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A review of modelling approaches for supply chain planning under

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Conference Paper · July 2012

DOI: 10.1109/ICSSSM.2012.6252220

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A Review of Modelling Approaches for Supply Chain
Planning Under Uncertainty
Morteza Lalmazloumian
Faculty of Mechanical Engineering
Universiti Teknologi Malaysia (UTM)
81310 Johor Bahru, Malaysia
Lmorteza2@live.utm.my
Abstract—Since 1959 in which one of the earliest attempts to
address the problem of developing a coordinated link in a supply
chain (SC) was performed by [1], managing SC performance has
been a main challenge among enterprises. Supply chain planning
(SCP), as one of the most important processes within the supply
chain management (SCM) concept, has a great impact on firms’
success or failure. SCP decision has been greatly influenced by
the presence of uncertainty from the intricate nature and
dynamic relationship among various stages involved in the SC
network. This paper aims to present an extensive review of the
existing literature to acquire a deep understanding of modelling
approaches used in the area of SCP under uncertainty. The
research main objective is to provide a classification framework
based on the following elements: problem types, sources of
uncertainty, performance measures, and modelling approaches
that were exploited by previous researchers. We have conducted
a survey of various journal papers dated from 1993 to 2012. In
conclusion, some guidelines regarding future areas of research
have been identified.
Keywords: Supply chain management;Supply chain planning;
Uncertainty modelling
I. INTRODUCTION
A supply chain (SC) is an integrated process in which a
group of several organizations, such as suppliers,
manufacturers, distributors and retailers, work together with
both a forward flow of materials and a backward flow of
information, to acquire raw materials with a view of converting
them into final products, and deliver the final products to
customers [2]. Today, individual firms compete as an integral
part of SC links rather than independent entities with unique
brand names [3]. A firm success has been greatly influenced by
its managerial ability to integrate and coordinate the
complicated network of business relationship among SC
members. One of the most important processes within the SCM
concept is the supply chain planning (SCP) process which is
about the coordination and integration of key business
activities undertaken by an enterprise, from the procurement of
raw materials to the distribution of the final products to the
customer [4]. However, a large degree of uncertainty arises
from the intricate nature and dynamic relationship among
various stages involved in a SC network. According to [5],
uncertainty is defined as the difference between the amount of
978-1-4577-2025-3/12/$26.00 ©2011 IEEE
Kuan Yew Wong
Faculty of Mechanical Engineering
Universiti Teknologi Malaysia (UTM)
81310 Johor Bahru, Malaysia
wongky@fkm.utm.my
information required to perform a task and the information that
is actually available. Uncertainty has a great influence on the
effectiveness of SCs’ configuration and coordination in SCP
processes [6]. In this paper, we provide a review on various
SCP methods which are being exploited to develop an
integrated SC network in which the overall performance of the
entire enterprise has been optimized. Furthermore, a
classification framework based on the following elements is
defined as a new taxonomy: (a) problem types handled within
SCP, (b) sources of uncertainty that the analyzed model is
dealing with, (c) performance measures addressed, and (d)
modelling approaches used.
This paper is organized as follows. In the next section, the
methodology of reviewing the literature is defined and a new
taxonomy is undertaken. Then, the classification of modelling
approaches for SCP is described and classified. Finally,
conclusions are drawn and potential future extension of the
research is discussed.
II. REVIEW METHODOLOGY
In order to conduct this review on scientific literatures
related to SCP under uncertainty, a wide search on
bibliography references was performed using key words like
“supply chain planning”, “uncertainty”, “procurement,
production distribution planning”, and “supply chain network
design”. Having exploited these criteria, a group of 84 journal
papers were initially obtained. To acquire more relevant
literature in accordance with the research objective, a detailed
analysis was carried out by considering various research
criteria of the classification framework. Once this procedure
was completed, 47 final references were selected.
III. TAXONOMY
We have developed our taxonomy based on the initial
model presented by [7]. These authors identified two
dimensions of classification including: (a) the problem types
and (b) the modelling approaches in their taxonomy for SCM
models. We incorporated two more criteria into the previous
taxonomy which comprised (c) the sources of uncertainty and
(d) the performance measures. To have a better understanding
regarding various classifications, a comprehensive review of
the former effort in the area of modelling SCP problems has
197
been done. Our focus is on providing a categorized framework
based on different dimensions of classification.
A. Criterion: Problem Types
Considering the wide range of SC decisions, the SCP
problem can be decomposed based on three levels of decisions
according to the time horizons contemplated: (a) The strategic
level (long-term), (b) the tactical level (mid-term), and (c) the
operational level (short-term) [8]. In the SC design phase,
strategic planning such as location decisions for manufacturing
and distribution facilities and technology selection decisions
play major roles. Strategic planning models affect SC design
and configuration over a relatively long time, somewhere
between five and ten years. At the tactical level, the main issue
is the determination of procurement, production and
distribution quantities for the facilities in different echelons of
a SC with planning time lasting one or two years. Coordinating
the procurement, production and distribution plans in an
integrated framework considering capacity limitations at
different echelons is of particular interest in tactical planning
decisions. Operational planning models are related to the
detailed scheduling definition, sequencing, lot sizing, assigning
loads and vehicle routes, etc. These models use time periods
which last from one to two weeks.
B. Criterion: Sources of Uncertainty
The intricate nature of SC networks and dynamic
relationships of different sectors among a SC indicate that an
inevitable degree of uncertainty exists in SCP decisions.
Deterministic optimization approaches either completely
ignore uncertainty or use historical data to forecast the future.
In real-world situations, most of the SCs operate in a somehow
uncertain environment and their related parameters are not
known with certainty because of incompleteness and/or
unavailability of required data over the planning horizon. There
are three distinct sources of uncertainty in SCs including,
supply uncertainty, process/manufacturing uncertainty, and
demand uncertainty. Supply uncertainty is related to the
variability of the suppliers’ performance due to late or
defective deliveries. Process uncertainty results from the
unreliability of the production process. Finally, demand
uncertainty, which is the most serious of the three based on [6],
arises from rapidly changing demand or inaccurate forecasting
of demand.
C. Criterion: Performance Measures
SCP literature is very rich in terms of modelling
frameworks and problem formulation approaches. While the
efficiency and effectiveness of most proposed SC models were
generally evaluated by means of quantitative performance
measures such as cost or lead time minimization, some studies
concentrated on qualitative ones like maximization of
flexibility or customer service level, for instance. However,
only a few researchers jointly incorporated qualitative and
quantitative performance measures into their effort. Previous
literatures could be classified based on the type of performance
measures they utilize to develop the model.
D. Criterion: Modelling Approaches
According to [4], in order to handle the uncertainty inherent
in the real world problems, three distinct methods were
198
frequently mentioned. First, the distribution-based approach,
where the normal distribution with specified mean and standard
deviation is widely invoked for modelling uncertain demands
and/or parameters; second, the fuzzy-based approach, therein
the forecast parameters are considered as fuzzy numbers with
accompanied membership functions; and third, the scenario-
based approach, in which several discrete scenarios with
associated probability levels are used to describe the expected
occurrence of particular outcomes. In our research, we have
added two more categories to the initial definition of SCP
modelling approach including, simulation-based approach and
hybrid-based approach. Our classification in assigning
modelling approaches is solely based on the solution method.
IV. CLASSIFICATION OF SUPPLY CHAIN PLANNING
MODELLING APPROACHES UNDER UNCERTAINTY
Since variable data are inherent in almost all of the real
world problems, we have provided a review of various
modelling approaches to deal with the uncertain environment
of the SC networks. Likewise, works are presented in
chronological order.
A. Distribution-based approach
With the aim of minimizing total cost over the presence of
service level constraint, [9] developed a stochastic model of an
integrated production-distribution system under demand
uncertainty. They also proposed an optimization algorithm for
finding the near-optimal solution. [10] presented a two-stage
stochastic programming framework to measure cost with the
scenario analysis based approach over a mid-term planning
horizon to solve a manufacturing, assembly, distribution
(MAD) planning problem under demand, supply cost and lead
time delivery uncertainties. Researchers in [11] developed a
two-stage stochastic programming approach based on the
deterministic mixed-integer linear programming model
proposed by [12]. The authors’ objective was to minimize cost.
They incorporated demand uncertainty into multisite midterm
SCP problems. Developing a hierarchical decision-making
framework, they classified the variables and constraints into
production decision and supply chain decision.
Reference [13] extended their previous work [11] by
integrating the previous two-stage stochastic programming
methodology with a chance constraint programming approach
to capture the trade-offs between customer demand satisfaction
and production cost under demand uncertainty. The authors
then extended their work again to develop a bi-level
optimization framework with the basic objective of
maximizing customer service level and minimizing total cost
[4].
Developing a stochastic programming model for solving
large-scale problems, [14] proposed an integration of a
sampling strategy with an accelerated Benders decomposition
algorithm. Considering a strategic planning horizon, they
incorporated supply, process, and demand uncertainties into the
model. Reference [15] developed a mixed integer linear goal
programming (MILGP) model for an integrated multi-objective
procurement, production and distribution problem. The authors
proposed different time-grids and planning horizons for
aggregate and detailed planning. They presented a single
formulation for different levels of decisions with the objective
of minimization of the following elements: storage constraints
deviation, forward cover constraint deviation, and total cost
deviation. An illustrative case of a consumer goods company
was also presented. With the aim of minimizing total cost, [16]
developed an analytical framework based on mixed-integer
linear programming to address a dynamic planning process of a
production unit under demand uncertainty. Researchers in [17]
formulated the supply chain network design (SCND) problem
as a multi-objective stochastic mixed-integer nonlinear
programming model, which was solved by using the goal
attainment technique. Developing a stochastic programming
approach under the uncertainties of demand, supply, and
process, they proposed a research work addressing strategic
and tactical planning levels to measure total cost, variance of
total cost and financial risk of not meeting a certain budget.
Reference [18] developed a two-stage stochastic supply
chain network design model under customer demand,
operational cost and facility capacity uncertainties. Considering
both strategic and tactical planning levels, the authors’
objective was to minimize total cost of the system. The sample
average approximation technique was exploited to solve the
problem.
B. Fuzzy-based approach
One of the first attempts to develop a fuzzy model and
simulation for modelling a procurement, production and
distribution SC network over a short-term planning horizon
was performed by [19]. Considering the uncertainty of demand
and external supply of raw material, the authors’ objective was
to determine the stock levels and order quantities for each
inventory during a finite time horizon to obtain an acceptable
delivery performance at a reasonable total cost for the entire
SC. The authors then extended their work and proposed a
production SC with all facilities in a serial link, including all
kinds of inventories along a SC and their related production
facilities except distribution and retailer [20]. A fuzzy model
incorporated into a simulator was developed for investigating
the dynamics of SC and measuring its performance within a
short-term time horizon. Their objective was to reach a
satisfactory level of service at a reasonable total cost through
determining order-up-to levels of inventories under demand,
supply and delivery uncertainties.
Researchers in [21] constructed a production-distribution
planning model. Taking several performance measures such as
maximizing each enterprise profit, maximizing customer
service level, and maximizing safe inventory level into
account, they formulated the model as a mixed-integer
nonlinear programming (MINLP) problem under demand
uncertainty. To achieve an overall accepted solution, a two-
phase fuzzy method was exploited. A numerical example
demonstrated the effectiveness of the proposed model.
Reference [22] constructed a SC scheduling model as a mixed-
integer nonlinear programming (MINLP) problem. With the
aim of attaining the maximization of total supply chain profit,
customer service level, and safe inventory level, the authors
adopted the scenario based approach for modelling the
uncertain market demand, and the fuzzy set theory was applied
for forming product price uncertainty. The effectiveness of the
199
proposed two-phase fuzzy method was tested through a
numerical experiment.
With the aim of minimizing total SC cost, [23] developed
an approach to derive the membership function of a fuzzy SC
network model over a tactical planning horizon. The authors
considered demand, raw material cost and transportation cost
as fuzzy parameters. Reference [24] modelled an integrated
production–distribution planning problem based on fuzzy
mathematical programming with a fuzzy objective function
solved by genetic algorithm. Considering uncertainties of
customer demand and production capacity, the authors’
objective was to provide a sound trade-off between
maximization of profit and maximization of customer service
level. A numerical example of a general appliance company
demonstrated the model. Researchers in [25] developed a fuzzy
mathematical programming model of integrated production-
distribution planning in a build-to-order (BTO) environment
over both short-term and mid-term planning horizons. They
used mixed-integer fuzzy programming (MIFP) with the aim of
minimizing the total operating cost while improving customer
service level under the uncertainties of raw material and
inventory holding cost and customer demand. Developing a
collaborative production-distribution planning model, [26]
employed a fuzzy goal programming (FGP) approach to
incorporate the collaborative planning issues together with a
realistic model structure into the model to handle the problem
of both centralized and decentralized SC structures under
demand uncertainty. The authors fulfilled multiple objectives
related to maximizing total system profit, minimizing cost of
retailers, and minimizing delays in demand in retailers.
Integrating procurement, production and distribution into a
unified framework, [27] formulated a multi-objective supply
chain master planning (SCMP) problem. Considering the
uncertain nature of market demand, cost/time coefficients and
capacity levels, they proposed a possibilistic mixed integer
linear programming model (PMILP) considering a wide range
of conflicting objectives such as minimization of total cost and
maximization of customer service level. The authors proposed
a novel fuzzy approach as a solution method. Extending their
previous effort, [28] then developed a fuzzy goal programming
approach to construct an integrated procurement, production
and distribution planning framework in a tactical planning
level. They incorporated four objectives including
minimization of total cost, defective items, and late deliveries
and maximization of total purchasing value under uncertain
market demand and production capacity. Extending the
formulation presented by [12], a fuzzy mixed-integer linear
programming model was constructed by [29] to demonstrate
the usefulness of the fuzzy mathematical programming
approach to model a SC production planning problem under
demand uncertainty. The basic objective of the proposed model
was to minimize total cost of the entire system. Researchers in
[30] proposed a fuzzy mathematical programming model for a
tactical SCP problem considering supply, demand and process
uncertainties. To obtain the objective of minimizing total SC
cost, the authors formulated a fuzzy mixed-integer linear
programming model where data were modelled by triangular
fuzzy numbers. Their model was evaluated by using data from
a real-world automobile SC. The authors, then, extended their
work by presenting trapezoidal fuzzy numbers in [31] and
combined linear programming with fuzzy set theory to propose
a novel fuzzy mixed-integer linear programming (FMILP)
model for a tactical SCP problem. With the aim of centralizing
multi-node decisions to acquire the best utilization of resources
along the time horizon in order to meet customer demand at the
lowest possible cost, the authors contemplated all the
uncertainty sources of demand, process and supply in an
integrated manner. The model was illustrated using an
automobile SC.
C. Scenario-based approach
In an attempt to reduce variability and show the
overemphasis of feasibility in optimization models of real-
world problems, decision makers are always faced with noisy,
inaccurate, or unspecific data. To handle the difficulty of such
data and to deal with sensitivity analysis problems or stochastic
programming formulations, [32] developed a general model
formulation framework, called Robust Optimization (RO).
They constructed their novel approach based on the integration
of goal programming formulation with scenario-based
description of a problem.
To demonstrate the effect of uncertainty on demand chain
planning (DCP), [33] proposed a robust planning model for a
tactical SCP problem. The authors introduced various sources
of uncertainties inherent in SCP decisions and the best level to
provide buffers against those uncertainties. Using Monte Carlo
simulation as a solution method, they illustrated their proposed
model through a case study of a chemical enterprise.
Reference [34] proposed a mathematical programming
model contemplating a scenario based approach to formulate a
procurement-production planning problem. With the aim of
determining the optimal sourcing, transportation and allocation
of an enterprise’s limited resources in the least costly manner,
the authors developed a multi-stage stochastic programming
model for SCP under demand uncertainty. The significance of
the model was illustrated through a numerical example. With
the aim of developing a global SC network to measure the
effect of government regulation on the entire network, [35]
proposed an integrated production-distribution planning model
based on the scenario based approach. The authors
simultaneously considered strategic and operational planning
decisions in a global SC under uncertain parameters of
customer demand, cost of product, and transportation lead
time. The authors’ objective in the strategic level was to
maximize total network profit, while minimizing total cost was
considered as the operational level’s objective.
Researchers in [36] developed a robust optimization model
incorporating demand uncertainty for integrated aggregate and
detailed planning of a multi-site procurement-production
distribution problem. In their proposed model, procurement
and production plans were presented as “here and now”
decisions, while distribution plans are scenario based and were
proposed as “wait and see” strategies until the realization of
demand. With the aim of minimizing total cost, the model was
demonstrated using a numerical example of a consumer goods
company. Reference [37] considered an aggregate production
planning (APP) problem of a manufacturing supply chain
under the uncertain nature of cost parameters and consumer
200
demand. With the aim of minimizing total losses of SC while
maximizing customer satisfaction, the authors developed a
novel robust multi-objective mixed-integer nonlinear
programming model for a medium-term planning horizon. The
authors then proposed an efficient algorithm in [38], which was
a combination of an augmented ε-constraint method and
genetic algorithm to solve the same problem. They extended
their previous model objectives to fulfil the conflicting
objectives of total cost of SC, customer service level and
worker productivity. Finally, they formulated a multi-objective
two-stage stochastic programming model in [39] to deal with a
multi-period, multi-product, multi-site tactical production-
distribution planning problem. Providing a set of discrete
scenarios to handle the uncertainties of cost parameters and
customer demand, a robust stochastic mixed-integer nonlinear
programming model was formulated. The authors’ objective
was to minimize total cost coupled with total cost variance
minimization and workers productivity maximization. To solve
the presented model, a hybrid algorithm composed of the
extended Monte Carlo sampling method, modified ε-constraint
technique and L-shaped method was exploited.
D. Simulation-based approach
Reference [40] investigated the effect of different strategic
and operational performance measures on SC performance.
Developing a discrete event simulation model, the authors
studied the behaviour of a conjoined web-based retail SC. It
was indicated in their research that inventory system stock-out
risk, probability distribution of demand, and transportation time
were most important in determining the effectiveness of the
chain. Researchers in [41] developed a multi-objective
simulation-based optimization model that comprised the
Taguchi technique and response surface methodology.
Considering the uncertainty of demand, the authors’ objective
was to determine the proper plant capacity and adopt the right
level of delayed differentiation strategy for products of a PC
manufacturing company to achieve the optimal performance of
the SC.
Proposing an object-oriented approach, [42] modeled a
production planning and inventory replenishment system in a
pharmaceutical SC. Developing a group of interconnected
nodes to model a SC network, the influence of various
uncertainties in the entire chain was evaluated through Monte-
Carlo simulation. Finally, the authors studied the effect of
replenishment policy change on SC performance through a
numerical example. Investigating the optimal level of safety
stock in a petrochemical company, [43] developed a linear
programming formulation with the aim of minimizing total
expected on-hand inventory across the entire chain.
Considering demand uncertainty, discrete-event simulation was
proposed to evaluate the performance functions of the SC,
while the safety stock variables and customer service level
were determined through a linear programming model.
With the aim of achieving the optimal operation plan for
SC network, [44] developed a general framework by
combining an optimization model and discrete-event
simulation. Contemplating the minimization of total SC cost as
the model objective, the authors investigated the interaction
between the optimization model solutions and simulation
results. Reference [45] developed a multi-echelon production-
distribution SC model to deal with the problem of clinical trial
materials management through proposing a simulation-based
optimization approach. The authors combined mathematical
programming-based planning with discrete event simulation in
the proposed model. Considering different sources of
uncertainty, the research objective was to minimize the entire
SC cost.
E. Hybrid-based approach
Researchers in [46] proposed a hybrid approach combining
mathematical programming and simulation models to solve a
multi-period multi-product (MPMP) production planning
problem. With the aim of keeping the lowest possible inventory
in the entire chain, their objective was to find the capacity-
feasible production plan. To demonstrate the effectiveness of
the proposed model, a case study of a manufacturing system
was examined. Reference [47] proposed a hybrid approach to
model an integrated production-distribution planning problem
with the aim of satisfying retailer’s demand through keeping
the lowest possible inventories on hand. Considering the
stochastic nature of machine capacity and distribution capacity
constraints, the authors’ objective was to minimize the entire
SC cost over a short-term planning horizon.
Combining analytic and simulation models, [48] presented
a hybrid approach to develop an integrated production-
distribution planning model. Considering machine operation
time and distribution operation time as uncertain parameters,
the authors’ objective was to minimize the overall production,
distribution, inventory holding and shortage costs. Reference
[49] extended their previous work in [46] by developing a
capacity feasible production plan model considering workload
of jobs to present a hybrid model combining linear
programming and simulation. Incorporating JIT approach, the
model objective was to minimize the entire SC cost.
Researchers in [50] provided a hybrid method to solve a
production-distribution planning problem taking replenishment
policy into account. The authors developed a mathematical
programming model to specify the capacities of facilities. With
the aim of determining the optimal production-distribution plan
a simulation model was constructed. The objective of the
proposed model was to minimize the total SC cost which was
demonstrated through a numerical example. Incorporating risk
measures into their stochastic programming model, [51]
proposed a mid-term planning of a global SC under demand
and freight rate uncertainties. With the aim of minimizing total
cost, they combined their model with a Monte Carlo sampling
approach to achieve an optimal solution. Considering the
production-planning problem of a crop farm, [52] developed a
hybrid approach combining Monte Carlo simulation (to
accommodate probabilistic information of various kinds) and
genetic algorithm (to solve the constrained maximization
problem). Incorporating various kinds of stochastic information
into the model, the research objective was to maximize total
gross margin of the system. One of the drawbacks of the
proposed model is it does not consider the cost parameters
associated with adopting the method.
Reference [53] developed a three-step hybrid approach
integrating mathematical programming and simulation
201
modelling to investigate order fulfillment scheduling of a
manufacturing company in a SC environment. Considering
both tactical and operational planning levels, the main goal of
the proposed model was to determine the best order promising
time together with optimal production, inventory and
distribution plans at the tactical level and optimal scheduling
decision at the operational level. Contemplating various kinds
of uncertain factors, the model objective was to minimize total
SC cost.
V. ANALYSIS AND DISCUSSION
Based on the result of reviewed literature, most of the
models considered only one source of uncertainty, which was
demand uncertainty. This is a considerable drawback of the
existing models, since although demand is the most important
source of uncertainty according to [6], other sources of
uncertainty such as supply and process greatly influence the SC
performance, which triggers the need for jointly considering
them.
Most of the proposed models were developed over a mid-
term planning horizon while some researchers considered a
multi-level planning approach. Minimization of total cost and,
to a lesser extent, maximization of the entire chain profit, as a
single objective, was often the objective function of most of the
proposed models. Moreover, qualitative performance measures
in addressing multi-objective SCP problems were greatly
ignored. Finally, the most widely used modelling approach was
distribution based followed by fuzzy-based model, along with
scenario-based approach.
VI. CONCLUSION
In this work, a comprehensive literature survey of various
modelling methods for supply chain planning (SCP) under
uncertainty has been conducted. A classification based on the
various modelling approaches to model SCP under uncertainty
has been presented. To the best of our knowledge, this is the
first time that this kind of classification has been presented.
Researchers employed different methods and techniques to
solve the problem of SCP over different planning horizons. The
problem types, sources of uncertainty, performance measures
and modelling approaches were the taxonomy criteria exploited
in this research. Although extensive research on SCP methods
under uncertainty has been performed, a new modelling
approach in this wide area of planning can be investigated as a
future research.
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