International Journal of Production Research

Vol. 48, No. 23, 1 December 2010, 6883–6907

Optimal configuration of assembly supply chains using

analytical target cascading
Ting Qua, George Q. Huanga*, Van-Dat Cungb and Fabien Mangioneb
a
Department of Industrial and Manufacturing Systems Engineering, The University of
Hong Kong, Pokfulam Road, Hong Kong, P.R. China; bLaboratory G-SCOP, CNRS
UMR 5272, Grenoble-INP, UJF, 46 Avenue Fe´lix Viallet, Grenoble Cedex 1, France
(Received 26 May 2009; final version received 31 August 2009)

This paper proposes to apply analytical target cascading (ATC) for configuring
assembly supply chains with convergent structures. Individual enterprises in a
supply chain are represented as separate elements in an ATC hierarchy. They are
able to maintain autonomous and heterogeneous decision systems for optimising
their private decision variables and objectives. They collaborate vertically and
laterally along the ATC hierarchy through their common decisions to achieve the
overall consistency and optimality. ATC offers a competitive balance between
computational efficiency and effectiveness while providing an opportunity for
parallel computation to further improve the efficiency. This paper also
investigates the feasibility for individual enterprises to set local targets while
participating in the supply chain configuration (SCC). SCC usually involves
discrete decision variables, causing significant difficulties for existing ATC
techniques to achieve system consistency. Therefore, a new consistency scheme
has to be proposed in this paper, including two techniques: importance weighting
factor (IWF) and dynamic constraints (DC). A case study is used to demonstrate
the application of the ATC method for solving typical SCC problems. A series of
comparative analyses are conducted to identify the strengths of the ATC method
and demonstrate the effectiveness of the proposed consistency scheme.
Keywords: analytical target cascading; supply chain configuration; autonomous
decision systems; distributed problem solving

1. Introduction
A supply chain is composed of a complex sequence of processing stages, ranging from the
raw materials supplies, parts manufacturing, components and end-products assembly, to
the delivery of finished products (Yu et al. 2008, Chan and Chan 2009). This paper
considers a product’s assembly supply chain where each stage refers to a specific
assembling process for those components supplied from upstream stages. Normally, the
manufacturer corresponding to each stage has multiple alternative processing options to
choose from, e.g., a component manufacturer may have alternative outsourcing companies
while a final product manufacturer has alternative OEM partners (Chan et al. 2007,
Chiang et al. 2007). Supply chain configuration (SCC) aims to define a unique network
with certain optimal performance indicators through choosing one from the alternative

*Corresponding author. Email: gqhuang@hkucc.hku.hk

ISSN 0020–7543 print/ISSN 1366–588X online

ß 2010 Taylor & Francis
DOI: 10.1080/00207540903307631
http://www.informaworld.com
6884 T. Qu et al.

options for each stage and assigning the operational parameters between adjacent stages
(Huang et al. 2005a, Zhang et al. 2008).
Researchers have been searching for efficient and effective solution methods for solving
SCC problems. Graves and Willems (2001) developed a two-state dynamic program (DP)
to solve a notebook computer SCC problem that was modelled as spanning trees. For the
same problem, Huang et al. (2005a) adopted a genetic algorithm (GA) as a solution
approach and achieved better optimisation efficiency. Park (2001) built a comprehensive
decision model to simultaneously determine the strategy for developing product families
and configuring the associated global supply chain. In these works, SCC problems are
defined as centralised decision models solved by all-in-one (AIO) approaches. Although
AIO approaches have demonstrated acceptable computational efficiency and effectiveness,
two intrinsic limitations are hard to overcome. First, decision details of all supply chain
stages will be shared in the centralised decision model. Therefore, it is difficult to protect
the business privacy, such as local targets or suppliers, of each autonomous enterprise, not
to say that some enterprises want to use their own decision facilities. Second, an AIO
approach is computationally expensive. It may be acceptable to spend five minutes (for
DP) or one minute (for GA) solving an SCC problem with 17 stages each of which has
only two decision variables (Huang et al. 2005a) but the optimisation time would be
unexpectedly long if the number of stages and/or decision variables is further increased.
Analytic target cascading (ATC) is a model-based, multilevel, hierarchical optimisation
method for system design (Huang et al. 2005b). ATC is potentially suitable for addressing
the two limitations mentioned above. In ATC, a system is hierarchically partitioned into a
set of individual elements, each of which has its respective decision models. As a result, a
large complex system design problem could be converted into several smaller sub-
problems. Sub-problems are solved starting from the top-level element, and design targets
for the lower level are cascaded. If the cascaded targets are not achievable in a lower-level
element, the upper-level is required to iteratively adjust the targets; otherwise targets are
cascaded until the bottom level is reached. When the consistency among all elements is
reached, their sub-solutions form the final system design.
ATC has been applied for solving optimal design problems in various engineering
fields. Since initially introduced to automotive vehicle design (Kim 2001,Kim et al. 2001,
Kim et al. 2003, Nyström et al. 2003), ATC has been successfully used for the optimisation
of building design (Choudhary et al. 2003, 2005), product family design (Kokkolaras et al.
2002), linking marketing and product design (Michalek et al. 2005), manufacturing
applications (Li et al. 2004), and also aircraft design (Allison et al. 2006). When ATC is
applied to SCC, each supply chain stage is modelled to an individual ATC element and the
whole convergent supply chain is converted into a hierarchical ATC model. Enterprises of
different stages enjoy their autonomy to decentralise and formulate their own local
problems and choose solution methods (Qu et al. 2008). Their decision support systems
can be achieved through parallel distributed computation which further improves the
overall optimisation efficiency. Qu et al. (2009) develops a service-oriented ATC platform
called atcPortal for realising such a distributed SCC optimisation.
Several specific research objectives are addressed in this paper: (1) identifying a general
procedure of applying ATC to solve SCC problems; (2) demonstrating the effectiveness of
ATC in solving SCC problems; (3) identifying advantages and limitations of ATC
compared to AIO approaches; and (4) dealing with special issues in applying ATC for SCC
problems, including the presence of discrete variables in the ATC optimisation where
traditional weighting update method (Michalek and Papalambros 2005) is not applicable.
 International Journal of Production Research 6885

The rest of the paper is organised as follows. Section 2 presents an overview of the
ATC method and the five key steps. The five steps are then exemplified with an SCC
problem, each in a separate section. Section 8 discusses the two techniques of importance
weighting factor (IWF) and dynamic constraints (DCs).

2. ATC model and application procedure

Figure 1 shows a hierarchically partitioned ATC model in the literature (Kim et al. 2001,
Kim et al. 2003). The bottom-right part of the figure is the original system to be designed.
Its optimal design problem is denoted as P0 (see Appendix for nomenclature) with analysis
model r0(x). The original system in Figure 1 is partitioned into a three-level hierarchy
composed of five ATC elements. Following the ATC convention, a hierarchical index is
used to denote elements. That is, Pi,j denotes the jth element at the ith level. The
partitioned model has a strictly hierarchical structure. The top-level element, P1,1, has two
child elements in the intermediate level, namely P2,1 and P2,2. P2,1 also has two child
elements in the bottom level, namely P3,1 and P3,2. Normally, partitioning a system into a
hierarchical model is the first step when applying ATC.
The second step of applying ATC is to identify the key links between partitioned
elements in the hierarchy. Key links are those variables shared by two or more elements in
the ATC model and should be kept consistent during the optimisation (Kim et al. 2000).
Key links include responses, Ri,j, and linking variables, yi,j. Responses are the variables
shared by parent and child elements vertically in the ATC hierarchy. For example, R2,1 is
both the decision variable in P1,1’s analysis model, r1,1ðR2,1 , R2,2 , x~ 1,1 Þ, and the output from
P2,1’s analysis model, r2,1 ðR3,1 , R3,2 , x~ 2,1 , y2,1 Þ. Linking variables are the variables laterally
shared by child elements of the same parent element. For example, y2,1 and y2,2 are the
same decision variables existing in both P2,1’s analysis model, r2,1 ðR3,1 , R3,2 , x~ 2,1 , y2,1 Þ, and
P2,2’s analysis model, r2,2 ðx~ 2,2 , y2,2 Þ. The consistency of linking variables is coordinated by
their common parent element.

T
Top level P1,1

R2,1 , R2, 2 , ~
x1,1 R1,1 R21,1 R22,1 R21, 2 R22, 2
r1,1 ( R2,1 , R2, 2 , ~
1 2
x1,1 ) y 2 ,1 y 2 ,1 y12, 2 y22, 2

Intermediate P2 ,1 P2 , 2
level (s)
R32,1 R33,1 R32, 2 R33, 2 R3,1 , R3, 2 , ~
x2,1 , y2,1 R2,1 R2, 2 ~
x2, 2 , y 2, 2
2 3 2 3
y y y y
3,1 3,1 3, 2 3, 2
r2,1 ( R3,1 , R3, 2 , ~
x2,1 , y2,1 ) r2 , 2 ( ~
x2 , 2 , y 2 , 2 )
Bottom level(s) P3,1 P3, 2
~ T
x3,1 , y3,1 R3,1 R3, 2 ~
x3 , 2 , y 3 , 2 P0

r3,1 ( ~
x3,1 , y3,1 ) r3, 2 ( ~
x3, 2 , y3, 2 ) P i : Design problem i
ri (x): Analysis model in P i
r0 ( x)

Figure 1. Hierarchically partitioned ATC model.

6886 T. Qu et al.

The third step of an ATC analysis is to formulate the local optimisation problems for
each element in the ATC hierarchy. Deviations of responses and linking variables are
included in the objective function for minimisation of an element (Kim et al. 2003). These
deviations are reduced through each iteration of cascading, eventually becoming
acceptable according to the given tolerances. In this case, the overall system is considered
to reach a consistent state. In Figure 1, P2,1 receives response target, R12,1 , and linking
variable target, y12,1 , from P1,1. At the same time, it also receives lower-level responses, R33,1
and R33,2 , and lower-level linking variables, y33,1 and y33,2 , from P3,1 and P3,2. Therefore, the
corresponding deviation terms, kR2,1  R12,1 k22 , k y2,1  y12,1 k22 , "1 (for constraining
kR3,1  R33,1 k22 ), "2 (for constraining kR3,2  R33,2 k22 ), "3 (for constraining k y3,1  y33,1 k22 ),
"4 (for constraining k y3,2  y33,2 k22 ) will constitute the local objective function. k  k22 is the
squared l2-norm. The index used in superscript indicates the level from which the targets
(responses) are cascaded (backtracked).
Once the ATC problem has been formulated, the ATC process is ready to be executed
and then the results are analysed and discussed. These five steps are generally followed in
applying ATC for solving SCC problems.

3. Hierarchical modelling of supply chain systems

Convergent supply chains have been widely discussed in a great deal of literature (Huang
et al. 2003, Chan and Chan 2004, Shukla et al. 2009). They are easily modelled to a
hierarchical ATC model due to their homogeneous structures (Huang and Qu 2008). This
paper will use a notebook computer assembly supply chain as an illustration. It is
simplified from the cases in Graves and Willems (2001), and Huang et al. (2005a), as
shown in Figure 2. Despite the reduced stages, key assumptions and mathematical models
remain the same.

Figure 2. Supply chain model of notebook computer B.

 International Journal of Production Research 6887

This supply chain has 13 processing stages. The two most downstream stages, stage1,1
and stage0,1, represent the final product demand and assembly stages respectively. They
will be undertaken by the same enterprise and thus conceptually combined to a single
stage, noted as stage1,10 . Hence, only 12 stages are actually considered in ATC modelling.
Through partitioning this supply chain by stages, a valid ATC model could be easily
obtained. The hierarchical index used in the figure follows the ATC convention, that is,
‘stagei,j’ denotes the jth stage in the ith level of the supply chain.
According to the business scopes, these stages are categorised into three sets. The first
set includes all the most upstream (leaf) stages which procure raw materials and then make
parts, being defined as procurement stages (set R). stage2,2, stage3,2, stage3,3, stage3,4,
stage3,5, stage4,1, stage4,2, stage4,3, stage4,4 belong to this set. The second set includes all the
intermediate stages with both upstream and downstream stages. They perform assembling
processes and are defined as assembly stages (set P). stage2,1 and stage3,1 belong to this set.
The third set includes only the most downstream stage which represents the demand/
delivery of end products, i.e., notebook computer B in this case, and is defined as demand
stage (set E ). stage1,10 is the only stage in this set.

4. Identification of key links between supply chain stages

The second step of applying ATC is to identify the key links between stages. The
identification of responses starts from the most downstream stages, stage1,10 . In this case,
as the customer requires that the total supply chain cost and order fulfil time should be
minimised, TC1,10 and ST1,10 will be identified as two responses. In the analysis models of
calculating TC1,10 and ST1,10 , three variables related to stage2,1 are used, that is, TC2,1 ,
CC2,1 and ST2,1 . They are therefore the responses from stage2,1. CC2,1 refers to the
cumulative direct costs of stage2,1. Similarly, the three analysis models for TC2,1 , CC2,1 and
ST2,1 require responses from further upstream stages. This process will continue to the
most upstream stages until all responses are identified.
The identification of linking variables, on the other hand, should consider the practical
relationships between sibling elements. For this SCC problem, a downstream stage hopes
that all its upstream stages share the same service time (ST) to avoid unnecessary inventory
(Graves and Willems 2000, Yu et al. 2009a, 2009b). Thus ST will be identified as linking
variables among sibling stages. ST in this SCC problem is very special in the sense that it
severs as both response and linking variable. Therefore, unlike other linking variables
whose targets are the averaging results of their last-cycle values (Kim, et al. 2001), the
targets for ST come from the optimisation results of the parent element like responses.

5. ATC formulations for individual stage problems

The third step of applying ATC is to formulate the local optimisation problem for each
stage. Generally, a complete ATC formulation comprises three parts. The first part is
objective function (Minimise), which indicates the deviation of key links between the
concerned stage and its adjacent stages. The second part is analysis models (Where), which
indicates the functional relationships between the responses and other attributes, such as
input parameters, local decision variables, linking variables and lower-level responses. The
third part is constraints (Subject to), including those managerial constraints manifesting
supply chain requirements and those tolerance constraints used to control the consistency
6888 T. Qu et al.

between ATC elements. Since the formulations for the same set of stages are
mathematically alike, only one stage in each set will be selected for illustration.

5.1 ATC formulation for the demand stage

stage1,10 is the demand stage in the supply chain and the top-level element in the ATC
model. Its local optimisation problem could be stated as: minimise the deviation between
the stage responses and the customer’s demand targets subject to both the supply chain
constraints and the tolerance constraints which coordinate upstream stages. For stage1,10 ,
the complete formulation is as follows:
Minimise:
 
TC 2
  X
ST 2
5
wTC
1,10 TC1,10  t þwST
1,10 ST1,10  t þ "ð1,10 Þ, i :
i¼1

With respect to:

STv1,1 , ST1,1 , SO1,1 , c1,1 , T1,1 , ST0,1 , SS0,1 , c0,1 , T0,1 , TC2,1 , TC2,2 , CC2,1 ,
CC2,2 , "ð1,10 Þ, 1 , "ð1,10 Þ, 2 , "ð1,10 Þ, 3 , "ð1,10 Þ, 4 , "ð1,10 Þ, 5 :

Where:
   
AM1, 10 ðTCÞ: TC1,10 ¼ SCCC1,1 = 1,1 H1,1 þ SCCC0,1 = 0,1 H0,1 þ TC2,1 þ TC2,2
AM1, 10 ðST Þ: ST1,10 ¼ ST0,1
   

0,1 pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi c0,1

SCCC0,1 ¼ h0,1 CC0,1 þ 0,1 0,1 ST1,1 þ T0,1  ST0,1 þ  þ þ CC1,1 0,1 T0,1
2 2
þ H0,1 c0,1 0,1
h pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi c1,1  i
SCCC1,1 ¼ h1,1 CC1,1 1,1 1,1 STv1,1 þ T1,1  ST1,1 þ þ CC2,1 þ CC2,2 1,1 T1,1
2
þ H1,1 c1,1 1,1

CC0,1 ¼ c0,1 þ CC1,1

CC1,1 ¼ c1,1 þ CC2,1 þ CC2,2 :

Subject to:
X
Tð0,1Þ,SO0,1 yð0,1Þ,SO0,1  T0,1 ¼ 0 ð1Þ
SO0,1 2Sð0, 1Þ

X
cð0,1Þ,SO0,1 yð0,1Þ,SO0,1  c0,1 ¼ 0 ð2Þ
SO0,1 2Sð0, 1Þ

X
Tð1,1Þ,SO1,1 yð1,1Þ,SO1,1  T1,1 ¼ 0 ð3Þ
SO1,1 2Sð1, 1Þ
 International Journal of Production Research 6889
X
cð1,1Þ,SO1,1 yð1,1Þ,SO1,1  c1,1 ¼ 0 ð4Þ
SO1,1 2Sð1, 1Þ

 X
1, if SO0,1 is selected
yð0,1Þ,SO0,1 ¼ and yð0,1Þ,SO0,1 ¼ 1 ð5Þ
0, otherwise SO0,1 2Sð0, 1Þ

 X
1, if SO1,1 is selected
yð1,1Þ,SO1,1 ¼ and yð1,1Þ,SO1,1 ¼ 1 ð6Þ
0, otherwise SO1,1 2Sð1, 1Þ

STv1,1 þ T1,1  ST1,1  0, STv1,1 , ST1,1  0 and integer ð7Þ

TC2,1 , TC2,2 , CC2,1 , CC2,2  0 ð8Þ

 2
TC2,1  TC32,1  "ð1,10 Þ, 1 ð9Þ

 2
TC2,2  TC32,2  "ð1,10 Þ, 2 ð10Þ

 2
CC2,1  CC32,1  "ð1,10 Þ, 3 ð11Þ

 2
CC2,2  CC32,2  "ð1,10 Þ, 4 ð12Þ

 n o2
STv1,1  max ST32,1 , ST32,2  "ð1,1Þ,5 ð13Þ

0 5 "ð1,10 Þ, i  gð1,1Þ0 , i ðI Þ, i ¼ 1, 2, 3, 4, 5 : ð14Þ

. Objective function: tTC and tST are two demand targets for total cost (TC) and
service time (ST). Therefore TC1,10 and ST1,10 are identified as two stage responses.
To achieve the minimal total cost and customer order fulfil time of the supply
chain, tTC and tST are normally set to zero. Weighting coefficients, wTC ST
1,10 and w1,10 ,
are attached to the deviation terms to indicate customer preferences. The specific
reason and usage of weighting coefficients will be discussed in Section 8.
Corresponding to the lower-level responses, five tolerance variables, "ð1,1Þ,1 , "ð1,1Þ,2 ,
"ð1,1Þ,3 , "ð1,1Þ,4 , and "ð1,1Þ,5 are used to keep upstream linking.
. Analysis model: AM1, 10 ðTCÞ and AM1, 10 ðSTÞ are the analysis models for TC1,10
and ST1,10 . In this problem, TC of a stage is defined as the cumulative unit SCC
cost (noted as SCCC) of the current stage and all its upstream stages. Therefore,
TC1,10 is the summation of the unit SCCC of stage1,10 and TC of stage2,1 and
stage2,2. The analysis model for ST1,10 is simply defined as ST of stage0,1. The
reason for using unit cost in the formulation is to ensure that TC has the same
value magnitude as other decision variables, e.g., ST and SO (supplier option).
6890 T. Qu et al.

. Constraints: Constraints (1) to (6) ensure that only one option will be selected in
each stage. Constraint (7) indicates that the maximal service time from upstream
stages will be used as the actual input service time, STv1,1 , because stage1,1’ cannot
start assembling until components from all the upstream stages become available.
Constraint (8) indicates that all the lower-level responses for TC and ST should
be positive values. The next five tolerance constraints mean that variations of all
the lower-level key links should be limited within corresponding tolerance
variables. Each tolerance variable is in turn constrained by a dynamic constraint
function, gð1,1Þ0 , i ðIÞ, i.e., Constraint (14). Along with the target cascading
iterations, I, the dynamic function will gradually tighten up the tolerable
deviation ranges. Details about the dynamic constraint function will be discussed
in Section 8.

5.2 ATC formulations for the assembly stages

There are two assembly stages in this supply chain, namely stage2,1 and stage3,1. They are
modelled as the intermediate-level elements of the ATC hierarchy. The problem of such
stages could be stated as: minimise the deviations between an assembly stage and assembly
targets from downstream stages subject to both supply chain constraints and tolerance
constraints that coordinate the upstream stages. Take stage2,1 as an illustration, the
formulation is as follows:
Minimise:
 2  2  2 X11
1 1 1
wTC
2,1 TC 2,1  TC2,1 þ w CC
2,1 CC 2,1  CC2,1 þ wST
2,1 ST2,1  ST2,1 þ "ð2,1Þ,i :
i¼1

With respect to:

STv2,1 , ST2,1 , SO2,1 , c2,1 , T2,1 , TC3,1 , . . . , TC3,5 , CC3,1 , . . . , CC3,5 , "ð2,1Þ,1 , . . . , "ð2,1Þ,11 :

Where:
  X5
AM2, 1ðTCÞ: TC2,1 ¼ SCCC2,1 = 2,1 H2,1 þ TC3,k
k¼1
X
5
AM2, 1ðCCÞ: CC2,1 ¼ c2,1 þ CC3,k
k¼1
AM2, 1ðSTÞ: ST2,1 ¼ ST2,1
" ! #
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 1 X
5
SCCC2,1 ¼ h2,1 CC2,1 2,1 2,1 STv2,1 þ T2,1  ST2,1 þ þ CC3,k 2,1 T2,1
2c2,1 k¼1
þ H2,1 c2,1 2,1 :
Subject to:
X
Tð2,1Þ,SO2,1 y2,1,SO2,1  T2,1 ¼ 0
SO2,1 2Sð2, 1Þ
 International Journal of Production Research 6891
X
cð2,1Þ,SO2,1 yð2,1Þ,SO2,1  c2,1 ¼ 0
SO2,1 2Sð2, 1Þ

 X
1, if SO2,1 is selected
yð2,1Þ,SO2,1 ¼ and yð2,1Þ,SO2,1 ¼ 1
0, otherwise SO2,1 2Sð2, 1Þ

STv2,1 þ T2,1  ST2,1  0, STv2,1 , ST2,1  0 and integer

TC3,k , CC3,k  0, k ¼ 1, 2, 3, 4, 5

 2
4
TC3,k  TC3,k  "ð2,1Þ,k
 2
CC3,k  CC43,k  "ð2,1Þ,kþ5 , k ¼ 1, 2, 3, 4, 5
 n o2
4 4 4 4 4
STv2,1  max ST3,1 , ST3,2 , ST3,3 , ST3,4 , ST3,5  "ð2,1Þ,11

0 5 "ð2,1Þ,i  gð2,1Þ,i ðI Þ, i ¼ 1, 2, . . . , 11:

. Objective function: as has been explained, TC2,1 , CC2,1 and ST2,1 are identified as
responses in stage2,1 (ST2,1 is also a linking variable). The targets for these
responses, namely TC12,1 , CC12,1 and ST12,1 , come from the optimisation results
of stage1,10 . Totally 11 lower-lever responses have to be coordinated by the
corresponding tolerance variables.
. Analysis model: three responses in stage2,1 necessitate the existence of three
analysis models in this formulation. They are AM2,1(TC), AM2,1(CC) and
AM2,1(ST), whose outputs are TC2,1 , CC2,1 and ST2,1 , respectively. Note that
AM2,1(ST) is so simple that the input and output are both ST2,1 . This is because
ST2,1 acts as both local design variable and response.
. Constraints: the constraints in this formulation are formed in a similar way as that
in stage1,10 , except that the tolerance constraints increased to 11 to limit the
domain of variation of all the lower-level responses.

5.3 ATC formulations for the procurement stages

There are nine procurement stages in this supply chain, namely stage2,2, stage3,2, stage3,3,
stage3,4, stage3,5, stage4,1, stage4,2, stage4,3, and stage4,4. They are modelled as the bottom-
level elements of the ATC hierarchy. The problem in these kinds of stages could be stated
as: minimise the deviations between the procurement stages and procurement targets
from their downstream stages subject to supply chain constraints. Take stage3,2 as an
illustration, the complete formulation is as follows:
Minimise:
 2  2  2
wTC 2 CC 2 ST 2
3,2 TC3,2  TC3,2 þ w3,2 CC3,2  CC3,2 þ w3,2 ST3,2  ST3,2 :
6892 T. Qu et al.

With respect to:

ST3,2 , SO3,2 , c3,2 , T3,2 :
Where:
 
AM3, 2ðTCÞ: TC3,2 ¼ SCCC3,2 = 3,2 H3,2
AM3, 2ðCCÞ: CC3,2 ¼ c3,2
AM3, 2ðSTÞ: ST3,2 ¼ ST3,2
 pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 
SCCC3,2 ¼ h3,2 c3,2 3,2 3,2 T3,2  ST3,2 þ 3,2 T3,2 þ H3,2 c3,2 3,2 :

Subject to:
X
Tð3,2Þ,SO3,2 yð3,2Þ,SO3,2  T3,2 ¼ 0
SO3,2 2Sð3, 2Þ

X
cð3,2Þ,SO3,2 yð3,2Þ,SO3,2  c3,2 ¼ 0
SO3,2 2Sð3, 2Þ

 X
1, if SO3,2 is selected
yð3,2Þ,SO3,2 ¼ and yð3,2Þ,SO3,2 ¼ 1
0, otherwise SO3,2 2Sð3, 2Þ

T3,2  ST3,2  0, ST3,2  0 and integer:

. Objective function: stage3,2 has no upstream stage, thus the tolerance variables are
omitted from the objective function, leaving only target deviation terms existing
to coordinate with its downstream stage.
. Analysis model: the analysis models in the bottom-level stage are very
straightforward. CC3,2 contains only the production cost incurred in this stage,
namely c3,2 . ST3,2 also serves as both local design variable and response.
. Constraints: as no lower-level response needs to be constrained, this part contains
only those constraints of SCC problem.

6. ATC solution
6.1 ATC solution strategies
The fourth step of applying ATC to SCC problems is to solve the formulated ATC
problems by adopting suitable solution strategies. Solution strategies for ATC could be
discussed from both macro and micro aspects. From the macro aspect, the strategy mainly
refers to the overall solution sequence and coordinating strategy of the ATC model; from
the micro aspect, it refers to the local optimisation method adopted by each ATC element.
The first macro issue is solution sequence. There are five types of convergent
sequence in implementing ATC (Michelena et al. 2003): (1) lower levels converge first;
(2) middle levels converge first then upward levels; (3) middle levels converge first then
downward levels; (4) upper levels converge first; and (5) lower levels and upper levels
 International Journal of Production Research 6893

converge concurrently. In this paper, we choose the first type, namely ‘lower levels
converge first’ for the SCC problem. This sequence is most suitable for the problems that
have unattainable top-level targets, because earlier propagating the unattainableness to the
entire hierarchy could avoid unnecessary iterations. The SCC problem to be solved here is
of such a case. The second macro issue is the system coordination strategy, which aims at
coordinating all the elements in the partitioned system. For hierarchical problems under
convex assumption, the hierarchical overlapping coordination (HOC) has been proven for
its convergence, and therefore is selected to coordinate our ATC system of solving the SCC
problem. Interested readers may refer to Michelena et al. (2003) for details about
this issue.
ATC mainly defines a partitioning and coordinating mechanism for the overall system,
but has no restriction to the decision details of each partitioned element. The most suitable
optimisation method for each local problem is totally determined by the application
specifics. Therefore, while the macro issues for most ATC applications are all similar, the
micro issue of local optimisation methods varies significantly. Recently, the genetic
algorithm (GA) has been successfully used to solve SCC related problems (Ding et al.
2005, Huang et al. 2005a), thus it will also be adopted here to solve the individual
optimisation problems of stages.

6.2 Genetic algorithms as local optimisation methods

The GA was introduced by Holland (1975) as a heuristic algorithm for solving
combinatorial optimisation problems. The GA starts with initialising a chromosome
population which represents several random solutions to the problem. Through simulating
the natural evolution process, the initial population is improved generation by generation,
until reaching the predefined maximum generation number. All the 12 stage problems have
homogenous optimisation models, differing only in the length of chromosomes and
specific constraints. Hence, to avoid lengthy repetitions, only stage2,1 is chosen here for
illustration. Refer to stage2,1’s formulation for a better understanding.

6.2.1 Chromosome representation and population initialisation

For the local optimisation problems formulated for stage2,1, each solution is represented
by a chromosome with 24 genes. The genes contain the decision variables to be optimised.
Figure 3 shows the proposed representation of the chromosome.
The first two genes contain the two local design variables in stage2,1, namely selected
option, SO2,1 , and service time, ST2,1 . The other genes are the lower-level responses and
corresponding tolerance variables. What is worthy of mentioning is the third variable,
STv2,1 , which indicates the upstream service time that should be input to stage2,1. All the
combinations of variables varying in their value domains result in the solution space of
the problem. Normally, a population will be initialised through randomly coding N
chromosomes from the solution space.

Figure 3. Representation schema of chromosomes in stage2,1.

6894 T. Qu et al.

6.2.2 Fitness function

After the population is initialised, the fitness function of each chromosome candidate will
be evaluated to perform evolution process. Higher fitness (function) value represents better
solution. The fitness function in stage2,1, Fit2,1 ð f2,1 ðx 2,1 ÞÞ, is represented as follows:
 
Fit2,1 f2,1 ðx 2,1 Þ ¼ M2,1  f2,1 ðx 2,1 Þ  Pe2,1 : ð15Þ
The objective function, f2,1 ðx 2,1 Þ, is subtracted from a constant, M2,1 , to ensure that a
higher fitness value denotes a better solution which has less target deviation. Pe2,1 is a
penalty factor used to deal with the inequality constraints, e.g., STv2,1 þ T2,1  ST2,1  0
and the five tolerance constraints in stage2,1’s formulation. For a chromosome that does
not satisfy these constraints, Pe2,1 will be subtracted from the fitness function to make the
fitness value smaller. Pe2,1 is given as follows:
  X5  
Pe2,1 ¼ Pe co1  ST2,1  ðSTv2,1 þ T2,1 Þ þ Pe coiþ1  ðTC3,i  TC43,i Þ  "ð2,1Þ,i
i¼1
X
5  
þ Pe coiþ6  ðCC3,i  CC43,i Þ  "ð2,1Þ,iþ5
i¼1
 n o 
þ Pe co12  STv2,1  max ST43,1 , ST43,2 , ST43,3 , ST43,4 , ST43,5  "ð2,1Þ,11 : ð16Þ

As can be seen, Pe2,1 is the summation of 12 penalty terms each of which indicates the
extent that constraint is violated. Pe coi is the scaling weight to ensure that each penalty
term is in the comparable magnitude with the objective function value. In this way, the
better a solution is, the smaller Pe2,1 it will produce, and thus the bigger fitness value it
will have.
In implementing our GA program, free software named JGAP (Java Genetics
Algorithms Package) (JGAP Team 2003) was adopted. All the tests were executed on a PC
of 2.8 GHz, and the whole optimisation of ATC process takes 12–14 minutes.

7. Analysis of simulation results

The fifth step of applying ATC to SCC problems is to analyse the optimisation results. In
this section, the optimisation results of the SCC problem discussed in the preceding
sections will be analysed first. Then, whether the ATC is able to accommodate the local
targets in an individual stage will be tested by a hypothetical SCC scenario.
For easy comparison of the optimisation results, input parameters in this SCC problem
are all set the same as those in Huang et al. (2005a): the demand mean () and standard
deviation of demand () of the US market demand are 125 and 80, respectively; the
service level () is chosen as 0.98 in each stage, and the annual holding cost rate (h) is 40%.
All the enterprises operate for 360 days per year, that is, H equals to 360. The information
of all the stage options are given in Table 1, including processing times (T), and production
costs (c).
In order to avoid unnecessary ATC iterations, a feasible starting point in which all the
optimisation variables are set at the lowest possible values is adopted for all the following
tests, as can be seen in Table 2. The variable values in this starting point are regarded as
the backtracked responses in the first iteration of ATC process.
 International Journal of Production Research 6895

Table 1. Processing time and production cost of options in each stage.

Processing Production
Stage Stage name Option time (T ) cost (c)

stage4,1 Parts w/8 week LT 1 40 $130.00

2 20 $133.25
3 10 $134.91
4 0 $136.59
stage4,2 Parts w/4 week LT 1 20 $200.00
2 10 $202.50
3 0 $205.03
stage4,3 Parts w/2 week LT 1 10 $155.00
2 0 $156.93
stage4,4 Parts on consignment 1 0 $200.00
stage3,1 Circuit board assembly 1 20 $120.00
2 5 $150.00
stage3,2 LCD display 1 60 $300.00
2 5 $350.00
stage3,3 Miscellaneous components 1 30 $200.00
stage3,4 Metal housing 1 70 $225.00
2 30 $240.00
stage3,3 Battery 1 60 $40.00
2 20 $45.00
stage2,1 Subassembly 1 5 $120.00
2 2 $132.00
stage2,2 DVD driver 1 40 $15.00
2 5 $16.50
stage1,1 Notebook assembly 1 1 $30.00
stage0,1 US demand – notebook B 1 5 $12.00
2 1 $20.00

Table 2. Starting point of ATC optimisation.

Stage Response variables

stage1,10 TC22,1 ¼ 1690 CC22,1 ¼ 1690 2

STv1,1 0 ¼ 0

TC22,2 ¼ 15 CC22,2 ¼ 15
stage2,1 TC33,1 ¼ 805 CC33,1 ¼ 805 3
STv2,1 ¼0
TC33,2 ¼ 300 CC33,2 ¼ 300
TC33,3 ¼ 200 CC33,3 ¼ 200
TC33,4 ¼ 225 CC33,4 ¼ 225
TC33,5 ¼ 40 CC33,5 ¼ 40
stage3,1 TC44,1 ¼ 30 CC44,1 ¼ 130 4
STv3,1 ¼0
TC44,2 ¼ 200 CC44,2 ¼ 200
TC44,3 ¼ 155 CC44,3 ¼ 155
TC44,4 ¼ 200 CC44,4 ¼ 200
6896 T. Qu et al.

Table 3. Optimisation results obtained from AIO and ATC approaches.

Stage AIO results ATC results

Index Name SO ST SO ST

stage4,1 Parts w/8 week LT 3 10 3 10

stage4,2 Parts w/4 week LT 2 10 2 10
stage4,3 Parts w/2 week LT 1 10 1 10
stage4,4 Parts on consignment 1 0 1 10
stage3,1 Circuit board assembly 1 30 1 30
stage3,2 LCD display 1 30 1 30
stage3,3 Miscellaneous components 1 30 1 30
stage3,4 Metal housing 1 30 1 30
stage3,5 Battery 1 30 1 30
stage2,1 subassembly 1 35 1 35
stage2,2 DVD drive 1 35 1 35
stage1,1 Notebook B assembly 1 36 1 36
stage0,1 US demand–notebook B 2 0 2 0
Optimisation time 1 minute 13 minutes

7.1 SCC results by ATC

Table 3 contrasts the optimisation results by ATC and a GA-based AIO approach used in
Huang et al. (2005a). As can be seen, ATC achieves almost the same results as those by the
AIO approach, except for the service time of stage4,4. In fact, though stage4,4 can offer a
‘0-day’ service time, the order will usually be delayed to 10 days to avoid unnecessary
inventory in its downstream stage, i.e., stage3,1 (Graves and Willems 2000, Wong et al.
2009). Therefore, the optimisation results from AIO and ATC are essentially the same.
Despite the similar effectiveness, the ATC optimisation uses 13 minutes which is much
longer than the 1 minute of the GA approach. There are two reasons leading to this
phenomenon. First, from the perspective of the ATC formulation, it is due to the
undesirably partitioned system structure. This issue has been partially mentioned in both
Michelena and Papalambros (1997) and Michelena et al. (1999). They stated that a weakly
coupled structure with coarsely granular sub-problems is computationally desirable for
any multilevel optimisation method that employs local optimisers like ATC. But for this
SCC problem, complex key links emerge among stages after the supply chain is
partitioned. For example, five to 11 real-type lower-level responses and their correspond-
ing tolerance variables exist in the formulations of assembly stages. Hence, all the
originally simple local problems become much more complex. Second, from the
perspective of computational mode, ATC is itself a decomposition-based design method
supporting distributed optimisation. It is a fact that the aforementioned efficiency
disadvantage is unavoidable in SCC problems due to the fact that each individual
enterprise has to maintain their decision autonomy. Yet when an ATC optimisation is
really collaborated by all the enterprises instead of by a single PC as in this simulation,
parallel computation will make the optimisation time much shortened.

7.2 Local target setting in ATC

Adopting a decentralised SCC optimisation method allows autonomous individual
enterprises to make independent decision, such as enjoy their respective local targets.
 International Journal of Production Research 6897

Table 4. Comparison of results with or without local targets.

Without local target Local target: ST3,1 ¼ 0

Stage SO ST TC SO ST TC

stage4,1 3 10 $136.41 4 0 $136.59

stage4,2 2 10 $204.75 3 0 $205.03
stage4,3 1 10 $156.72 2 0 $156.93
stage4,4 1 10 $200 1 0 $200
stage3,1* 1 30 $834.60 1 0 $840.74
stage3,2 1 30 $322.41 1 30 $322.41
stage3,3 1 30 $206.67 1 30 $206.67
stage3,4 1 30 $244.58 1 30 $244.58
stage3,5 1 30 $42.99 1 30 $42.99
stage2,1 1 35 $1780.34 1 35 $1786.54
stage2,2 1 35 $15.72 1 35 $15.72
stage1,1 1 36 $1827.98 1 36 $1834.17
stage0,1 1 0 $1866.82 1 0 $1873.08
Total supply chain cost $1866.82 $1873.08

Local target setting facilitates the strategic balancing between global supply chain
objectives and suppliers’ local benefits and thus enhances the flexibility of suppliers’
participation.
This section will use a hypothetical scenario to test whether local target setting could be
effectively accommodated by ATC: assume the enterprises in stage3,1 and stage2,1 has an
internal agreement that the component supply adopts ‘zero-service-time’ mode. Therefore,
a local target term ðST3,1  0Þ2 will be added into the objective function of stage3,1. Table 4
contrasts the optimisation results with and without this local target. As can be seen from
the row with ‘*’, when the local target is set for stage3,1, its ST is reduced from 30 days to
zero days. That means, ATC could effectively accommodate local target setting. However,
the total supply chain cost has also been increased from $1866.82 to $1873.08. It is because
the decreased ST of stage3,1 brings extra average-on-hand (AOH) inventory cost to its
upstream stages. This cost increase ($1873.08  $1866.82 ¼ $6.26) seems not to be
significant because the calculation is on the basis of a single piece and the service time
reduction is relatively small (from 10 to zero days). Taking the annual demand rate
( ¼ 125  360) into consideration, the overall effect will be significant.

8. ATC consistency scheme for SCC problems

The previously introduced five-step ATC application procedure is general enough to be
applied not only to SCC problems, but also to other optimal design problems. But for
different problems, certain computational techniques may be required to guarantee the
optimisation quality due to their specialties. In the last section, an additional technique,
i.e., consistency scheme, has been assumed to be adopted by ATC when solving the SCC
problems. In this section, the reasons for introducing such a consistency scheme as well as
its mechanisms and effectiveness will be elaborated.
6898 T. Qu et al.

8.1 Consistency scheme of ATC

It has been proved that ATC formulation will not converge to a strictly consistent design
unless infinite weighting coefficients are set to the tolerance terms (Michalek and
Papalambros 2005). However, the ATC process may be largely slowed down if very big
weights are used, especially when the starting point is far away from the final solution.
Michalek and Papalambros (2005), therefore, proposed a weighting updated method
(WUM) which could iteratively update weighting coefficients along with the target
cascading process. Tosserams et al. (2006) also proposed an augmented Lagrangian
relaxation for ATC using alternating direction method of multipliers, which could reduce
the additional inner iterations required by WUM and enhance the efficiency of weights
updating. However, the presence of discrete optimisation variables in the SCC problem,
e.g., service time (ST), prevent us from directly using these methods which involves partial
derivatives. Hence, to develop a substitute consistency scheme which could be applied to
problems with discrete variables is necessary.
We have obtained two observations from WUM from its design principles:
(1) The weighting coefficients for deviation terms should be ‘well-balanced’ to
manifest the optimisation importance. The bigger the weighting coefficient is, the
smaller the target deviation will be.
(2) The weighting coefficients for the tolerance terms and the target deviation terms of
linking variables should be finally set ‘big enough’ to minimise the deviation
between elements and achieve system consistency, but for early ATC iterations,
they should be released to some extent, allowing the whole system approach to a
near-optimal state quickly.
Based on these two observations, a substitute consistency scheme is developed. This
scheme deals with different deviation terms by different techniques. For response target
deviation terms, importance weighting factor (IWF) will be calculated as their weighting
coefficients, which follows the first observation. For tolerance terms and target deviation
terms of linking variables, dynamic constraint (DC) is proposed to control them according
to the second observation. The combined usage of IWF and DC ensures that ATC
optimisation converges to the real optimal solution in a consistent manner. As mentioned
before, service times could be regarded as either responses or linking variables. In this SCC
problem, since the absolute consistency of service times among sibling stages is not
obligatory, they will be treated as responses to apply IWF instead of DC.

8.1.1 Importance weighting factor (IWF)

The value of importance weighting factor (IWF) is determined by the relative importance
of each target. However, the ‘importance’ differs in its meaning when elements in different
ATC levels are concerned. For the top-level element, the importance of each target simply
manifests the preference of the ATC analyst. In this SCC problem, it is required that the
customer demand must be filled immediately, i.e., service time must be zero. Therefore,
IWF for ST1,10 ought to be either set to infinity in theory, or simply convert this target
deviation term into a constraint as ST0,1 ¼ 0. IWF for other objectives, e.g., TC1,10 , is set to
‘1’ by default.
For the elements in other levels, the IWF for each target should be determined
according to the extent to which the associated response affects the objective function
 International Journal of Production Research 6899

value of its parent element. Specifically, they are calculated through the following two
steps:
Step 1: After the local optimisation of element Pi,j , giving each lower-level response
variable an increment of one unit from its current optimum while keeping other
variables unchanged. Recording the discrepancy of objective function values by
this increment. Formally:
     
Dfi,j Riiþ1  ¼ fi,j Riiþ1  þ1  fi,j Riiþ1  , ð17Þ

where fi,j denotes the objective function in Pi,j , Riiþ1 denotes the vector of all its
lower-level responses, and hi denotes the th element of the vector.
Step 2: Based on the ratios of the discrepancies computed in Step 1, figure out a set of
weighting factors and cascade them to the child elements together with the
corresponding response targets. The computing equation is as follows:
 R   i   
wiþ1 1 :    : wRiþ1  :    ¼ Dfi,j Riþ1 1 :    : Df i,j R i
iþ1  :    ð18Þ

For each iteration of target cascading, a set of IWFs could be found for each element
through the above steps. In this way, responses having greater influence to the parent
element will be attached with the bigger IWFs and thus have less target deviations.

8.1.2 Dynamic constraint (DC)

Dynamic constraint is a function used to control the linking variables and tolerance
variables in a predefined manner. Because the service times are treated as responses rather
than linking variables, the DC will only be applied to tolerance variables. We require each
"ði,j Þ,k  gi,j ðIÞ, where I denotes the number of the outmost target cascading iteration and
gi,j ðIÞ denotes the dynamic function in stagei,j. The shape of gðIÞ could be chosen as an
exponential one or others, with function design objective being: when I equals a small
number, for example, 1, 2, . . . , the function should give a very big value; when I exceeds a
certain number, the function value should be small enough. This design accords with the
idea of gradually tightening tolerances which has been adopted in previous literature of
collaborative optimisation and ATC (Alexandrov and Lewis 1999, Allison et al. 2005). Let
us take the design procedure of exponential function eaiþb for a certain tolerance variable
as an example:
Step 1: Start ATC optimisation with loose constraints on the tolerance variables, and
record the top-level objective function value as well as outmost target cascading
iteration numbers.
Step 2: Find the iteration, since which no obvious depression of top-level objective
function value appears, and record the current tolerance variable as the fitting
point A, as well as current iteration number IA.
Step 3: In consideration of the iteration number in Step 2, design another fitting point B.
The common design is: after i iterations since IA, the tolerance should be reduced
to B, an arbitrarily small value under which it can be taken as no deviation
between variables.
6900 T. Qu et al.

Step 4: With the two fitting points A and B, an exponential function could be shaped out:
8
( >
> ln AB
aIA þb
>
< a¼
e ¼A IB  IA
) ð19Þ
e aðIA þiÞþb
¼B >
> ln AB
>
:b ¼  IA þ ln A
IB  IA
This consistency scheme involves no derivative calculation and thus could be applied to
the problems with discrete variables.

8.2 Effectiveness of consistency scheme

This section will validate the effectiveness of the proposed consistency scheme through
comparing SCC results obtained by ATC applying consistency scheme or not. For easy
comparison, the two techniques, IWF and DC, will be examined respectively. In each
scenario for testing one technique, it is assumed that the other one is appropriately
adopted.

8.2.1 Comparison of scenarios with and without applying IWF

The calculation formulae of IWF have been given in Equation (17) and Equation (18).
Table 5 illustrates the IWF calculation for all stages following the target cascading process.
Because the same kind of responses at the same level, e.g., TC2,1 and TC2,2 , share the same
IWF, only one stage (the boldfaced one in the ‘object stage’ column) of each level will be
illustrated.
There are four levels in this supply chain. Table 5 illustrates the IWF calculation for the
three upstream levels because IWFs for the top level will be given by the ATC analyst. The
‘Stage’ column indicates the stage in which IWF is calculated, while the ‘Object stage’
column indicates to which stages the calculated IWFs are applied. ‘IWF’ column shows
the IWFs calculated for the boldfaced stage, while the specific calculation is given in the
‘Calculation’ column. f is the objective function of the ‘Calculating stage’, shown at the
bottom of each part for easy reference. In this problem, the discrepancy by one-unit TC
increment happens to be one. Hence, all the discrepancies are not scaled and used directly
as corresponding IWFs. In the last two columns, IWFs in the first iteration and last
iteration are given respectively. As can be seen, the IWFs calculated for each ‘Object stage’
will be used in its objective function when this ‘Object Stage’ becomes ‘Calculating stage’.
Table 6 compares the results obtained from two scenarios applying IWFs or not.
Without applying IWF, coefficients for all target deviation terms are set to ‘1’ by default.
By a rough comparison with the IWFs calculated in Table 5, the default coefficients for
CC and ST terms are almost five to 10 times bigger. As can be seen, the scenario with
IWFs achieves exactly the same solution as those obtained by the AIO approach, but the
scenario without IWFs does not. Next, let us examine how the results are affected by those
default coefficients.
For the cumulative cost (CC) terms, the default coefficients forces stage4,1 and stage4,2
to select the options which bring smaller increases to CC. Hence, SO4,1 and SO4,2 both
select option 1 instead of options 3 and 2, as can be seen from the rows with ‘y’. These two
options do bring to CC a lower increase of $7.41 (134.91 þ 202.5  130  200), but the
corresponding TC by these two options are inversely increased for $1.32
 International Journal of Production Research 6901

Table 5. Calculation details of IWF.

Stage Object stage IWF Calculation Iteration 1 Iteration n

stage1,10 stage2,1 wTC

2,1 f1,10 ðTC2,1 þ 1Þ  f1,10 ðTC2,1 Þ 1.0 1.0
stage2,2 wCC
2,1 f1,10 ðCC2,1 þ 1Þ  f1,10 ðCC2,1 Þ 0.1 0.1
wST
2,1 f1,10 ðST2,1 þ 1Þ  f1,10 ðST2,1 Þ 0.1 0.2
  X 2
Objective function f1,10 ¼ TC1,1  0 þ "ð1,10 Þ, i
i¼1

stage2,1 stage3,1 wTC

3,1 f2,1 ðTC3,1 þ 1Þ  f2,1 ðTC3,1 Þ 1.0 1.0
... wCC
3,1 f2,1 ðCC3,1 þ 1Þ  f2,1 ðCC3,1 Þ 0.1 0.1
stage3,5 wST
3,1 f2,1 ðST3,1 þ 1Þ  f2,1 ðST3,1 Þ 0.1 0.2
   
¼ wTC   CC  
Objective function f2,1 2,1 TC2,1  0 þ w2,1 CC2,1  0
  X5
þ wST  
2,1 ST2,1  0 þ "ð2,1Þ,i
i¼1

stage3,1 stage4,1 wTC

4,1 f3,1 ðTC4,1 þ 1Þ  f3,1 ðTC4,1 Þ 1.0 1.0
... wCC
4,1 f3,1 ðCC4,1 þ 1Þ  f3,1 ðCC4,1 Þ 0.1 0.1
stage4,4 wST
4,1 f3,1 ðST4,1 þ 1Þ  f3,1 ðST4,1 Þ 0.1 0.2
Objective function    
¼ wTC   CC  
f3,1 3,1 TC3,1  0 þ w3,1 CC3,1  0
  X 4
þ wST ST3,1  0 þ "ð3,1Þ,i
3,1
i¼1

Table 6. Comparison of optimisation results with and without IWF.

Results without IWF Results with IWF

Stage SO ST CC TC SO ST CC TC

stage4,1y 1 5 $130 $136.90 3 10 $134.91 $136.41

stage4,2y 1 5 $200 $205.58 2 10 $202.5 $204.75
stage4,3 1 5 $155 $157.23 1 10 $155 $156.72
stage4,4 1 5 $200 $200 1 10 $200 $200
stage3,1 1 25 $805 $836.25 1 30 $812.41 $834.60
stage3,2 1 25 $300 $322.60 1 30 $300 $322.41
stage3,3 1 25 $200 $207.32 1 30 $200 $206.67
stage3,4 1 25 $225 $244.71 1 30 $225 $244.58
stage3,5 1 25 $40 $43.01 1 30 $40 $42.99
stage2,1 1 30 $1690 $1782.69 1 35 $1697.41 $1780.34
stage2,2 1 30 $15 $15.74 1 35 $15 $15.72
stage1,1 1 31 $1735 $1830.34 1 36 $1742.41 $1827.98
stage0,1 2 0 $1755 $1868.02 2 0 $1762.41 $1866.82
Total cost $1868.02 $1866.82
6902 T. Qu et al.

(136.90 þ 205.58  136.41  204.75) due to the longer processing time. Knowing from
Table 5, TC response affects the objective function of stage3,1 nearly 10 times over CC
response. Hence, sacrificing $1.32 lower TC to only 5.6 (7.41/1.32) times lower CC is
obviously unreasonable.
For the service time (ST) terms, the bigger coefficients forces all the STs to decrease for
five days. However, these ST decreases will cause the increase of average-on-hand (AOH)
cost in all stages and consequently increase the TC values. As can be seen from the TC
column, the aggregated TC increases of all the upstream stages of stage1,10 is $2.37
(1782.69 þ 15.74  1780.34  15.72). Due to the similar reason as for CC, although five
days lower input service time to stage1,10 could bring lower TC increase in stage1,10 yet
sacrificing $2.37 lower TC to only 2.1 (5/2.37) times lower ST is also unreasonable.
From the above analysis, it could therefore be concluded that in the target cascading
process, ignorance of important target or over-emphasis of unimportant target will both
lead to a non-optimal solution. Therefore, it is very necessary to adopt IWF.

8.2.2 Comparison of scenarios with and without applying DC

In this SCC problem, the procedure of designing exponential functions for DC introduced
in Section 8.1.2 will be followed. In this scenario, IA ¼ 3, A ¼ 5, while IB ¼ 6 and B ¼ 103.
Therefore, the coefficients a and b are calculated as follows:
ln AB ln 53
a¼ ¼ 10 ¼ 2:839
IB  IA 6  3
and
ln AB ln 53
b¼  IA þ ln A ¼ 10  3 þ ln 5 ¼ 10:126:
IB  IA 63
The exponential function is accordingly shaped out as: gðI Þ ¼ e2:839Iþ10:126 .
Table 7 compares the optimisation results from two scenarios, in which the fixed
tolerance constraints and the DC are used respectively. The column of STU and ST list the

Table 7. Comparison of optimisation results with and without applying dynamic constraints.

Results with fixed constraints Results with dynamic constraints

Stage ST STU TC TCU ST STU TC TCU

stage4,1 9 9 $136.60 $131.61 10 10 $136.41 $136.41

stage4,2 9 9 $205.04 $200.04 10 10 $204.75 $204.75
stage4,3 9 9 $156.95 $151.96 10 10 $156.72 $156.72
stage4,4 0 9 $200.00 $195.00 0 10 $200 $200
stage3,1 29 29 $815.33 $810.35 30 30 $834.60 $834.60
stage3,2 29 29 $322.44 $317.44 30 30 $322.41 $322.41
stage3,3 30z 29z $206.95 $201.99 30 30 $206.67 $206.67
stage3,4 29 29 $244.61 $240.53 30 30 $244.58 $244.58
stage3,5 29 29 $42.99 $37.99 30 30 $42.99 $42.99
stage2,1 34z 33z $1737.40 $1732.56 35 35 $1780.34 $1780.34
stage2,2 33 33 $15.73 $10.73 35 35 $15.72 $15.72
Total cost $1813.63 $1866.82
 International Journal of Production Research 6903

targets and actual response values of service times respectively, and similarly for total cost
(TC). As the tolerances for CC are controlled in the same way as for TC, the discussion for
CC will be omitted.
The left part of the table shows the results from applying fixed tolerance constraints:
the tolerances for all lower-level TC and CC responses are set to $5.00, and those for
lower-level ST responses are set to be one day. The inconsistency between stages is
therefore unavoidable due to these fixed tolerances. As can be seen, TCU for all stages are
all nearly $5 lower than their actual response values, TC, and STU for stage3,3 and stage2,1
are one day lower than their actual ST response values (data with ‘z’ in ST and STU
columns). Owing to these deviations, a pseudo lower total supply chain cost of $1813.63 is
rendered, but is at the cost of sacrificing the consistency of the whole supply chain.
It is easy to understand the TC deviation in all stages, but why are there only two
stages that have ST deviations? This is because TC of each stage is required by its
downstream stage as responses, thus the downstream stage is able to squeeze each TC
target to the lower bound of tolerance. For ST, however, only the upstream stage with
maximum ST could be squeezed to the lower bound of tolerance, while other sibling stages
may still have room to satisfy the cascaded targets. Therefore, ST deviations do not exist in
all stages.
After the DC is applied, the deviation of each lower-level response could be reduced to
less than 103. Since all ST values are integer type and TC values are double-precision real
type, the deviations for them are virtually eliminated. As can be seen from the right part of
the table, all the targets and actual response values are consistent and the results are the
same as those obtained by the AIO approach.

9. Concluding remarks
This paper has applied analytical target cascading (ATC) to solve the configuration
problems of convergent assembly supply chains. A case study has been used to
demonstrate the five ATC steps, comprising (1) hierarchical modelling of a supply
chain; (2) identification of key links between supply chain stages; (3) ATC problem
formulation of individual stages; (4) solution of the overall ATC SCC problem; and (5)
analysis of ATC results.
The results verified the effectiveness of the ATC method in solving SCC problems.
Meanwhile, ATC is able to offer other features essential to SCC problems that AIO
methods cannot provide. For example, ATC models do not centralise decision variables of
individual enterprises involved in the same supply chain. Instead, they can retain their
relative privacy, their own decision models and their chosen solution methods, without
affecting each other, as long as linking decisions are properly communicated with each
other. Individual enterprises are able to locally set their own targets for their chosen
objectives, without affecting the effectiveness and efficiency of the optimisation process of
the entire SCC problems. An additional advantage is that decision support systems of
individual enterprises can be implemented and deployed as web services distributed on the
Internet. This configuration not only accommodates parallel computation thus improving
computational efficiency especially when the number of enterprises becomes large, but also
realises autonomous and collaborative problem solving.
This research also makes an important contribution to the ATC method when
unattainable targets are involved under the presence of discrete variables. A consistency
6904 T. Qu et al.

scheme has been proposed to guarantee the achievement of a consistent system design. It is
composed of two techniques. They are importance weighting factor (IWF) and dynamic
constraints (DCs). IWFs are applied to response target deviation terms where more
important targets receive heavier weightings. IWFs are cascaded together with the
corresponding targets to all child elements in the ATC process, enabling the top-level
targets to be fully supported by the whole system. DCs are applied to linking variable
deviation terms and tolerance variables. The system consistency is gradually controlled.
Constraints are relaxed in early iterations so that the whole ATC system reaches a near-
optimal state quickly. Tighter constraints are imposed towards late iterations to fine tune
the final system consistency.
This work is considered as an initial attempt in introducing ATC to solve SCC
problems. While potentials and advantages have been unravelled, further research is
essential for further progress in the field. One of the common decisions in SCC is supplier
selection, that is, to select and determine appropriate supplier enterprises among all the
alternatives for specific stages in the supply chain network. As a result, supplier selection
decisions are represented as alternative ‘OR’ branches in the ATC hierarchy. This has not
yet been addressed in the ATC literature. The second issue worth further investigation is
how to decompose and represent a hierarchical supply chain into an ATC tree.
The number of autonomous stages and the number of links between these stages define
the ATC complexity, and thus affect the computational efficiency. Comparative studies
should be conducted to test the performance of different decomposition strategies for
example, according to available computational resources or scope of autonomies of
enterprise decisions. Best decomposition strategies must be established to minimise the
ATC complexity and therefore maximise the efficiency for a specific SCC problem.
Finally, a computational framework should be established for integrating and coordinat-
ing distributed and autonomous enterprise resources in the supply chain. This framework
should not only take advantage of the latest service-oriented architecture (SOA) for
collaborative web services, but also incorporate ATC mechanisms for coordinating
distributed computational resources.

Acknowledgements
The authors are grateful to HKU Research Committee, Hong Kong SAR RGC and ITF (GHP/042/
07LP) for providing partial financial supports. Cluster de Recherche Gestion et organisation des
systèmes de production et del’innovation de la région Rhône-Alpes, GOSPI.

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Appendix: Nomenclature
c production cost;
CCi,j cumulative cost of stagei,j;
f( ) objective function;
Fiti,j( ) fitness function in GA;
gi,j( ) inequality constraint for an optimisation problem;
gi,j(I ) dynamic constraint function;
hi,j( ) equality constraint for an optimisation problem;
H time interval of interest;
I cycle of target cascading;
li variable indicating whether the ith alternative is selected;
P0 original optimal design problem;
Pi,j jth sub-problem at the ith level of an ATC model;
Pei,j penalty factor;
Pe_coi scaling weight for penalty factor;
ri,j set of analysis models in element i,j;
R set of procurement stages;
Ri,j set of responses in element i,j;
Rii,j set of responses backtracked by element i,j;
SCCCi,j supply chain configuration cost generated in stagei,j;
Si,j set of supplier options in stagei,j;
SOi,j a supplier option in stagei,j;
SSi,j selected supplier in stagei,j;
STi,j service time by stagei,j;
stagei,j the jth stage in the ith tier of supply chain;
T production time;
TCi,j total cost by stagei,j;
x~ i,j set of local decision variables in element i,j;
yi,j set of linking variables in element i,j;
yii,j set of linking variables from element i,j;
 service factor;
 standard deviation of the demand;
"i,j vector of tolerance variables in Pi,j;
 common review period for inventory;
 mean of the demand rate;
wR i,j importance weighting factors for responses;
wyi,j importance weighting factors for linking variables;
k  k22 squared l2-norm;
hi th element of a vector.
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