Carrier-mode logistics optimization of inbound supply chains for electronics manufacturing

Abstract The inbound supply chain is a critical part of a manufacturer's supply chain. Using third party logistics (3PL) provider transportation, storage facilities, and services is becoming standard practice. Choosing among 3PL providers and carrier-mode options is a complex task and the choice has significant impact on the bottom line cost of the end product. Options available to a manufacturer include choice of 3PLs, choice of container sizes, choice of packaging, and the choice of whether or not to contract other value-added services such as stacking and palletizing. These decisions are not independent of each other. For example, the decision made on packaging at the origin affects downchain decisions. In this paper, an optimization methodology, based on integer programming and a modification of the best packing heuristic in the literature, is developed. The methodology selects the best combination of options available to the manufacturer to reduce the overall cost. It also provides a manufacturer a tool for making decisions about changing to a different 3PL if a problem develops (cost increase, loss of goods, poor service, etc.) without changing the supplier. A case study from the electronics industry is presented which demonstrates the capabilities of the optimization methodology. The specific packaging choices included in the formulation are bulk loading, pallets (high stacks and multi stacks) and slip-sheets. Three standard container sizes used in electronics packaging are also analyzed and the best possible combination of all decision variables is selected based on cost.