Integrated optimization of production and distribution for several products

This paper proposes an integrated approach for optimizing production, inventory and distribution in a multi-period, multi-item and less-than-truckload configuration. The value of coordinating production with distribution is investigated. The objective is to minimize the sum of setup production costs, holding costs and distribution costs on the planning horizon. An iterative approach is developed for this NP-hard problem. A first production plan is obtained using integer linear programming and the distribution plan (set of vehicle trips in each period) is built using a tabu search metaheuristic that does not change the production plan. In the following iteration, an improved production plan is first determined considering the distribution plan of the previous interation as a constraint. Then, a new distribution plan is computed given the new production plan. This iterative process stops when the two plans become stable. The iterative method is evaluated on a set of randomly generated instances. The impact of various parameters are evaluated. A comparison with a classical two-phase method shows significant savings ranging from 3.50% to 27.73%. These results underline the relevance of integrating distribution and production planning decisions.