PROVE THE VALUE
Optimizing global manufacturing and distribution at GE Plastics
GE Plastics, a $5 billion global subsidiary of General Electric, traditionally operated under a “pole-centric” philosophy, locating facilities that manufacture components for consumer products regionally near its primary customers. Then European and American partners began shifting their manufacturing operations to Asia, creating a global imbalance in the geographic capacity of GE Plastics plants.
The company needed a strategy to rearrange its manufacturing not only to bring capacity and demand into balance geographically, but also to maximize economies of scale through centralized production, reduce raw material costs through global sourcing, and take advantage of tax incentives offered to manufacturers in some countries. GE focused its initial effort on its High Performance Polymers (HPP) division.
The O.R. Solution
O.R. experts set to work in solving GE Plastics HPP division’s challenge by boiling the supply chain problem down to a single statement that could be translated into a mathematical model: “Given the market demand and price of HPP products, plant capacities, manufacturing, additive and distribution costs, determine the optimal production quantities at each plant’s production line that will maximize profits for each division.” The O.R. group developed a mathematical model to perform this optimization. They then implemented the model as a decision support system (DSS) constructed to help GE managers solve the problem on an ongoing basis, looking one and four years into the future. The DSS was built in Excel spreadsheet software in conjunction with LINGO, a commercial solver, to handle the optimization.
System inputs included product demands and prices, raw material costs and finishing plants’ capacities. Because the O.R. team was able to design a computationally convenient math model, the DSS is able to solve problems very rapidly. For example, the system can generate resource allocation projections four years into the future in only 25 seconds.
The O.R.-based decision support tool initially helped GE Plastics make critical plant location decisions for its HPP division involving investments of hundreds of millions of dollars. The tool’s success supporting resource allocation decisions within that division led to its adoption by other GE Plastics divisions for their supply chain planning activities.