Collaborative distribution network design with surging demand and facility disruptions

Abstract

In this paper, we study a new approach to horizontal collaboration, the so-called coalition configuration among partnering companies through sharing distribution centers in a network design problem. Horizontal collaboration is established by making joint decisions and sharing resources among various parties at the same level of the supply chain which improves operational efficiency and competitiveness. In particular, the question we address is which coalition should be formed in each distribution center while the objective function seeks to minimize the total cost in the network. Beyond that, potential uncertainties, i.e., operational and disruption risks, are considered in the collaborative design phase. Thus, this paper studies a two-stage robust optimization model for collaborative distribution network design under surging demand and facility disruptions. A tailored column-and-constraint generation algorithm is utilized to solve the proposed robust model. Extensive numerical experiments have been conducted to analyze solutions obtained by the model in various situations, e.g., when the grand coalition forms, for decisions ranging from fully centralized to fully decentralized settings, for collaborative approaches versus non-collaborative approaches, and under different amounts of uncertainty budgets. The results demonstrate that the coalition formation mechanism proposes some competitive solutions with savings of the grand coalition. We also find that not only does collaboration always increase the flexibility and resilience of the network but also in collaborative approaches, the average price of robustness is comparatively lower than that of non-collaborative approaches.