A multi-stage stochastic program for supply chain network redesign problem with price-dependent uncertain demands

Mohammad Fattahi*, Kannan Govindan, Esmaeil Keyvanshokooh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

28 Citations (Scopus)

Abstract

In this paper, we address a multi-period supply chain network redesign problem in which customer zones have price-dependent stochastic demand for multiple products. A novel multi-stage stochastic program is proposed to simultaneously make tactical decisions including products’ prices and strategic redesign decisions. Existing uncertainty in potential demands of customer zones is modeled through a finite set of scenarios, described in the form of a scenario tree. The scenarios are generated using a Latin Hypercube Sampling method and then a forward scenario construction technique is employed to create a suitable scenario tree. The multi-stage stochastic problem is formulated as a mixed-integer linear programming model and then Benders decomposition algorithm is applied for solving it. Numerical results demonstrate the significance of the stochastic model as well as the good performance of Benders algorithm. The scenario tree construction method is also evaluated in terms of out-of-sample and in-sample stability. Finally, several key managerial and practical insights in terms of pricing issues are highlighted.
Original languageEnglish
Pages (from-to)314-332
Number of pages19
JournalComputers and Operations Research
Volume100
Early online date18 Dec 2017
DOIs
Publication statusPublished - 1 Dec 2018
Externally publishedYes

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