Supply Chain Network Optimization for Global Distribution of Cementitious Materials

Abstract

Companies trading cementitious materials face an increasingly volatile economic environment and continuous challenges to ensure the availability of strategic raw materials. In this context, the ability to globally source slag represents a competitive advantage for cement companies because of the limited availability of the material, its importance in the cement production process, and the complex network of supply and demand nodes. In this project, we introduce an optimization model to support managerial decision-making in the global distribution of cementitious materials for a multinational company. We develop a Mixed Integer Linear Program (MILP) to find quantitative solutions that maximize total contribution margin. In addition, we use scenario-planning techniques to assess the sensitivity of our results with regard to multiple potential futures, to account for changes in relevant demand, supply, and costs in a dynamic economic environment. The results show opportunities to increase contribution margin by 11% through an optimized allocation of existing volumes in the current network. We suggest further improvements to the contribution margin by introducing new trading routes as well as different pricing strategies for customers. Additionally, the model shows how prices and transport costs are the main determining factors for the company’s profitability; increasing transportation costs by 20% results in a 51% reduction in contribution margin. Ultimately, we develop a model that is relevant to a number of different network optimization problems, and adaptable to different economic conditions.