Using Lingo to Optimize the Supply Network Cost

Abstract

This paper concerns the supply network cost as an optimization problem to decide its production strategy. The network consists of some nodes and arcs to represent the Bill of Materials of a finished product. Raw materials, subassemblies, and final assembly are a three-level supply network with a deterministic production lead time to assemble the finished product. The two options of production strategy are Make-to-Stock or Make-to-Order. The objective function is the minimization of supply network cost according to the selected strategy. To solve this problem, Lingo is used which is developed by Lindo system. A binary linear programming is developed by Lingo to decide the production strategy for each node in supply network with a minimum cost. The constraints are the delivery time which must be satisfied, and the limited capacity. A numerical example is conducted to show the result of the Lingo model.