We study a problem of tactical planning in a divergent supply chain. It involves decisions regarding production, inventory, internal transportation, sales and distribution to customers. The problem is motivated by the context of a company in the speciality oils industry. The overall objective at tactical level is to maximize contribution and, in order to achieve this, the planning has been divided into two separate problems. The first problem concerns sales where the final sales and distribution planning is decentralized to individual sellers. The second problem concerns production, transportation and inventory planning through refineries, hubs and depots and is managed centrally with the aim of minimizing costs. Due to this decoupling, the solution of the two problems needs to be coordinated in order to achieve the overall objective. In the company, this is pursued through an internal price system aiming at giving the sellers the incentives needed to align their decisions with the overall objective. We propose and discuss linear programming models for the decoupled and integrated planning problems. We present numerical examples to illustrate potential effects of integration and coordination and discuss the advantages and disadvantages of the integrated over the decoupled approach. While the total contribution is higher in the integrated approach, it has also been found that the sellers' contribution can be considerably lower. Therefore, we also suggest contribution sharing rules to Email addresses: mario.guajardo@nhh.no (Mario Guajardo), martin.kylinger@liu.se (Martin Kylinger), mikael.ronnqvist@nhh.no (Mikael Rönnqvist) Preprint submitted to NHH Discussion Series March 20, 2012 achieve that both the company and sellers get a better outcome under the integrated planning.

In divergent supply chains, such as in the oil industry, processing raw materials results in an outflow of multiple products. Final products are stored at international depots, from where they are ready to be shipped to the markets. Even if one company controls the entire chain, when production and sales organizations are decoupled, a relevant problem is to determine the internal prices of products at depots for achieving coordination. We propose an optimization model involving pricing and production decisions, and several constraints commonly used in divergent chains. In our approach, the producer incorporates the sellers' behavior by expressing demand as a function of the internal price. As a result, our model serves as a coordination mechanism in trying to get an overall coordinated integrated solution in a decoupled reality. Numerical examples in single and multiple periods problems show the advantages of our approach over cost-based methods.

We study a problem of tactical planning in a divergent supply chain. It involves decisions regarding production, inventory, internal transportation, sales and distribution to customers. The problem is motivated by the context of a company in the speciality oils industry. The overall objective at tactical level is to maximize contribution and, in order to achieve this, the planning has been divided into two separate problems. The first problem concerns sales where the final sales and distribution planning is decentralized to individual sellers. The second problem concerns production, transportation and inventory planning through refineries, hubs and depots and is managed centrally with the aim of minimizing costs. Due to this decoupling, the solution of the two problems needs to be coordinated in order to achieve the overall objective. In the company, this is pursued through an internal price system aiming at giving the sellers the incentives needed to align their decisions with the overall objective. We propose and discuss linear programming models for the decoupled and integrated planning problems. We present numerical examples to illustrate potential effects of integration and coordination and discuss the advantages and disadvantages of the integrated over the decoupled approach. While the total contribution is higher in the integrated approach, it has also been found that the sellers' contribution can be considerably lower. Therefore, we also suggest contribution sharing rules to Email addresses: mario.guajardo@nhh.no (Mario Guajardo), martin.kylinger@liu.se (Martin Kylinger), mikael.ronnqvist@nhh.no (Mikael Rönnqvist) Preprint submitted to NHH Discussion Series March 20, 2012 achieve that both the company and sellers get a better outcome under the integrated planning.

Process industries has for long been important for the development of Swedish industry and society. All industries face different conditions that affect how to best run their operations. This thesis aims to describe some of the conditions that characterize process industries compared to other industries. Further one of these characteristics has been studied more closely.One of the traits of process industries is that they are positioned at the start of the transformation process close to the raw material mixing, separating or forming it into products often used for further transformation. Process industries hence become dependent on the properties of these materials. One of the most prominent characteristics inherent from the raw material properties is the divergent bill of material. The divergent bill of material originates from the fact that a given raw material is made up of different components that will yield several products with different characteristics when processed. When splitting the raw material into the desired products the yielded products from a certain raw material usually have different value to the producer, some more desired than others. These multiple products generated poses a challenge from a planning perspective raising questions like "How should we balance the supply and demand of all the products produced?", "What shall we do with the excess products produced?".The first paper in this thesis describe the production planning in four Swedish process industries with the ultimate aim to connect their planning to the supply chain characteristics they face as process industries. The study concludes that the industry specific conditions mainly affect planning at short time ranges when planning becomes more detailed. In general the use of planning or decision support systems is low, stemming from a, warranted or not, belief that general decision support systems do not fit process industries. Another finding is that the case companies mainly operate in niche markets. This study also highlighted that the planning complexity arising from characteristic of co-and by-product generation in combination with the lack of decision support systems requires further studies.The subsequent two papers focus on supply chain planning and coordination with a divergent bill of material. They present a mathematical model over the supply chain planning in a real case company in the specialty oils industry. The second paper investigates transfer pricing as a coordination tool by comparing decentralised supply chain planning with centralized planning in an integrated model. Transfer pricing is found to have a potential positive effect on supply chain planning while simultaneously creating problems in terms of uneven distribution of the contribution margin among supply chain partners.Finally the third paper more closely investigates different ways to set transfer prices and comparing them to the optimal transfer prices. Setting optimal transfer prices with a divergent bill of material has proven to be less str...