Multiechelon location-inventory modeling

What is it about?

We developed a multiechelon location-inventory modeling approach and applied it to redesign the global network of four large transnational agricultural companies operating in Brazil. The results show that tax planning is the most significant factor in minimizing the operating cash outflow and that inventory carrying costs play a more important role than transfer freight, handling, and fixed costs. Distribution centers and production plants in countries within the Mercosur are excellent targets for cash outflow reduction and service level improvement. Furthermore, contrary to common sense, reducing operating costs can sometimes increase cash outflow in companies with large volumes of tax credit in Brazil. Our methodology generated processes that helped one company reduce its logistic cash outflow by 49 percent and its logistics costs by $10 million.

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Why is it important?

This work introduces a unique model to optimize a logistic network considering factors as inventory square root rule, taxes and Mercosur influence. The implementation of the model in four big Ag companies brought significant cost reductions and we got very interesting conclusions by analyzing the results.

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