Strategic Planning Models and Approaches to Improve Distribution Planning in the Industrial Gas Industry

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Virginia Tech

The industrial gas industry represents a multi-billion dollar global market and provides essential product to manufacturing and service organizations that drive the global economy. In this dissertation, we focus on improving distribution efficiency in the industrial gas industry by addressing the strategic level problem of bulk tank allocation (BTA) while considering the effects of important operational issues. The BTA problem determines the preferred size of bulk tanks to assign to customer sites to minimize recurring gas distribution costs and initial tank installation costs. The BTA problem has a unique structure which includes a resource allocation problem and an underlying vehicle routing problem with split deliveries.

In this dissertation, we provide an exact solution approach that solves the BTA problem to optimality and recommends tank allocations, provides a set of delivery routes, and determines delivery amounts to customers on each delivery route within reasonable computational time. The exact solution approach is based on a branch-and-price algorithm that solves problem instances with up to 40 customers in reasonable computational time.

Due to the complexity of the problem and the size of industry representative problems, the solution approaches published in the literature rely on heuristics that require a set of potential routes as input. In this research, we investigate and compare three alternative route generation algorithms using data sets from an industry partner. When comparing the routes generation algorithms, a sweep-based heuristic was the preferred heuristic for the data sets evaluated.

The existing BTA solution approaches in the literature also assume a single bulk tank can be allocated at each customer site. While this assumption is valid for some customers due to space limitations, other customer sites may have the capability to accommodate multiple tanks. We propose two alternative mathematical models to explore the possibility and potential benefits of allocating multiple tanks at designated customer site that have the capacity to accommodate more than one tank. In a case study with 20 customers, allowing multiple tank allocation yield 13% reduction in total costs.

In practice, industrial gas customer demands frequently vary by time period. Thus, it is important to allocate tanks to effectively accommodate time varying demand. Therefore, we develop a bulk tank allocation model for time varying demand (BTATVD) which captures changing demands by period for each customer. Adding this time dimension increases complexity. Therefore, we present three decomposition-based solution approaches. In the first two approaches, the problem is decomposed and a restricted master problem is solved. For the third approach, a two phase periodically restricting heuristic approach is developed. We evaluate the solution approaches using data sets provided by an industrial partner and solve the problem instances with up to 200 customers. The results yield approximately 10% in total savings and 20% in distribution cost savings over a 7 year time horizon.

The results of this research provide effective approaches to address a variety of distribution issues faced by the industrial gas industry. The case study results demonstrate the potential improvements for distribution efficiency.

Logistics Planning, Strategic Asset Allocation, Inventory Routing