An iterative approach for distribution chain design in agile virtual environment

Abstract

Purpose – The study sets out to explore the use of an iterative approach for designing distribution chain in an agile virtual environment; in an agile virtual environment, quick adaptation to changing market situation and automation of supply chain management processes are essential. Design/methodology/approach – The iterative approach consists of two parts: the strategic model and the tactical model. First, the strategic model (including number of distributors, location of distributors) is determined. Then, based on the output of the strategic model, the tactical model (i.e. the inventory planning at each node, and vehicle routeing between different nodes of the chain) is determined. After determining the tactical model, the operation‐related parameters from the tactical model are input into the strategic model again, and the configuration of distribution chain is re‐optimized. Such iterations proceed until the design result converges. Findings – The proposed iterative design process provides many advantages such as reuse of knowledge, adaptive to changing market conditions, modular design, and optimal results guaranteed by mixed mathematical usage. The proposed approach is also realizable as a supply chain management software tool. Originality/value – An important contribution of this study is the iterative process that uses three different types of mathematics. For determination of the strategic model mixed integer programming is used. Determination of the tactical model is effected using genetic algorithm and probability theory.