Functional Decompositions for a Production and Distribution System

Abstract Supply Chain Management (SCM) is concerned with decisions related to the flow of materials through the value chain of specific goods. From its inception, and by most definitions, SCM is attempting to integrate decisions related to procurement of raw materials, manufacturing, warehousing and distribution of the finished products to the final customers. However, the large integrated problem is highly intractable. We propose to investigate functional decomposition methods of a supply chain problem of quite a general structure. In these decompositions, decisions related to one or more functions (for example, distribution, procurement, production, and inventories) are made separately and subsequently glued together to create an integrated solution. We formulate the general problem, which includes several important extensions to existing literature, then develop and compare various functional decompositions. The comparison is along solution times, as well as optimality gaps, compared to the integrated problem. We obtain insights with respect to the preferred decomposition method and its organizational implications.