A simulation-optimisation approach for supply chain network design under supply and demand uncertainties

Abstract

We investigate a three-echelon stochastic supply chain network design problem. The problem requires selecting suppliers, determining warehouses locations and sizing, as well as the material flows. The objective is to minimise the total expected cost. An important feature of the investigated problem is that both the supply and the demand are uncertain. We solve this problem using a simulation-optimisation approach that is based on a novel hedging strategy that aims at capturing the randomness of the uncertain parameters. To determine the optimal hedging parameters, the search process is guided by particle swarm optimisation procedure. We present the results of extensive computational experiments that were conducted on a large set of instances and that provide evidence that the proposed hedging strategy constitutes an effective viable solution approach.