Cooperative capacity planning and resource allocation

by mutual outsourcing using ant algorithm

in a decentralized supply chain
Kung-Jeng Wang
a,
*
, M.-J. Chen
b
a
Department of Industrial Management, National Taiwan University of Science and Technology, #43, Section 4,
Keelung Road, Taipei 106, Taiwan, ROC
b
Department of Industrial Engineering, Chung-Yuan Christian University, Chung-Li, Taiwan, ROC
Abstract
Lumpy demand forces capacity planners to maximize the prot of individual factories as well as simultaneously take advantage of
outsourcing from its supply chain and even competitors. This study examines a business model of capacity planning and resource allo-
cation in which consists of two prot-centered factories. We propose an ant algorithm for solving a set of non-linear mixed integer pro-
gramming models of the addressed problem with dierent economic objectives and constraints of negotiating parties. An individual
factory applies a specic resource planning policy to improve its objective while borrowing resource capacity from its peer factory or
lending extra capacity of resources to the other. The proposed method allows a mutually acceptable capacity plan of resources for a
set of customer tasks to be allocated by two negotiating parties, each with private information regarding company objectives, cost
and price. Experiment results reveal that near optimal solutions for both of isolated (a single factory) and negotiation-based (between
the two factories) environments are obtained.
2008 Elsevier Ltd. All rights reserved.
Keywords: Capacity planning; Resource allocation; Outsourcing; Negotiation and cooperation; Ant algorithm
1. Introduction
Lumpy demand forces capacity planners to maximize
the prot of an individual factory as well as simultaneously
take advantage of outsourcing to its supply chains part-
ners and even competitors. Although a competitive situa-
tion exists among those companies, a collaborative
integration for resource and demand sharing is highly
attractive to those industries. For instance, in high-tech
industries, such as semiconductor and TFT-LCD manufac-
turing industries, resources cost is the largest expenditure,
approximately 60% to 70% of production cost. Thus, rapid
response to demands and full sharing of expensive
resources among factories are critical to the success against
the challenges of short product life cycle, intensive capital
investment and marginal prot.
Furthermore, capacity planners have to improve the
usage of individual factory resources in order to simulta-
neously optimize the company objectives and fulll the
demands. Traditionally, the planners adjust the capacity
of resources to fulll demands by demand management
and capacity planning technologies such as overtime and
subcontracting. Among them, resource and order-sharing
has becoming one of the signicant tools for achieving man-
ufacturing exibility and risk pooling in a supply chain.
Unfortunately, conventional capacity models, which
only deal with the capacity planning problem for a single
factory, failed to properly match such a capacity and
order-sharing decision-making requirement among compa-
nies. Asymmetric information (i.e., resource capacity and
0957-4174/$ - see front matter 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.eswa.2008.01.089
*
Corresponding author. Tel.: +886 2 2 737 6769; fax: +886 2 2 737
6344.
E-mail address: kjwang@mail.ntust.ntust.edu.tw (K.-J. Wang).
www.elsevier.com/locate/eswa
Available online at www.sciencedirect.com
Expert Systems with Applications 36 (2009) 28312842
Expert Systems
with Applications
order status) further results in ineciency on capacity uti-
lization and poor protability for individual factories. As a
result, either excess capacity of resources or insucient
resource capacity occurs and leads to high cost as well as
reductions in degree of customer service.
In order to trade-o between low production cost and
high level of service, it is critical for managers to plan
capacity of resources from a broader perspective through
mutual outsourcing. Such a capacity and order-sharing
strategy has been found in many industries such as trans-
portation industry with shared carriers, semiconductor
manufacturing industry with shared machines, and food
production industry with shared outlets.
This study proposes an inter-factories capacity planning
model between two parties and the corresponding negotia-
tion procedure of resource capacity coping with the unbal-
ance between capacity demand and supply of resources.
The following issues are the focuses of this study:
1. What is the best cost-eectiveness portfolio and alloca-
tion of resources to fulll orders?
2. How to develop a mutually acceptable resource alloca-
tion plan for individual factories under the information
asymmetry?
3. How is the performance of the proposed algorithm for
solving this inter-factories capacity problem?
Focusing on capacity requirement planning instead of
scheduling, this study will propose an inter-factories capac-
ity negotiation framework and solve the capacity planning
problem by an ant algorithm.
The rest of this paper is organized as follows. Section 2
reviews related work of solution methods for capacity plan-
ning and capacity trading. Section 3 proposes several mod-
els for resource portfolio problems with dierent
objectives. An ant algorithm is developed to solve the prob-
lem in Section 4. Section 5 illustrates the models and exam-
ines outsourcing eects under dierent resource prices.
Finally, Section 6 draws conclusions and shows future
research directions.
2. Literature survey
Modeling and technology-economy trade-o as deciding
the best capacity planning inside a single factory is a basis
in dealing with this type of problems addressed herein.
Only limited studies proposed strategic concepts for equip-
ment replacement policy which an alternative term of the
capacity planning addressed in the study (e.g., Hsu, 1998;
Mayer, 1993; Wang, Chen, & Wang, 2007). Rajagopalan
(1994) presented a mix integer linear programming (MILP)
model to handle such problem and focusing on a single
product. Wang and Lin (2002) developed a capacity plan-
ning model for two simultaneous resources.
The research of cooperative based resource planning
focuses on equilibrium of the system instead of optimality
of individuals. There are several studies in the literature
directly dealing with capacity trading through autonomous
coordination and negotiation among factories. Cachon
and Zipkin (1999) addressed competitive and cooperative
relationships of factories and their eects in a two-stage sup-
ply chain from the perspective of inventory policies. Jiang
(2000) proposed a methodology of capacity trading for solv-
ing short-termcapacity shortage incurredinwafer foundries.
Chang (2001) developed a simple Internet-based auction
scheme to sell foundry capacity. Their systemacts as a capac-
ity manager of a foundry that automatically negotiated with
customers. Huang (2002) proposed a capacity adjustment
method to build an agent-based order exchange system.
Soft-computing based methods emerge rapidly to attack
the resources allocation and expansion problem due to
trade-o between eciency and solution quality. Ant algo-
rithms are one of recently developed, population-based,
heuristic algorithms. Ant algorithms are popular ones
due to their capability to solve discrete NP-hard combina-
tional optimization problems in a short time. Many ant
algorithms are inspired by ant colony optimization
(ACO) meta-heuristics such as the Ant-Solver, the ant col-
ony system (ACS) (Dorigo & Di Caro, 1999), and the
MAXMIN ant system (MMAS) (Dorigo & Stu tzle, 2000).
In many industrial situations, ACO algorithm has been
shown to oer successful solution strategies for large and
complex problems of production systems. There is a host
of literature on scheduling with ant algorithms. Two of
the earlier papers that may oer a starting point are den
Besten, Stutzle, and Dorigo (2000) Gravel, Price, and Gagn
(2002). Ying and Liao (2003) presented an ant colony sys-
tem approach for scheduling problems. Merkle and Mid-
dendorf (2000) used a combination of two pheromone
evaluation methods to nd solution of a resource-con-
strained project scheduling problem. Elsewhere in the
scheduling literature, we found the use of ant colony opti-
mization (e.g., Bauer, Bullnheimer, Hartl, & Strauss, 2000).
Another interesting aspect is that including a constraint
handling by local repair into the ant algorithms. Constraint
integration with meta-heuristics in general and ACO spe-
cically is an active area of research and many sophisti-
cated forms of integration are available. A recent work
refers to Meyer and Ernst (2004) and Meyer (2005).
Summarizing, the research problems into capacity plan-
ning and resource allocation of multiple-factory are
strongly related among members of a supply chain but
most of academic studies have solved these problems by
a centralized model or individually. Only a few studies have
oered inter-factories capacity trading framework to sup-
port negotiation and cooperation for improving mutual
prot; thus, further investigation is promising.
3. Modeling the cooperative capacity planning and resource
allocation problem
The proposed model is not only dealing with the
capacity planning problem for a single factory, but also
an inter-factories capacity issue. An inter-factories capacity
2832 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842
planning model is proposed to deal with an unbalanced
supply demand environment. Several economic models
are developed for individual factories and an inter-factories
capacity negotiation model is presented to improve
resources utilization among factories by sharing excess
capacity of resources and orders. By doing so, social wel-
fare is improved without hurting individual benet.
The negotiation procedure is briey described below:
Step 1. The two factories with excess capacity of resources
and excess orders search for local optima using the
proposed modied ant algorithm, MAA (will state
in Section 4) respectively.
Step 2. The mediator obtains the data regarding excess
orders and excess capacity from the two factories.
The mediator nds out a collaborative capacity
plan of resources using MAA.
Step 3. This is a bargaining step. The capacity seller may
increase its resource unit price to maximize its
local goal (i.e., total prot in the case). However,
this may result in a decreasing capacity demand
of the other factory.
Step 4. Step 3 continues and the mediator computes the
collaborative capacity plan of resources until the
prot equilibrium point is reached. That is, the
resource price is acceptable to both factories.
In order to illustrate the framework, three economic
models are illustrated, i.e., a capacity planning model with
excess capacity, a capacity planning model with excess
orders and an inter-factories capacity planning model.
The notations of the capacity planning models are
dened as following:
a
tj
conguration relationship between orders and
manufacturing cells, a
tj
2 {0, 1}
a
tj
= 1 if manufacturing cell t, t = {1, 2, . . ., v}, can manu-
facture order j, j = {1, 2, . . ., n}
a
tj
= 0 otherwise
d
kj
demand quantity (in pieces) of order j in planning
period k, k = {1, 2, . . ., p}
l
tj
throughput of manufacturing cell t when used to
produce order j (in pieces per planning period)
W working hours of each period of time
u
kt
target utilization of manufacturing cell t in period k
c
kt
costs of purchasing manufacturing cell t in period
k
I capital interest rate
C
0
t
unit price of selling capacity of remaining manu-
facturing cells t of a capacity seller
C
tj
capacity sellers unit price of manufacturing cell t
to produce capacity buyers order j (or, equiva-
lently, the unit cost of resource usage of the capac-
ity buyer)
CC upper bound of initial budget
R adjustable parameter of price of resource capacity
P
j
unit prot of order j
Decision variables in the models are as follows:
N
kt
number of manufacturing cell t in period k
x
ktj
quantity produced by manufacturing cell t to meet
order j in period k
d
kt
increment (or decrement) number of manufactur-
ing cell t from period k 1 to period k
N
0
kt
number of remaining manufacturing cell t in peri-
od k
d
0
kj
number of remaining quantities of order j inperiodk
after task allocation of an individual factory is done
d
00
kj
number of remaining quantities of order j in peri-
od k after task allocation is done by an inter-facto-
ries capacity negotiation model
A set of MILP models is presented below, each with
individual objectives, to formulate this resource portfolio
problem. Two typical models are developed one is for a
factory with excess capacity of resources and the other is
for a factory requiring extra capacity for ample orders.
Finally, an inter-factories negotiation model is provided.
3.1. Individual factory capacity planning model (a factory
with capacity over demand)
This model assumes that all demands need to be fullled
and manufacturing cells reserve certain capacity for sale to
gain prot. Investment in new resources is allowed using a
nite budget. The goal of the factory is thus to maximize
the prot of the remaining capacity of manufacturing cells.
The model is denoted as model I,
Maximize z
X
p
k1
1
1 I
k
X
v
t1
N
0
kt
C
0
t
1
Subject to
X
v
t1
a
tj
x
ktj
d
kj
; 8k; j 2
0 6
X
p
k1
X
v
t1
c
kt
d
kt
1 I
k
6 CC 3
N
kt

X
n
j1
a
tj
x
ktj
Wu
kt
l
tj
P0; 8k; t 4
N
0
kt
N
kt

X
n
j1
a
tj
x
ktj
Wu
kt
l
tj
5
d
kt
N
kt
N
k1t
; 8k; t 6
N
kt
; x
ktj
P0; N
kt
; x
ktj
and d
kt
are of integers
7
The objective function (1) maximizes the total prot of the
remaining capacity of manufacturing cells. Constraint (2) is
a capacity balancing equation specifying the allocated
quantity to each type of cells should be equal to the capac-
ity required by the orders. Constraint (3) connes the upper
bound of budget. Constraint (4) species the capacity limit
of manufacturing cells used in each period. Constraint (5)
computes the remanding capacity of manufacturing cells.
Constraint (6) states the change in the number of machines
K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842 2833
of type t from period k 1 to period k, due to resource
replacement.
Note that although new purchased resources may have
higher eciency than existing resources, they are also more
expensive. A capacity planner thus must determine how to
trade-o between investing in new resources and deploying
existing ones to meet delivery dates of orders.
3.2. Individual factory capacity planning model (a factory
with demand over capacity)
This model assumes that orders will not be fullled
except they are protable. Manufacturing cells may not
have enough capacity and require outsourcing for extra
capacity of resources. Besides, a factory can invest in
resources using a nite budget, and phase out old ones.
The goal is to maximize the prot by fullling orders.
The model is denoted as model II,
Maximize z
X
p
k1
X
v
t1
P
n
j1
P
j
x
ktj
c
kt
d
kt
1 I
k
8
Subject to
X
v
t1
a
tj
x
ktj
6 d
kj
; 8k; j 9
0 6
X
p
k1
X
v
t1
c
kt
d
kt
1 I
k
6 CC 10
N
kt

X
n
j1
a
tj
x
ktj
Wu
kt
l
tj
P0; 8k; t 11
d
kt
N
kt
N
k1t
; 8k; t 12
N
kt
; x
ktj
2 Z

; d
kt
2 Z 13
The objective function (8) is to maximize the prot. Con-
straints (9) are the capacity balancing equation ensuring
the capacity allocated to each type of manufacturing cell
not larger than that required by the orders. The remaining
constraints are the same as those in model I.
3.3. Inter-factories capacity planning model
The third model is formulated to solve an inter-factories,
two-party supply demand negotiation problem. A media-
tor considers both the excess capacity and excess orders
of two factories. The goal of the mediator is, from the per-
spective of a capacity purchaser through outsourcing, to
maximize the net prot by completing excess orders (d
0
kj
)
using excess capacity (N
0
kt
) of the factories. The model is
denoted as model III,
Maximize z
X
p
k1
X
v
t1
X
n
j1
P
j
C
tj
x
ktj
=1 I
k
14
Subject to
X
v
t1
a
tj
x
ktj
6 d
0
kj
; 8k; j 15
N
0
kt

X
n
j1
a
tj
x
ktj
Wu
kt
l
tj
P0; 8k; t 16
N
0
kt
; x
ktj
2 Z

17
The objective function (14) is to maximize the net prot.
The meaning of the other constraints is the same as the
ones in models I and II.
In this model, the two individual factories may bargain
on cost term (i.e., the price of resources, C
tj
) to reach a deal.
4. Solving the problem by ant algorithm
Due to the complexity of problems, this study proposes
an ant heuristic algorithm to nd an ecient resource port-
folio plan in which the resource investment decision, capi-
tal usage plan, resource conguration, and task allocation
are determined simultaneously. The algorithm not only
reduces the total cost of producing all orders but also
improves total prot in a factory level as well as the system
level. In many industrial situations, ant algorithm has been
shown to oer successful solution strategies for large and
complex problems of production systems. In the problem
addressed in the study, negotiating parties require to re-
examine capacity plans frequently on the base of updated
resource prices from its counter party. In this regards, the
ant algorithm provides excellent property in dealing with
changing parameters.
4.1. MAA algorithm
The proposed ant algorithm (called MAA) follows the
classical ACO algorithmic scheme and improves its e-
ciency by incorporating a constraint propagation proce-
dure for solving the problem, as follows:
Procedure: Modied Ant Algorithm (MAA)
Begin
Set parameters and initialize pheromone trails
Sort variables by the most constrained variable rule.
Repeat
For c from 1 to MaxCycle
For n from 1 to N
ants
A /
While jAj < jXj Do
Select a variable x
j
2 X that is not
assigned in A
Choose a value v 2 D(x
j
) with probability
P
A
(hx
j
,vi) using the repair mechanism to guarantee all
solutions are feasible;
A A [ {hx
j
,vi}
End While
End For
Update pheromone trails using the best ant of cycles
(the cycle best) {A
k
}
If (several cycles pass by) then reinforce
pheromone trails using the best ant trial (the global
best) {A
l
}
End For
Until max trials reached
End
2834 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842
MAA ranks variables x
j
s by the most constrained vari-
able rule. The ant searching strategy begins with the repair
mechanism that allows an articial ant to construct a com-
plete non-violated assignment of values from D(x
j
)(the
domain of variable x
j
) to variables x
j
s. A cycle involves a
set of articial ants, each responsible for a solution of the
problem. When all the ants have completed their solution,
the cycle is over and the best assignment, A
k
(supposed it is
performed by the kth ant), is dened as the cycle best. Fur-
thermore, a trial contains several cycles. The best of all the
cycle bests, A
l
(made by the ant lth) is thus called the trial
best or global best.
When a new cycle best is less than the current cycle best,
the pheromone on path of the new cycle best is updated. A
cycle best is reset to a large number at the each end of trial.
When a new global best is updated after a lower cycle best is
found, the pheromone on the new global best path is also
updated. This new global best assignment is used to rein-
force the pheromone trails. The algorithm terminated when
the maximum number of trials is reached.
4.2. Pheromone and transition probability
MAA uses articial ants to construct a solution (by
building a path) on a graph that is specic to the problem.
In this study, the graph is constructed associated with the
decision variables, x
ktj
in the model.
More formally, consider an ant that has already visited a
set A of vertices, A = {hx
1
, v
1
i, . . ., hx
k
, v
k
i} which is a set of
variable-value pairs that corresponds to the simultaneous
assignment of values v
1
, . . ., v
k
to variables x
1
, . . ., x
k
,
respectively.
Let x
0
be the Start vertex, x
1
the rst assigned variable
and so forth. Supposed that the next selected variable to be
assigned is x
j
. Articial ants lay pheromone on each vari-
able-value pair hx
j
, vi in which the graph is G = (V, E)
where V = {hx
j
, vijx
j
2 X, v 2 D(x
j
)} and E = {(hx
j1
, mi,
hx
j
, vi) 2 V
2
, v 2 D(x
j
)}.
s(hx
j1
, mi, hx
j
, vi) is dened as the amount of phero-
mone that represents the learnt desirability of assigning
value m to variable x
j
and value m to variable x
j1
simulta-
neously. Formula (18) states the pheromone intensity of
the arc between the candidate vertex hx
j
, vi and the previ-
ous assigned vertex hx
j1
, mi. s
A
(hx
j
, vi) depends on the
pheromone laid on the edge between hx
j
, vi and hx
j1
, mi.
s
A
hx
j
; vi s
hx
j1
;mi2A
hx
j1
; mi; hx
j
; vi 18
Formula (19) denes the probability of transition that
an ant selects vertex hx
j
, vi,
p
A
hX
j
; vi
s
A
hX
j
; vi
a
g
A
hX
j
; vi
b
P
w2Dxj
s
A
hX
j
; wi
a
g
A
hX
j
; wi
b
19
a is a factor for weighting the pheromone, a > 0. The heu-
ristic term of [g
A
(hX
j
, vi)]
b
is included and dened as

1
Dxj

b
Dx
j
is the domain of variable x
j
). To set up a
low, initial production quantity can meet all the constraints
of the problem and nd an initial solution for further
improvement. Based on our experiments experiences, b is
set zero once an initial solution is found. Besides, in the
study b = 0 as the constraint of
P
v
t1
a
tj
x
ktj
d
kj
is applied
(model I) and b=1 as
P
v
t1
a
tj
x
ktj
6 d
kj
applied (models II
and III).
Formula (20) species the quantity of pheromone
deposited on edge (i, j) by the kth ant that has built the best
assignment, A
k
. TC(A
k
) is the total cost of kth ants assign-
ment. The objective function is to maximize total prot, so
Ds(A
k
, i, j) is proportional to the reciprocal of TC(A
k
),
DsA
k
; i; j

1
TCA
k

; if i; j f g 2 A
k
0; otherwise
(
20
At the end of each cycle, the algorithm checks whether
the current cycle best is less than the previous cycle best.
If so, formula (21) is applied to locally update the quantity
of pheromone on each edge (i, j) according to the best
assignment of the kth ant. q is the local evaporation rate,
0 6 q 6 1,
si; j 1 q si; j DsA
k
; i; j for all i; j 21
After several cycles in a trial, a global update is per-
formed. The global best of the trial is again used to inten-
sify pheromone, as indicated in formula (22), and c is the
global evaporation rate, 0 6 c 6 1. A
l
is the ant l with the
global best in the trial. The cycle best and global best are
used to enhance the magnitude of pheromone on the prom-
ising trails according to a double-phase elitist strategy that
helps articial ants always select the most promising arcs,
si; j 1 c si; j DsA
l
; i; j 22
4.3. Constraint propagation procedure
The proposed constraint propagation procedure
together with the ant algorithm xes the value domains
of the variables that have not yet been searched. Hence,
each articial ant walks in the search space of feasible solu-
tion regions. The procedure uses formulas (2), (9) and (15)
to conne values assigned to x
ktj
. After a cycle is ended,
each x
ktj
is assigned a value and N
kt
is computed using
the ceiling integer of the right hand side of formula (23),
N
kt
P
X
n
j1
a
tj
x
ktj
Wu
kt
l
tj
P0; 8k; t 23
5. Experiments
The parameters of the proposed MAA algorithm were
carefully investigated and tuned in a sensitivity analysis.
Major parameters include the evaporation rate (q, c), the
number of articial ant (N
ants
), the number of reinforce-
ment cycles (RF) and the number of cycles in a trial (C).
Table 1 presents the resulting setting of the parameters.
K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842 2835
This setting is determined by a 2
6
full factorial design of
experiments approach on the six parameters.
JAVA language is used to develop the code of the
proposed ant algorithm run on a P4 CPU with 256MB
RAM.
A case with ten types of machines, ten types of orders
and ten periods of production horizon problems are con-
sidered to verify the performance of proposed MAA
algorithm.
5.1. Case study of model I
The available operational time of each manufacturing
cell, W, is 1800 h for each period of time. The target utili-
zation of each kind of manufacturing cells is 100%. The
interest rate is 6% in all periods. The upper bound of bud-
get, CC, is 7 million USD. The initial number of manufac-
turing cells is N
0
= (4, 4, 4, 4, 4, 4, 3, 3, 3, 3) in which each
column represents the number of machine in a cell. The
unit price of selling capacity of remaining manufacturing
cells t of a capacity seller, C
0
t
, is set to 1250, 1975, 775,
1350, 2700, 1325, 2350, 2450, 2375, 11,200, respectively,
in this case. The other data are presented in Appendix A.
Table 1
Setting parameters
Parameters Values
a 1
q, c 0.01
N
ants
75
C 1000
RF 25
300000
350000
400000
0 1000 2000 3000 4000 5000
CPU time (in seconds)
V
a
l
u
e

o
f

r
e
s
u
l
t
a
n
t

r
e
m
a
i
n
i
n
g

c
a
p
a
c
i
t
y

o
m
a
c
h
i
n
e
s
Fig. 1. Fitness evolutions of MAA for case I.
0
1
2
3
4
5
0 1 2 3 4 5 6 7 8 9 10
Periods
#
M
a
c
h
i
n
e
s
M1
M2
M3
M4
M5
M6
M7
M8
M9
M10
Fig. 2. Resource portfolios of case I.
2836 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842
The problem is highly complex. ILOG OPL optimiza-
tion software (2006) was applied but failed to solve the case
in 32 h.
The best solutions obtained by MAA (in 5000 CPU sec-
onds) are 3.920 10
5
. Fig. 1 depicts the evolution of objec-
tive values computed by MAA. Fig. 2 is the resulting
resource portfolio of machines.
5.2. Case study of model II
The initial portfolio of manufacturing cells is
(1, 1, 1, 1, 1, 1, 1, 1, 1, 1). The unit prots of orders are
(20, 30, 40, 20, 30, 40, 20, 30, 40, 40), respectively. The avail-
able operational time, target utilization, interest rate, bud-
get are the same as those in case I. The detail data are
presented in Appendix B.
The best solutions obtained by MAA (in 2000 s) are
7.379 10
7
. Fig. 3 displays the evolution of the objective
values of the algorithm. Fig. 4 shows the resulting resource
portfolio of the manufacturing cells.
5.3. Case study of model III
The remaining capacity of the manufacturing cells
obtained in Section 5.1 and the remaining orders obtained
in Section 5.2 are used in this case. It is assumed that the
capacity unit price (C
tj
) at the capacity seller is propor-
tional to l
tj
by multiplying a ratio R. Note that R = 0
imply that resources are free. The other parameters are
the same as the ones in case I.
The algorithms nd promising solutions in only a few
CPU seconds. Fig. 5 depicts the cost-prot structure for
0
1000
2000
3000
4000
5000
6000
7000
8000
0 200 400 600 800 1000 1200 1400 1600 1800 2000
CPU time (in seconds)
P
r
o
f
i
t
Fig. 3. Fitness evolutions of MAA for case II.
0
1
2
3
4
0 1 2 3 4 5 6 7 8 9 10
Periods
#
M
a
c
h
i
n
e
s
M11
M12
M13
M14
M15
M16
M17
M18
M19
M20
Fig. 4. Resource portfolios of case II.
K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842 2837
dierent resource outsourcing cost (in a ratio of R). As
shown in Fig. 5, the gross prot of the capacity buyer
decreases as the price of the required capacity price
increases. When R = 1.4 the gross prot converges to zero
which means no deal is reached. Note that when R = 0.6,
the system will reach balance that the two factories will
have equal prot.
5.4. Comparison to other algorithms
The author has applied a GA algorithm and compared
the performances of the MAA, GA and ILOG OPL with
small, executable cases. As shown in Fig. 6, the proposed
MAA and GA reach almost the same performance at the
end.
6. Comparison of the proposed cooperative capacity planning
and resource allocation model to a centralized model
In this section, an integrated planning for all the orders
and resources of the two factories is performed assuming
that there is a centralized decision-maker. The result of
such a centralized planning, in terms of prot-sharing
structures (eectiveness), serves as a benchmark (i.e., the
0
500
1000
1500
2000
2500
3000
3500
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4
R
P
r
o
f
i
t
The net profitof
capacity demander
(a)
The gross profitof
capacity demander
(a+b)
Production cost (b)
Fig. 5. Prot structure of dierent outsourcing cost in R.
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
400.000
0 1.100 2.200 3.300 4.400 5.500
CPU time (in seconds)
P
r
o
f
i
t
s
MAA CP GA ILO GOPL
Fig. 6. Objective function evolutions of CPGA, MAA and ILOG OPL.
2838 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842
global optimization assuming the existence of a centralized
decision-maker) for the comparison with the negotiated
results of the two independent parties.
Assume that two factories, I and II, coordinate for
capacity planning. There are four types of parts committed
to customers by each of the two factories. The two factories
play as a capacity seller and capacity buyer for its partner.
The proposed MILP mathematical model III is applied to
both of the two factories and their mediator as well, to
search for prot maximization at each level.
There are ten periods of orders committed to customers
by each factory. There are two types of resources for each
factory. A factory has a choice to be processed either by
alternative machines within the factory or outsourcing to
another factory, whereas the other requires to selling
resources.
The other input data include (i) capacity unit price, C
kj
which is proportional to machine throughput (with a mul-
tiplier R due to machines technological level of capacity).
It is assumed that the cost of outsourcing is cheaper than
that of make-in-factory. (ii) The initial resource set,
N
0
= (2, 1, 1, 2). The available operation time of each
resource, W, is 1800 h for all periods. The target utilization
u
tk
of each kind of machine is 100%. The interest rate I is
6% in all periods.
The price of capacity (of both factories) is increased by
multiplying R throughout resource unit prices. The result-
ing local, negotiated solutions of the two factories, and the
globally near optimal solution are calculated. The lines of
prot in Fig. 7 are numbered in L1 (the global solution),
L2 (Factory I+ Factory II+ Mediator), L3 (Factory I+
Factory II), and L4 (Factory I). The solutions of Factories
I and II are computed by MAA separately, and lines L4
and L3 are then drawn for dierent R values, or equiva-
lently resource unit prices. The remaining orders and
capacity of the two factories are then matched using
MAA by the mediator for a cooperative capacity plan of
resources. Line L2 is depicted by adding the solution values
of Factories I, II, and Mediator. Finally, based on the
assumption that a centralized decision-maker exists, the
same mathematical model is used to compute the global
optimum by considering all of orders and capacity of
resources. L1 is thus drawn by running the MAA.
Fig. 7 indicates that (i) the dierences between L1 and
L2 are small and the proposed cooperative capacity plan-
ning and resource allocation model can approach the glob-
ally near-optimal model for a broad range of the
outsourcing cost, and (ii) the dierence between L2 and
L3 is the prot gain resulting from cooperation between
the cooperative parties. Experimental results revealed that
the proposed model and solving method improves total
prots for both the isolated (a single factory) and negotia-
tion-based (between factories) environments.
7. Conclusions
This study has addressed the inter-factories capacity
planning and resource allocation problem. We have
developed three mixed integer linear programming mod-
els with the objective either to minimize the total cost
or to maximize the company prot of planning a
resource portfolio. Issues that pertain to decisions to pur-
chase, sell machines and allocate machines economically
to produce orders were resolved. The other contribution
of this study is to solve this complex resource portfolio
problem by proposing a modied ant algorithm with a
repair mechanism, which enables articial ants always
walk in feasible solution regions, reducing computational
eort.
Furthermore, this study has developed a cooperation-
based supply demand orchestration framework in which
the issues of coordinated resource allocation between
0
2000
4000
6000
8000
10000
12000
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90
R
P
r
o
f
i
t
L4: Factory I
L3: Factory I + Factory II
L2: L3+Mediator
L1: Centralized Model
Fig. 7. Prot share structure for dierent R.
K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842 2839
factories tasks can be resolved economically. Experiments
reveal that the proposed ant algorithm found good solu-
tions in both of isolated (a single factory level) and cooper-
ation-based (at a mediator level) environments.
Some interesting future work in this eld is suggested. In
the area of the resource portfolio decision-making in capi-
tal-intensive industries such as semiconductor manufactur-
ing and testing, alternative means of acquiring resources,
such as purchasing new facilities, renting from competitors,
transferring from other plants and selling equipment, can
be incorporated into the model. Beside, the proposed ant
algorithm can incorporate local search methods to improve
further the solution it nds and the eciency with which it
nds them. The proposed model limits two negotiating par-
ties. With some extension, our math model and solution
can handle capacity planning of multiple-negotiating par-
ties. In order to apply it to real supply chain scenarios, a
further study for multiple-negotiating parties is
encouraged.
Appendix A. Data of for case I
See Tables A1A4.
Table A1
Order demands (d
kj
: ten thousands)
Periods O1 O2 O3 O4 O5 O6 O7 O8 O9 O10
1 6 7 3 4 5 5 2 0 7 6
2 6 7 3 4 5 5 2 0 7 6
3 6 6 3 4 8 5 3 0 6 8
4 6 6 3 4 8 5 3 0 6 8
5 5 5 5 4 8 5 3 0 5 5
6 5 5 5 4 8 5 3 30 0 5
7 5 4 5 4 6 6 2 30 0 2
8 5 4 7 4 6 6 2 30 0 2
9 5 4 7 4 5 6 2 30 0 1
10 5 4 7 4 5 6 2 30 0 1
Table A2
Procurement cost of machines
*
(c
kt
: ten thousand)
Periods M1 M2 M3 M4 M5 M6 M7 M8 M9 M10
1 350 550 300 450 700 450 600 500 650 400
2 350 550 300 450 700 450 600 500 650 400
3 350 550 300 450 700 450 600 500 650 400
4 350 550 300 450 700 450 600 500 650 400
5 350 550 300 450 700 450 600 500 650 400
6 350 550 300 450 700 450 600 500 650 400
7 350 550 300 450 700 450 600 500 650 400
8 350 550 300 450 700 450 600 500 650 400
9 350 550 300 450 700 450 600 500 650 400
10 350 550 300 450 700 450 600 500 650 400
*
The unit salvage of each machine is set as half of procurement cost.
Table A3
Machine throughput corresponding to orders (l
kt
: units/h)
Periods O1 O2 O3 O4 O5 O6 O7 O8 O9 O10
M1 10 10 35 20
M2 20 25 30 45 25
M3 25 15 25
M4 30 30 30
M5 40 40 30 30 30
M6 25 45 20
M7 30 40 50 35
M8 30 50 55
M9 25 35 40 10 50
M10 25 35 10 10
2840 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842
Table A4
Resultant remaining capacity of machines (N
0
kt

Periods M1 M2 M3 M4 M5 M6 M7 M8 M9 M10
1 3.444 1.79 2.148 3.814 3.814 3.061 3 1.828 2.777 2.079
2 1.341 2.172 3.555 2.703 3.675 3.876 2.841 1.939 2.777 2.015
3 3.722 2.462 0.592 2.888 3.814 2.827 2.365 2.363 3 2.619
4 1.738 2.851 3.333 3.444 4 3.382 3 1.525 2.5 1.952
5 2.174 2.166 1.777 3.259 3.814 4 2.861 2.05 2.722 2.365
6 0.309 3.753 1.925 3.074 3.675 3.876 2.702 2.595 2.277 2.841
7 1.46 2.753 1.851 2.703 4 4 2.841 2.898 2.777 2.301
8 2.293 3.308 2.888 2.888 3.861 3.5 2.841 2.898 2.277 0.365
9 2.333 3.197 3.333 2.333 4 3.629 2.841 3 2.638 1.888
10 2.293 1.993 4 2.703 4 3.722 3 2.713 2.777 1.253
Table B1
Order demands (d
kj
: ten thousands)
Periods O1 O2 O3 O4 O5 O6 O7 O8 O9 O10
1 15 5 0 2 8 10 13 3 7 6
2 15 7 0 2 8 10 13 3 7 6
3 8 7 0 3 8 10 15 4 6 5
4 8 10 5 3 8 10 15 4 6 5
5 5 10 5 10 8 10 15 5 5 4
6 5 10 5 10 8 0 13 5 5 4
7 5 3 8 10 8 0 13 6 4 3
8 0 3 8 7 8 0 13 6 4 3
9 0 2 15 7 8 0 10 7 3 3
10 0 2 15 5 8 0 10 7 3 3
Table B2
Procurement cost of machines (c
kt
: ten thousand)
Periods M11 M12 M13 M14 M15 M16 M17 M18 M19 M20
1 150 350 300 200 250 500 450 200 450 400
2 150 350 300 200 250 500 450 200 450 400
3 150 350 300 200 250 500 450 200 450 400
4 150 350 300 200 250 500 450 200 450 400
5 150 350 300 200 250 500 450 200 450 400
6 150 350 300 200 250 500 450 200 450 400
7 150 350 300 200 250 500 450 200 450 400
8 150 350 300 200 250 500 450 200 450 400
9 150 350 300 200 250 500 450 200 450 400
10 150 350 300 200 250 500 450 200 450 400
Table B3
Machine throughput corresponding to orders (l
kt
: units/h)
Periods O1 O2 O3 O4 O5 O6 O7 O8 O9 O10
M11 20 10 10
M12 10 30 20 30
M13 35 15 15 10
M14 30 20 15
M15 20 25 25
M16 15 25 20 50
M17 25 25 55
M18 10 30 25
M19 25 35 45
M20 25 50 25
Appendix B. Data of case II
See Tables B1B4.
K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842 2841
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Table B4
Remaining orders (d
0
kj
: ten thousands)
Periods O1 O2 O3 O4 O5 O6 O7 O8 O9 O10
1 0 5 0 0 0 5 13 3 7 6
2 0 7 0 0 0 5 13 3 7 6
3 0 7 0 0 0 5 15 4 6 5
4 0 10 0 0 0 5 15 4 6 5
5 0 10 0 0 0 5 15 5 5 4
6 0 9 0 0 0 0 13 5 5 4
7 0 2 0 0 0 0 13 6 4 3
8 0 2 0 0 0 0 13 6 4 3
9 0 1 0 0 0 0 10 7 3 3
10 0 1 0 0 0 0 10 7 3 3
Total 0 54 0 0 0 25 130 50 50 42
2842 K.-J. Wang, M.-J. Chen / Expert Systems with Applications 36 (2009) 28312842