A Capacitated Location-Inventory Model with Demand Selection

Zhengyi Li,Jiangtao Hai

doi:10.1155/2019/2143042

Abstract

In this paper, we consider an integrated supply chain network design problem, which incorporates inventory and pricing decisions into the capacitated facility location model. We assume that each warehouse has a capacity limitation that limits the average demand flowing through the warehouse and that the supplier can choose whether to satisfy each potential retailer’s demand. We formulate the problem as a nonlinear integer programming model and solve the model via a Lagrangian relaxation based approach. We develop an efficient algorithm to solve the subproblem that arises from the Lagrangian relaxation procedure. Finally, we conduct extensive computational experiments to test the performance of the algorithms proposed in this paper and provide the managerial insights based on the computational results.

Highlights

Network design is among the most important supply chain decisions, as their implications are significant and long lasting
Comparing with Shen [3] and Shu et al [37], the feature of our paper is that we consider each warehouse has a capacity limitation, and each retailer faces an uncertain demand; comparing with Miranda and Garrido [33], the feature of our paper is that we integrate the pricing decisions into the supply chain network design; comparing with Ozsen et al [4], the feature of our paper is that we consider different warehouse capacity constraints; comparing with Ahmadi-Javid and Hoseinpour [38], the feature of our paper is that we consider that the supplier can choose which retailers to serve, and each retailer faces an uncertain demand
We study a supply chain distribution network design problem in which each warehouse has a capacity limitation that limits the average demand flowing through the warehouse and each retailer faces an uncertain demand

Summary

Introduction

Network design is among the most important supply chain decisions, as their implications are significant and long lasting. We study an integrated supply chain distribution network design problem, which incorporates inventory and pricing decisions into the capacitated facility location model. In the supply chain distribution network design problems, most papers assume that all the demands should be served by the supplier, and the objective is to minimize the system-wide costs. It is important for the supplier to determine the Journal of Advanced Transportation wholesale price of the product at each region associated with a particular warehouse, which directly affects the supplier in terms of the level of profit achieved as well as the demand profile that the supplier attempts to serve. In this paper, we assume that each warehouse is subject to a capacity limitation, such as in the capacitated fixed charged facility location problem, which limits the average demand that flows through the warehouse.

Literature Review

Model Formulation

Solution Approach

Computational Results

Conclusions