A three level location-inventory problem with correlated demand |
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| Institution: | 1. Department of Industrial Engineering, Tsinghua University, Beijing 100084, China;2. Research Center on Modern Logistics, Graduate School at Shenzhen, Tsinghua University, Shenzhen 518055, China;3. Department of Industrial and Systems Engineering, Lehigh University, 200 West Packer Ave., Mohler Lab, Bethlehem, PA 18015, USA;1. Department of Industrial and Production Engineering, Bangladesh University of Engineering and Technology, Dhaka, Bangladesh;2. Faculty of Engineering and Information Technology, University of Technology Sydney, Sydney, Australia;3. UTS Business School, University of Technology Sydney, Sydney, Australia |
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| Abstract: | This paper considers a three level location-inventory problem where demand across the retailers is assumed to be correlated. We first present a reformulation scheme by which the initial formulation is transformed into a mixed integer conic quadratic program. In addition, we propose a solution approach based on an outer approximation strategy and show the algorithmic advantage of such framework for this class of programs. The results from numerical experiments show that the proposed solution procedure clearly outperforms state-of-the-art commercial solvers. In addition, we show that neglecting the effect of correlation can lead to substantially sub-optimal solutions. |
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| Keywords: | Joint location-inventory Multi-echelon supply chain network design Outer approximation |
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