Optimization Modelling for Multi-Objective Supply Chains, A Case Study of the Oil and Gas Sector

Abstract

One of the key problems managers of companies face is the high cost of distributing multiple products to downstream locations. They often rely on their intuition and rule of thumb while making allocation decisions. In this study a mathematical model was developed for minimizing the distribution cost in a multi-product supply chain system. The oil and gas sector was studied to understand the underlying supply chain system. Attempt was made to identify system parameters, variables, limitations, criteria so as to be able to define the distribution problem. This study was done using information from one of the major source in the oil and gas sector in Nigeria. The interactions and flow of products in the system were properly studied. It was then observed that the source distribute products to downstream at a higher cost without fulfilling demand at some destination. The data gotten from the plant shows that a total distribution cost of N2,353,050 was incurred at the source for the fortnight. The model was solved for a 12 product 8 destination case. The problem developed was an LP linear program formulation with three major constraints defined; demand, availability and company policies. And at the end of the analyses, it was observed that a LP minimization process would distribute a set of products to all the downstream without any suffering a zero product at an optimal cost of N2,025,200 . About 14% of the optimal cost was reduced. It is concluded that the model is effective to reduce or minimize distribution expenses for any multi-product multiple destination system and fulfilling demand at various destinations.

Keywords: Optimization, Modelling, Supply chain, Oil and gas,