A Heuristic for the Two-Echelon Multi-Period Multi-Product Location–Inventory Problem with Partial Facility Closing and Reopening

Abstract

In this paper, the two-echelon multi-period multi-product location–inventory problem with partial facility closing and reopening is studied. For each product and period, plants serve warehouses, which serve consolidation hubs, which service customers with independent, normally distributed demands. The schedule of construction, temporary partial closing, and reopening of modular capacities of facilities, the continuous-review inventory control policies at warehouses, the allocation of customer demands to hubs, and the allocation of hubs to warehouses are determined. The service levels for stockout at warehouses during lead time and the violation of warehouse and hub capacities are explicitly considered. The proposed mixed-integer non-linear program minimizes the weighted summation of the number of different facilities and logistical costs, so that the number of different facilities can be controlled. Since the proposed model is np-hard, the multi-start construction and tabu search improvement heuristic (MS-CTSIH) with two improvement strategies and the modified MS-CTSIH incorporating both strategies are proposed. The experiment shows that the two improvement strategies appear non-dominated, and the modified MS-CTSIH yields the best results. The comparison of the modified MS-CTSIH and a commercial solver on a small instance shows the efficiency and effectiveness of the modified MS-CTSIH. The sensitivity analyses of problem parameters are performed on a large instance.