An Approach to Supply Chain Design based on Robust Capacity Allocation of Production Locations

Global supply chains are complex dynamical systems. Due to nonlinear dependencies between production locations, already a perturbation at one location can change the dynamic behavior of the whole supply chain. As a consequence the supply of customers in time may be at risk. In this paper we present an approach to supply chain design that maximizes the robustness of a supply chain in regard to perturbations of the production processes. To this end we consider the fluid approximation of a dynamic supply chain and assume processor sharing as the production strategy applied at the various locations. The robustness of the supply chain can be measured by the stability radius that reflects the smallest perturbation that destabilizes the network. Based on results concerning the stability radius we set up an optimization problem for the capacity allocation at each production facility. The capabilities of the approach are demonstrated using a test case.