Integrated Inventory Control and Facility Location Decisions in a Multi-Echelon Supply Chain Network with Hubs

Abstract

This paper develops mathematical models to coordinate facility location and inventory control for a four-echelon supply chain network consisting of multiple suppliers, warehouses, hubs and retailers. The hubs help in reducing transportation costs by consolidating products from multiple warehouses and directing the larger shipments to the retailer. The integrated models studied in this paper simultaneously determines three types of decisions: (i) facility location—the number and location of warehouses and hubs, (ii) allocation—assignment of suppliers to located warehouses and retailers to located warehouses via the location hubs, and (iii) inventory control decisions at each located warehouse. The goal is to minimize the facility location, transportation and the inventory costs. A mixed integer nonlinear programming formulation is first presented. The nonlinear integer programming formulation is then transformed into a conic mixed integer program and a novel and compact conic mixed integer programming formulation. Computational runs are conducted using commercial solvers to compare the performance of the different formulations. The compact conic mixed integer programming formulation was found to significantly outperform the other formulations by achieving significant computational savings. The results demonstrate that large scale instances of certain multi-echelon supply chain network design problems can be solved using commercial solvers through intelligent reformulation of the model.