An application of mixed-integer linear programming models on the redesign of the supply network of Nutricia Dairy & Drinks Group in Hungary

Abstract.

Between 1995 and 1998 Nutricia acquired a number of dairy companies in Hungary. Each of these companies produced a wide variety of products for its regional market. Although alterations had been made to the production system in the last few years, production and transportation costs were still substantial. This paper presents a research study with regard to the optimisation of the supply network of Nutricia Hungary using a mixed-integer linear programming model. Focussing on consolidation and product specialisation of plants the objective was to find the optimal number of plants, their locations and the allocation of the product portfolio to these plants, when minimizing the sum of production and transportation costs. The model is in line with traditional location/allocation models, with a modification concerning inter-transportation of semi-finished products between plants. The production costs used in this model are based on a Green field situation, taking into account new and more advanced technologies available today. The model is used by the Nutricia Dairy and Drinks Group as a decision supporting tool.