BASF Corporation

Supply Chain Optimization Models in a Chemical CompanySupply Chain Optimization Models in a Chemical Company

Young M. Lee,Young M. Lee, PhPh.D..D.Manager, Mathematical ModelingManager, Mathematical Modeling

BASF CorporationBASF Corporation

3000 Continental Drive3000 Continental Drive -- NorthNorth

Mount Olive, NJ 07828Mount Olive, NJ 07828

email: leey@email: leey@basfbasf.com.com

ScmEcScmEc Workshop, University of FloridaWorkshop, University of Florida

February 26February 26--27, 200227, 2002

ScmEc - February 26-27,2002

Young M. Lee 2

BASF Corporation

Supply Chain Optimization Models in a Chemical CompanySupply Chain Optimization Models in a Chemical Company

•• BASF BusinessBASF Business

•• Supply Chain Management Models in BASF CorporationSupply Chain Management Models in BASF Corporation

•• 3 Examples of Supply Chain Optimization Models3 Examples of Supply Chain Optimization Models

in BASF Corporationin BASF Corporation

ScmEc - February 26-27,2002

Young M. Lee 3

BASF Corporation

The BASF Group

• One of the world’s largest chemical companies• Sales: $34 billion• 100,000 employees• Production in 39 countries• Businesses in more than 170 nations• Chemicals, plastics & fibers, colorants & finishing products,

agricultural & nutrition, oil & gas ...

BASF in North America

• Among top three NAFTA region chemical companies• Sales: $7.9 billion• 15,000 employees• 50 manufacturing sites

ScmEc - February 26-27,2002

Young M. Lee 4

BASF Corporation

Supply Chain Management Models in BASF CorporationSupply Chain Management Models in BASF Corporation

•• Demand Forecast ModelsDemand Forecast Models

•• Distribution Network Optimization ModelsDistribution Network Optimization Models–– Package Goods, Bulk LiquidPackage Goods, Bulk Liquid

–– Global, SBUGlobal, SBU

•• Production Planning & Scheduling ModelsProduction Planning & Scheduling Models

•• Capacity Planning ModelsCapacity Planning Models–– Fleet Sizing (Rail, Truck)Fleet Sizing (Rail, Truck)

–– Manufacturing Capacity PlanningManufacturing Capacity Planning

–– Storage Capacity PlanningStorage Capacity Planning

•• Shipment consolidation modelsShipment consolidation models

ScmEc - February 26-27,2002

Young M. Lee 5

BASF Corporation

Supply Chain Optimization Models in BASF CorporationSupply Chain Optimization Models in BASF Corporation

•• Finished Goods Distribution Network Optimization ModelFinished Goods Distribution Network Optimization Model

•• Capacity Requirement Planning Simulation Model forCapacity Requirement Planning Simulation Model forStorage and Packaging FacilitiesStorage and Packaging Facilities

•• WebWeb--Based Optimization ServicesBased Optimization Services(Production Planning Optimization Model …)(Production Planning Optimization Model …)

ScmEc - February 26-27,2002

Young M. Lee 6

BASF Corporation

Finished Goods Distribution Network Optimization ModelFinished Goods Distribution Network Optimization Model

•• BASF NAFTA package goods distribution networkBASF NAFTA package goods distribution network

•• Network Before OptimizationNetwork Before Optimization–– fragmented, independent networksfragmented, independent networks

–– too many distribution centers (too many distribution centers (DCsDCs))

–– inefficient DCinefficient DC sourcingsourcing

–– high inventory inhigh inventory in DCsDCs

ScmEc - February 26-27,2002

Young M. Lee 7

BASF Corporation

Finished Goods Distribution Network Optimization ModelFinished Goods Distribution Network Optimization Model

•• ObjectivesObjectives–– Identify optimal number and location ofIdentify optimal number and location of DCsDCs

–– Better DC assignments to customers: lower cost, betterBetter DC assignments to customers: lower cost, betterserviceservice

–– Economy of scale (DC consolidation): increase leverageEconomy of scale (DC consolidation): increase leverage•• Transportation costsTransportation costs

•• Storage/handling costsStorage/handling costs

•• Fixed costsFixed costs

•• Less vendor, better service at less costLess vendor, better service at less cost

–– Less inventory (less DC): less safety stockLess inventory (less DC): less safety stock

–– Consolidate cross business LTL shipments to TLConsolidate cross business LTL shipments to TL

–– Simplify process and reduce administrationSimplify process and reduce administration

–– Strategic tool for evaluating changing businessesStrategic tool for evaluating changing businesses

ScmEc - February 26-27,2002

Young M. Lee 8

BASF Corporation

Finished Goods Distribution Network Optimization ModelFinished Goods Distribution Network Optimization Model

•• ApproachApproach–– very large MILP modelsvery large MILP models

–– Data inputData input•• Shipping transaction (shipment profile)Shipping transaction (shipment profile)

•• Customer demand (forecast or history)Customer demand (forecast or history)

•• Transportation rates (TL, LTL)Transportation rates (TL, LTL)

•• DC costs (storage and handling)DC costs (storage and handling)

–– Global model & SBU modelsGlobal model & SBU models

ScmEc - February 26-27,2002

Young M. Lee 9

BASF Corporation

Finished Goods Distribution Network Optimization ModelFinished Goods Distribution Network Optimization Model

•• Optimized NetworkOptimized Network–– A fewA few DCsDCs

–– Savings of several $ millions (transportation costs only)Savings of several $ millions (transportation costs only)

–– Better customer services (faster delivery)Better customer services (faster delivery)

ScmEc - February 26-27,2002

Young M. Lee 10

BASF Corporation

Capacity Requirement Planning Simulation ModelCapacity Requirement Planning Simulation Model

•• Capacity planning for polymer plant expansionCapacity planning for polymer plant expansion

•• Determine capital equipment requirementsDetermine capital equipment requirements–– Number and size of storage silosNumber and size of storage silos

•• Determine packaging facility utilizationDetermine packaging facility utilization

•• Identify other bottlenecksIdentify other bottlenecks

•• DiscreteDiscrete--event simulationevent simulation–– operational complexity (material flow logic)operational complexity (material flow logic)

–– stochastic events (breakdown, arrival of truck/railcar..)stochastic events (breakdown, arrival of truck/railcar..)

–– dynamicsdynamics

•• DemoDemo

ScmEc - February 26-27,2002

Young M. Lee 11

BASF Corporation

WebWeb--Based Optimization ServiceBased Optimization Service

•• Framework for internetFramework for internet--based, interactivebased, interactivecomputational tools for supply chain optimizationcomputational tools for supply chain optimization

•• Easy access through web browsersEasy access through web browsers

•• Perform complex optimization tasksPerform complex optimization tasks

•• Share powerful optimization engine, highShare powerful optimization engine, high--endendcomputers, data interface, and parallel/distributedcomputers, data interface, and parallel/distributedcomputing environmentcomputing environment

•• Make optimization technology available to a broaderMake optimization technology available to a broaderrange of users and applicationsrange of users and applications

•• Easy support and maintenanceEasy support and maintenance

ScmEc - February 26-27,2002

Young M. Lee 12

BASF Corporation

HTTP Client

HTML

Web Server

Application Server

DataBase Server

Interface Program (C)

XPRESS-MPModeler, Optimizer Library

(XMSL, XOSL)

JSP

JAVA Servlet (Bean)

OptimizationInput

OptimizationOutput

OptimizationOutput

OptimizationInput

JNI

MILP Model(XPRESS)

PC

PC

PC

PC

PC

Architecture: WebArchitecture: Web--Based Optimization ServiceBased Optimization Service

Distributed,Parallel Computing

ScmEc - February 26-27,2002

Young M. Lee 13

BASF Corporation

WebWeb--Based Optimization ServiceBased Optimization Service•• Pilot Model : Production Planning/Scheduling optimization modelPilot Model : Production Planning/Scheduling optimization model forfor

a chemical manufacturing planta chemical manufacturing plant–– Continuous process with 7 lines, 11 product gradesContinuous process with 7 lines, 11 product grades

–– One product per line at a timeOne product per line at a time

–– Product changeover produces offProduct changeover produces off--grade productsgrade products

–– Operated at near full capacityOperated at near full capacity

–– Compute optimal monthly production plan, daily scheduleCompute optimal monthly production plan, daily schedule

–– Constraints: demand forecast, production feasibility, productionConstraints: demand forecast, production feasibility, productioncapacity, storage capacity, changeover, production campaign lengcapacity, storage capacity, changeover, production campaign length,th,maintenance schedule …maintenance schedule …

–– Minimize: inventory, changeover, production/storage shortfallMinimize: inventory, changeover, production/storage shortfall

–– Mixed Integer Linear programming (1,500 variables, 300 binaryMixed Integer Linear programming (1,500 variables, 300 binaryvariables, 1,200 equations)variables, 1,200 equations)

ScmEc - February 26-27,2002

Young M. Lee 14

BASF Corporation

WebWeb--Based Optimization ServiceBased Optimization Service•• Pilot Model : Production Planning/SchedulingPilot Model : Production Planning/Scheduling

optimization model for a Chemical Manufacturing Plantoptimization model for a Chemical Manufacturing Plant

BenefitsBenefits–– Reduced inventoryReduced inventory

–– Optimal utilization of production and storage capacityOptimal utilization of production and storage capacity

–– Reduction of production/inventory shortfallReduction of production/inventory shortfall

–– Reduced time to generate production plan / schedule and qualityReduced time to generate production plan / schedule and quality

–– Flexibility of changing production plan / scheduleFlexibility of changing production plan / schedule

•• The architecture can be used for other supply chainThe architecture can be used for other supply chainoptimization problems.optimization problems.

BASF Corporation

Supply Chain Optimization Models in a Chemical CompanySupply Chain Optimization Models in a Chemical Company

Questions?Questions?