Robust Multi-Sourcing Supply Chain Network Design Problem

Posted: 11 Dec 2014 Last revised: 21 Jan 2015

See all articles by Yongzhen Li

Yongzhen Li

The University of Hong Kong - Department of Industrial and Manufacturing Systems Engineering

J. Shu

Southeast University - School of Economics and Management

Miao Song

The University of Hong Kong - Department of Industrial and Manufacturing Systems Engineering

Jiawei Zhang

New York University (NYU) - Department of Information, Operations, and Management Sciences

Huan Zheng

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: December 3, 2014

Abstract

In this paper, we study a multi-sourcing supply chain network design problem under demand uncertainty in which each retailer can source a single item from more than one distribution center. The problem takes into account the complex trade-off among the costs of facility location and inventory holding, as well as the fixed linkage and the per unit delivery costs between the distribution center and the retailer. We propose a nonlinear mixed integer programming model with a joint chance constraint (that imposes a certain service level on the network) to determine the locations, the inventory levels, and the retailer assignments of the distribution centers. Two approaches, namely, the set-wise approximation and the approximation based on the linear decision rule, are constructed to conservatively approximate the service level joint chance constraint with incomplete information of the demand distribution. Both approaches yield sparse distribution networks, which are effective in matching uncertain demand using the on-hand inventory and hence successfully achieve high service levels. We also show through numerical studies that the proposed approaches outperform other commonly adopted approximations of chance constraints.

Keywords: Multi-Sourcing, Network Design, Chance Constraint Approximation

Suggested Citation

Li, Yongzhen and Shu, J. and Song, Miao and Zhang, Jiawei and Zheng, Huan, Robust Multi-Sourcing Supply Chain Network Design Problem (December 3, 2014). Available at SSRN: https://ssrn.com/abstract=2533347

Yongzhen Li (Contact Author)

The University of Hong Kong - Department of Industrial and Manufacturing Systems Engineering ( email )

8/F, Haking Wong Building
Pokfulam Road
Hong Kong
China

J. Shu

Southeast University - School of Economics and Management ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Miao Song

The University of Hong Kong - Department of Industrial and Manufacturing Systems Engineering ( email )

8/F, Haking Wong Building
Pokfulam Road
Hong Kong
China

Jiawei Zhang

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States

Huan Zheng

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

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