Managing Production and Distribution for Supply Chains in the Processed Food Industry

We develop and evaluate a modeling approach for making periodic review production and distribution decisions for a supply chain in the processed food industry. The supply chain faces several factors, including multiple products, multiple warehouses, production constraints, high transportation costs, and limited storage at the production facility. This problem is motivated by the supply chain structure at Amy's Kitchen, one of the leading producers of natural and organic foods in the United States. We develop an enhanced myopic two-stage approach for this problem. The first stage determines the production plan and uses a heuristic, and the second stage determines the warehouse allocation plan and uses a non-linear optimization model. This two-stage approach is repeated every period and incorporates look-ahead features to improve its performance in future periods. We validate our model using actual data from one factory at Amy's Kitchen and compare the performance of our model to that of the actual operation. We find that our model significantly reduces both inventory levels and stockouts relative to those of the actual operation. In addition, we identify a lower bound on the total costs for all feasible solutions to the problem and measure the effectiveness of our model against this lower bound. We perform sensitivity analysis on some key parameters and assumptions of our modeling approach.