APO Optimization

Optimization in
Supply Chain Planning
Dr. Christopher Srie
Expert Consultant
SCM Optimization
Agenda
Introduction
Hierarchical Planning Approach and Modeling Capability
Optimizer Architecture and Optimization Strategies
Customer Cases
System Demo
SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 2

Introduction: Supply Chain Management
Supply Chain Management: Set of approaches utilized

to integrate suppliers, manufactures, warehouses and stores
so that merchandise is produced and distributed
with the correct quantity
to/from the correct locations
at the correct time
in order to minimize cost while satisfying service level requirements
Prerequisite: Integrated Supply Chain Model
Supplier Plant DC Customer

Introduction: Supply Chain Management
Master Data Model

Location (Plant, DC, Supplier, ...)
Lane
Product
Production Process Model (PPM)
Resource
Operational Data
Demands
Orders
Capacity Profiles
Resource Product Supplier Plant DC Customer

mySAP SCM Solution Overview
Measure
Supply Chain Performance Management
Strategize Plan
Supply Chain Collaboration
Supply Chain Collaboration

Supplier
Customer
Demand and
Supply Chain Design
Collaborate
Collaborate
Supply Planning
Supply Supply
Chain Chain
Exchange Exchange
Source Make Deliver
Network Network
Direct Order
Manufacturing
Procurement Fulfillment
Partner Partner
Track
Supply Chain Event Management

Supply Chain Planning Matrix
Procurement Production Distribution Sales
long-
Strategic network planning
term
Master planning
Demand
planning
Production Distribution
planning planning
Material
requirements
planning
Available
Detailed Transportation to
short- promise
term scheduling planning
(Stadtler/Kilger, 2005)

Agenda
Introduction
Customer Cases
System Demo

How to deal with planning complexity?
Basic idea: Hierarchy of relaxations
Relaxations are derived by Aggregation

Time Periods
Product Product groups
(e.g. ignore country specific documentation in packaging a product)
Resource Resource Families
(e.g. summarize similar resources into one resource with cumulative
capacity)
Locations Regions
(e.g. aggregate different locations into a transportation zone (postal
code areas)
Integration between different relaxations: Disaggregation

Hierarchical Planning
Strategize
Supply Chain Design

Supply Chain Design
Plan
Strategize Plan
Demand and Demand and

Supply Chain Design
Supply Planning
Supply Planning
Source Make Deliver
Direct Order
Manufacturing

Supply Network Planning (SNP)
Strategize
Supply Chain Design

Supply Network Planning (SNP)
Combined production and distribution
Plan planning
Mid-term Demand
to long-term
and planning horizon
Supply Planning
Quantity-based
Aggregation
Source Make Deliver
Time Buckets, max. daily precision
Direct Products, Resources Families
Order
Manufacturing

Supply Network Planning Procedures
SNP Heuristics
Material availability constraints
Rule-based
First feasible plan
CTM (Capable To Match)

Material availability and production capacity constraints
Constraint-based propagation with backtracking search
First feasible plan
SNP Optimizer
Material availability and all capacity constraints
(MI)LP and others
Cost-based optimization

SNP Optimizer Application
Sourcing
Product-Mix
Which products and how much of them should be produced, transported, procured and
stored?
Technology-Mix
Which recipes (PPMs) should be applied?
Which transportation type should be used?
Which resource should be used?
Temporal: When should we produce, transport, procure and store?

Spatial: Where should we produce, procure and store? Wherefrom and
whereto should we transport?
Finite Planning
Lot-Sizing
Multi-Level-Capacitated Lot Sizing (MLCLSP)
Campaign Planning
Inventory Control
Target Days of Supply
Shelf Life
Supply Network Optimization: Model Building
Produce
Discrete Lots
Minimal Lots
Transport Fixed Resource Consumption
Discrete Lots Piecewise linear Costs Production
Transport Minimal Lots
Capacity
Piecewise linear Costs
Capacity
PPM
Storage Products
Capacity
Safety Stock
Handling-In Handling-Out Store

with Shelf life
Capacity Capacity
Satisfy Demand
with Demand Classes
Procure Delay Costs
Piecewise linear Costs Non-Delivery Costs

SNP Optimization Run
Demand Forecast
SNP Optimization
Resource Selection

Supply Network Optimization: Lot-Sizing
Multi-Level Capacitated Lot Sizing Problem (MLCLSP)

Setup cost and/or consumption in each bucket
Good results
Setup cost small compared to storage cost ( Small lots)
Setup consumption << bucket capacity
Bad results
Setup cost large compared to storage cost (large lots)
Setup consumption big compared to bucket capacity

Supply Network Optimization: Lot-Sizing
Proportional Lot Sizing Problem (PLSP)

Setup cost and/or setup consumption only if different PPM starts
At most one startup per bucket
Constraints on cross-period lots (= campaign quantity)

Minimal campaign quantity
Campaign quantity integer multiple of batch size

Manufacturing (PP/DS)
Strategize
Supply Chain Design
Plan
Manufacturing
Demand(PP/DS)
and
Supply Planning
Combined material and capacity
Source planning
Make Deliver
Short-term to mid-term planning
Direct horizon Order
Manufacturing
Order based
Time continuous

PP/DS Planning Procedures
PP/DS Heuristics
Material availability, single-level finite
Priority-based planning
First partial plan
CTM (Capable To Match)

Material availability and production capacity constraints
Constraint-based propagation with backtracking search
First feasible plan
PP/DS Optimizer
All constraints
Genetic Algorithm and Constraint Programming
Cost-based Optimization

PP/DS Optimizer Application
Feasible compact schedule
Delay Reduction
Makespan Minimization
Setup Minimization
Time
Cost
Resource Selection

PP/DS Optimizer: Model Overview
Time Windows Distances
earliest starting time (with calendars)
due date, deadline minimal Resource Selection
delay costs maximal Alternative resources
Resource costs
Setup
sequence dependent
setup costs
Unary
Resources
Product Flow
Storage
discrete
resources
continuous
Multi-Cap
Resources

PP/DS Optimization Run
SNP
PP run
DS
optimization

Integrated hierarchical planning
SNP PP/DS
Planning only in SNP horizon Respect pegged SNP Orders as due
Release SNP Orders only PP/DS dates
horizon No capacity reduction
Respect PP/DS orders as fixed But material flow
capacity reduction No restrictions for scheduling
material flow PP/DS orders
Respect PP/DS setup state
SNP
PP/DS
PP/DS Horizon
SNP Horizon

VSR: Model Building
Classical vehicle routing problems: CVRP, CVRPTW
3
1
m vehicles 2
demand bj
6
5
9 time window [lj,rj]
4
8
7
time window [l,r]
capacity c
supply a
VSR: Model Building (ctd)
Extensions towards APO VSR (1):

Order-based model
Source location and destination location per order
(Pickup and delivery problem)
O4 6
1 5
O1
O2 4
2
O3
3
Quantity regarding loading dimensions (tons, m3, ...)

Material type (chemicals, food, ...)
Service times for loading and unloading (depends on vehicle)

Cost for not delivering an order
Soft/hard time constraints per order:

Earliest date for pickup
Due date for pickup
Earliest date for delivery
Due date for delivery
cost
[ ] [ ] time
Early Late Early Late
Pickup Pickup Delivery Delivery


Per vehicle:
Travel characteristics (time, distance per lane)
Start location and end location
Constraints
Capacity per loading dimension (tons, m3, ...)
Limit for time, distance, number of stops
Break calendar
Costs:
Fixed cost
Traveled time
Traveled distance
Number of stops
Distance x Load (e.g. miles x tons)
Vehicle type = vehicles with identical travel & cost characteristics

Per location:
Deliveries require inbound resource
Opening times
Capacities
Pickups require outbound resource
Opening times
Capacities

Incompatibility constraints:
Between material types
Between vehicle types and material types
Between vehicle types and locations
Schedule vehicles (e.g. trains, ships)

Route and schedule is fixed a priori
Hubs
Indirect shipment through hub(s) versus direct shipment
Maximum waiting time at hub
1 H2
H1 2
Agenda
Introduction
Customer Cases
System Demo

Challenge: Generic Optimizer
Generic and Best of Breed

planning level
vertical industries
run time requirement
model complexity (size, constraints, objectives)
Generic Model (-> planning level)

aggregated planning (LP / MILP)
detailed planning (scheduling)
Customization (-> vertical industries)

specialization the generic model to customer problem
scripting the strategies (decomposition, goal programming)
Scalability (-> run time)

greedy versus complex optimizations strategies
parallelization
Open Architecture
internal: adding new special optimizer (software evolution)
external: integration of optimizer packages
SNP Optimizer Architecture
LiveCache/DB Time-
GUI
Decomposition
Reporting Product-
Model Generator Decomposition
Checking Priority-
Decomposition
Resource-
Core-Model Decomposition
Control Meta-Heuristics
SNP SNP Deployment

LP/MILP Rule based LP/MILP
Basic-Optimizers

Scheduling Optimizer Architecture
LiveCache
Time
GUI Model Generator Decomposition
Reporting Bottleneck
Checking Core Model Multi Agent
Control Meta-Heuristics
Constraint Genetic Sequence Campaign

Programming Algorithm Optimizer Optimizer
Basic Optimizer

Mastering the algorithmic complexity: Decomposition
Global versus local optimality -> SNP + DS

Local optimality depends on neighborhood
High solution quality by local optimization
Local Optimization = Decomposition
Decomposition strategies
SNP: time, resource, product, procurement
DS: time, resource
(Parallelization by Agents)

SNP Product Decomposition

SNP Time Decomposition
1 2 3 4 5 6
solved solved
merge
Time-
1 2 3-6 Decomposition
extract
store
solve
SNP
LP/MILP

DS Time Decomposition - Local Improvement
Resources
Time
Current window
Gliding window script
1. Optimize only in current window

2. Move window by a time delta
3. Go to first step

DS Metaheuristics - Bottleneck
Resources
Bottleneck
Time
Bottleneck Script
1. Determine bottleneck
2. Schedule bottleneck resources only
3. Fix sequence on bottleneck resource
4. Schedule all resources

VSR: The Optimizer
Generic Optimizer
Preprocessing
Which orders cannot be delivered at all?
Which order can be processed by which vehicle?
Postprocessing
Shift travel activities forward or backward
S-1 P1 1-2 D1 (forward)
S-1 P1 1-2 D1 (backward)

VSR: The Optimizer (ctd)
Evolutionary local search (ELS) with small population (3)

Uses GENEAL (GENeral Evolutionary Algorithm Library)
Direct solution representation
Assignment of orders to vehicles
Routing of activities on vehicles
Scheduling of activities on vehicles
Each atomic move has three phases:

1. Change assignment
2. Change routing
3. Change scheduling
19 atomic moves, classified into

Assignment moves
Routing moves
Scheduling moves

Agenda
Introduction
Customer Cases
System Demo

Challenges in modeling real-world problems
Solution
quality gap
Business (fixed run-time)
acceptability
of computed
solutions
Optimal Model detail

Model too model detail Model too
simplified detailed
Generic nature of the SNP optimization model restricts exploitation of

specific problem structure
Agenda
Introduction
Customer Cases
System Demo

APO Optimization

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Optimization in

Supply Chain Planning

Dr. Christopher Srie

Hierarchical Planning Approach and Modeling Capability

Optimizer Architecture and Optimization Strategies

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 2

Supply Chain Management: Set of approaches utilized

in order to minimize cost while satisfying service level requirements

Prerequisite: Integrated Supply Chain Model

Supplier Plant DC Customer

Master Data Model

Resource Product Supplier Plant DC Customer

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 4

Supply Chain Collaboration

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 5

Procurement Production Distribution Sales

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 6

Hierarchical Planning Approach and Modeling Capability

Optimizer Architecture and Optimization Strategies

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 7

Basic idea: Hierarchy of relaxations

Relaxations are derived by Aggregation

Integration between different relaxations: Disaggregation

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 8

Supply Chain Design

Demand and Demand and

Source Make Deliver

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 9

Supply Chain Design

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 10

CTM (Capable To Match)

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 11

Temporal: When should we produce, transport, procure and store?

Handling-In Handling-Out Store

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 13

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 14

Multi-Level Capacitated Lot Sizing Problem (MLCLSP)

Setup consumption << bucket capacity

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 15

Proportional Lot Sizing Problem (PLSP)

Constraints on cross-period lots (= campaign quantity)

Campaign quantity integer multiple of batch size

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 16

Supply Chain Design

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 17

CTM (Capable To Match)

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 18

Feasible compact schedule

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 19

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 20

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 21

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 22

Classical vehicle routing problems: CVRP, CVRPTW

Extensions towards APO VSR (1):

 Quantity regarding loading dimensions (tons, m3, ...)

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 24

Extensions towards APO VSR (2):

 Cost for not delivering an order

 Soft/hard time constraints per order:

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 25

Extensions towards APO VSR (3):

 Vehicle type = vehicles with identical travel & cost characteristics

SAP AG 2005, Optimization in SC Planning, Dr. Christopher Srie, 26

Extensions towards APO VSR (4):

Quantity regarding loading dimensions (tons, m3, ...)

Cost for not delivering an order

Soft/hard time constraints per order:

Vehicle type = vehicles with identical travel & cost characteristics

Schedule vehicles (e.g. trains, ships)

Evolutionary local search (ELS) with small population (3)

Each atomic move has three phases:

19 atomic moves, classified into