Packaged gas supply chain planning with network-wide SKU rationalization

Effective SKU rationalization is advantageous when applied to businesses with a high variety of product offerings. Advantages may include lower production costs, inventory simplifications, and system-wide reductions in transportation costs. We apply SKU rationalization in the form of a variant of product substitution, towards an industrial packaged gas supply chain problem which includes production, allocation, and distribution decisions. An effective mixed-integer programming formulation is developed, capable of handling additional line investment, varying degrees of substitution, economies-of-scale in production, as well as network-wide planning decisions in the supply chain. A case study based on historical data is used for testing, followed by computational results and policy implications in the form of customer incentivization.