In this paper, we propose a mathematical model for the design of supply chains in the delocalization context. Our main objective is to develop a strategic-tactical supply chain design model that integrates all the relevant components that characterize the delocalization problem. We adopt the activity based approach to model the problem and we focus on the logistic decisions of activity location, technology choice, supplier selection, etc., and the financial decisions of transfer pricing, transportation costs allocation, etc. The mathematical formulation is illustrated by a case study from the automotive sector. A comparison between the model solution and the real decisions is used to prove the applicability and the utility of the proposed model.
In the current context of globalization, the manufacturing capacities are higher than the demand for several types of products, which implies an increasing level of competition on the international market. Hence, most companies that aim to preserve and develop their positions are considering the option of delocalizing a part or the total of their activities in low-cost countries. Delocalization commonly refers to the transfer of certain production activities from developed to developing countries, essentially to benefit from low labor costs. The increasingly attractive economical, political, technological, and legal/regulatory environments, especially in developing countries, are reflected in the rising number of delocalization undertaken by the multi-national companies (MNCs) such as the case of French companies in North Africa (Tunisia, Morocco). This is accentuated by the continuous decrease in telecommunication and transportation costs all over the world, with the exception of recent tendencies, and the development of powerful and efficient information systems.
In a previous work, we have identified the main characteristics of the delocalization problem and their impacts on the design of supply chains in terms of decisions, cost factors, constraints, and other aspects (Hammami et al., 2008). For example, we showed that such models should take into account the following factors:
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decisions: activity location, technology selection, supplier selection, transfer pricing, capacity acquisition, capacity relocation, etc.,
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costs: labor cost, technological cost, supplier fixed cost, purchasing cost, operation cost of an activity, transportation cost, fixed cost of closing/opening sites, capacity acquisition and relocation cost, etc.,
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constraints: capacity of supplier, technological constraints, etc.,
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international factors: exchange rate, profit taxation, etc.
To integrate these aspects and model the problem, we demonstrated that we should adopt an activity based modeling approach which consists in considering the firm's global manufacturing process as a set of activities (Hammami et al., 2008). We define an activity as the process that converts a set of input products into a set of output products by the means of a certain technology and using a set of resources. The relationship between activity and technology is bijective; to each activity is associated a unique technology and vice-versa. In other words, if an input group of products can be converted into an output group of products using two different technologies, this necessarily leads to the definition of two different activities. An activity can refer to either a manufacturing or a distribution process. Otherwise, the definition of an activity does not depend on its location; which means that the same activity may be implemented in different facilities.
Then, we adopted this activity based approach and considered some of the previous factors to develop a supply chain design model (Hammami et al., 2007). Although it was shown that this proposed model is well adapted to the delocalization problem compared to existing literature, this model presents some weakness. Indeed, it ignores some pertinent aspects for the delocalization problem such as:
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the supplier selection issues (decision, purchasing cost, fixed cost of managing and integrating suppliers, supplier constraints),
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the technological issues (fixed cost of implementing technologies in developing countries, technological constraints).
Our main objective in this paper is to develop a strategic-tactical supply chain design model that integrates all the relevant components that characterize the delocalization problem. We organize the remainder of this paper as follows. In Section 2, we highlight the technological and supplier selection issues which are among the most relevant features of supply chain design in the context of delocalization. Section 3 is dedicated to the presentation of a case study which will be used to illustrate our activity based modeling approach and describe the different features of our problem. We give a description of our model in Section 4. The mathematical formulation of the model is given in Section 5. In Section 6, we present a brief review of the literature related to model-based supply chain design in order to show how well the proposed model is adapted to the delocalization context. The computational experiments are given in Section 7. Finally, we give concluding remarks and future work directions.
In this paper, we developed a mathematical model for the supply chain design in the context of delocalization. The provided model can assist managers, who face a delocalization project, in:
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determining which activities should be delocalized,
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performing the technological choices while considering the particular requirements of developing countries,
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selecting the set of suppliers while taking into account local suppliers in developing countries,
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undertaking all the subsequent decisions related to the configuration of the firm's supply chain (capacity relocation and acquisition, flows of raw materials, intermediate products, finished products, etc.) and the determination of transfer prices.
Beyond the delocalization context, our work extends many of the models proposed in the literature in terms of integrating various important logistic and financial decisions, capturing different cost types that impact the design and the operation of supply chains, taking into account a multi-period planning horizon, considering a multi-echelon supply chain, and including raw materials, final and intermediate products.
The proposed model can be solved with the branch and cut algorithm of the commercial optimizer CPLEX 9.0. Computational times are reasonable for some realistically sized problems. The model was successfully applied to a realistic case study. In general, the model suggests to delocalize the high labor consuming activities such as the activities of assembly. The model also suggests to replace some current suppliers by low-cost suppliers in developing countries.
The provided model is well adapted to the delocalization problem. However, to better evaluate the applicability and the performance of our model, further experimentations are needed. In the near future, we will also work on the inclusion of stochastic elements to consider the risk factors that exist in global chains in the delocalization context.