Integrating Inventory Planning with Project Management in Project-Driven Supply Chains

Most real-world projects require material supplies at various stages. Project-driven supply chains (PDSCs) are the combinations of project activities and their supporting material supply chains where the demand for the latter is driven by the material requirement of the former. Material supply decisions (e.g., inventory positioning) and project decisions (e.g., resource planning, project scheduling) are intertwined in PDSCs. In this paper, we present a modeling paradigm to help firms make material supply decisions and project decisions jointly. We model a PDSC by a combined network of material supply chain where inventory can be held and a set of activities initiated upon random demand for projects. The material availability constrains the starting times of project activities. We develop a joint optimization model to determine the optimal inventory levels, activity durations and project schedule simultaneously, so as to strike the balance between inventory cost and project costs. For tree structure networks, we develop an optimization algorithm based on dynamic programming. Using examples, we demonstrate that the joint optimization can lead to significant cost savings as compared to the common practice which optimizes material supply and project decisions sequentially. Even if activity durations cannot be modified, coordinating the project schedule with inventory decisions alone can result in sizable savings. We also discuss material customization issues and develop insights on how the savings are generated by the joint optimization, and when they are significant.