Production plan Cost
Figure 24: Sample planning hierarchy for the To-be state
6.4 Supply Chain use case (ITC, FESTO)

This use case scenario focuses on increasing the robustness of a partly virtual supply chain involving the
industrial partners of the projects. All partners in the supply chain are subject to disturbances which can
arise from different sources. These varying disturbances can either be internal: occur at the individual
partners sites (e.g. machine breakdown) as well as at external: volatile customer demand, late deliveries
from suppliers etc. The disturbances have different effects on the different production levels (hardware,
production system, production network) of each individual partner in the supply chain. Therefore, a complex
SC planning and coordination problem has to be solved in order to keep the target service level of the
companies.
The main objective is to reduce the propagation of the above mentioned disturbances by increasing the
robustness of the whole supply chain that includes both hardware and logical layers of it. It requires a multi-
level (plant and SC) solution approach that can cope with reconfigurable resources on the hardware level as
well as providing efficient planning and scheduling approaches on the plant and network levels. In order to
harmonize the operation of the individual suppliers and customer, comprehensive coordination
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mechanisms are required that are focused on increasing the robustness of the supply chain control (Figure
25).
In order to reach achieve these goals, the most appropriate KPI-s are selected in order to define the objective
functions of the domain-specific problems. By analyzing the sources and effects of the disturbances, novel
planning, scheduling and coordination methods can be defined to increase that are able to cope with them.
These methods are going to be integrated in the Simulation and Navigation Cockpit together with the
simulation tools that can evaluate the proposed solutions by analyzing the whole supply chain on all levels.
The result of the use case is a list of possible actions to increase a systems robustness. Besides, the use case
offers the possibility to predict the actions effects on the systems robustness on production system level
and helps to choose a promising action for implementation. A detailed description of this use-cases is
separately given in deliverable D3.2 Industrial supply chain description.
Figure 25: Production levels and propagation of disturbances in between the levels
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7 Conclusions
The D1.3 deliverable collected and detailed the main decision making problems which are all in the focus of
the RobustPlaNet project. It highlighted the hierarchy of the planning mechanisms in both the supply chain
and production system level together with the formalization of the specific problems that are tackled in the
project.
The conceptual framework of the multi-level decision making and the supporting Simulation and Navigation
Cockpit is also introduced. The most relevant input data for different demonstrations and the specific KPIs
for these pilots are presented in the same section. Nevertheless, it should be noted here that this document
is in strong relation with deliverable D3.1 Supply chain decision-support framework which introduces in
more details the highest level, supply chain decision concept of RobustPlaNet. The authors tried to separate
clearly the two deliverables, even though, overlap might exist between these two documents.
Near the short description of the four use-cases, both the domain independent and the domain dependent
validation is shortly introduced in the document showing how the as-is and the to-be stated will be
conceptually compared and validated. All the software tests and corresponding software validations will be
described in detail in the WP4 deliverables which will also include the detailed specification of the IT
solutions.
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30.06.2014 58/57
List of figures
Figure 1. Typical complexity drivers on various levels, as identified by the COLL-PLEXITY project. ................ 7
Figure 2. The supply chain planning matrix [31] .............................................................................................. 8
Figure 3. Different extensive procurement and cooperation strategies in a value-added network by duration
and intensity of collaboration [35] ................................................................................................................. 10
Figure 4. Cost trade-offs in supply chain design [39] ..................................................................................... 12
Figure 5. Achieving flexibility through system design .................................................................................... 13
Figure 6. Open order quantities and inventories / backorders in a supply chain: the bullwhip effect [35] .. 13
Figure 7. Manufacturing planning and control processes within the temporal ranges in the MRP II concept
[24] ................................................................................................................................................................. 15
Figure 8. The development of software systems for logistics ........................................................................ 17
Figure 9. Manufacturing control model [24] .................................................................................................. 19
Figure 10. Functional components of a Shop Floor Control System .............................................................. 21
Figure 11. Solution of a traveling salesman problem, i.e., Hamilton-circuit. ................................................. 29
Figure 12. Solution of a job-shop scheduling problem displayed on Gantt charts. ....................................... 29
Figure 13. Feasibility - an illustration of the four forbidden properties, using JSP as an example. ............... 30
Figure 14. Uncertainties in case of JSP (left) and in case of TSP (right). In the latter, the initial state, the
durations and the arrival vertex (city) could be uncertain, as well. ............................................................... 31
Figure 15. Concept and some of the tasks performed by SCM software [35] ............................................... 32
Figure 16. Processes of the SCOR reference model [23] ................................................................................ 33
Figure 17. The overall conceptual model of the RobustPlaNet Simulation and Navigation Cockpit ............. 37
Figure 18: Windows interface of the RStudio [33] ......................................................................................... 39
Figure 19: Decomposition and Performance window in Flowline ................................................................. 41
Figure 20: Levels and functions of the ISA 95 (according to [5]) .................................................................... 47
Figure 21: General structure of the domain-independent validation procedure .......................................... 48
Figure 22: Integrated data collection, performance analysis and maintenance optimization framework ... 50
Figure 23: Map of the data and production planning processes (TO-BE state) ............................................. 52
Figure 24: Sample planning hierarchy for the To-be state ............................................................................. 53
Figure 25: Production levels and propagation of disturbances in between the levels .................................. 54
30.06.2014 58/58

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RobustPlaNet Shock-robust Design of

Plants and their Supply Chain Networks

D1.3: Formalization of the multi-level

Organisation name of lead partner for this deliverable: MTA-SZTAKI

Additional document information

Versioning and contribution history

Version Organization Comment Date

5.2.3 Internal facing KPI-s ................................................................................................................ 35

1.2 Deliverable structure

1.3 Challenges calling for robust approaches

Environment 1 Complexity drivers

2 Multi-level decision making: interdependencies and scopes

Figure 2. The supply chain planning matrix [31]

2.2 Hierarchy of planning systems

3 Boundaries of the multi-level decision making problem

3.1.1 Supply chain planning

Figure 4. Cost trade-offs in supply chain design [39]

3.1.2 Supply chain coordination and control

Figure 5. Achieving flexibility through system design

3.2 Overview of plant-level production planning

3.2.1 Hierarchy and scopes of production planning tasks

3.2.2 Production planning

3.2.3 Master planning (MP)

3.2.4 Aggregate planning

Figure 8. The development of software systems for logistics

3.2.5 Classification of lot-sizing problems

3.2.5.1 Problem types

3.2.5.3 Setups and backlogs

3.2.5.4 Materials, safety stocks

3.2.5.5 Planning problems with combined objectives

3.3 Production execution control

Figure 9. Manufacturing control model [24]

3.3.1 Shop floor control

Shop Floor LAN

Figure 10. Functional components of a Shop Floor Control System

3.3.2 Functional components of SFCs

4 Formalization of the planning and control problems

Total supply chain profit:

supply chain with the following parameter: .

coordinates the supply chain with the following parameter:

4.2 Analytical formalization of the plant-level planning problems

4.2.1 Uncapacitated lot-sizing

4.2.2 Capacitated lot-sizing

4.2.3 Aggregate planning for flexible flow lines

4.2.4 Aggregate planning for reconfigurable production systems

4.3 Stochastic Resource Allocation

Figure 11. Solution of a traveling salesman problem, i.e., Hamilton-circuit.

m1 t11 t22 t32

m2 t12 t14 t33

m3 t21 t31 t13 t23

Figure 12. Solution of a job-shop scheduling problem displayed on Gantt charts.

mi tk1 tn1 mi tk1

time (tasks) time (tasks)

time (tasks) time (tasks)

5 Conceptual framework to support decisions in RobustPlaNet

5.2 KPI-s related to supply-chain and plant level planning objectives

5.2.1 Key performance indicators

Figure 16. Processes of the SCOR reference model [23]

5.2.2 Customer facing KPI-s

Average order quantity

Number of days from order receipt to customer delivery

5.2.3 Internal facing KPI-s

It is the standard deviation of the operations times.