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Stochastic Transportation-Inventory Network Design Problem

Author

Listed:
  • Jia Shu

    (High Performance Computation for Engineered Systems, Singapore-MIT Alliance, and Department of Decision Sciences, National University of Singapore, Singapore)

  • Chung-Piaw Teo

    (High Performance Computation for Engineered Systems, Singapore-MIT Alliance, and Department of Decision Sciences, National University of Singapore, Singapore)

  • Zuo-Jun Max Shen

    (Department of Industrial Engineering and Operations Research, University of California, Berkeley, California 94720)

Abstract

We study the stochastic transportation-inventory network design problem involving one supplier and multiple retailers. Each retailer faces some uncertain demand, and safety stock must be maintained to achieve suitable service levels. However, risk-pooling benefits may be achieved by allowing some retailers to serve as distribution centers for other retailers. The problem is to determine which retailers should serve as distribution centers and how to allocate the other retailers to the distribution centers. Shen et al. (2003) formulated this problem as a set-covering integer-programming model. The pricing problem that arises from the column generation algorithm gives rise to a new class of the submodular function minimization problem. In this paper, we show that by exploiting certain special structures, we can solve the general pricing problem in Shen et al. efficiently. Our approach utilizes the fact that the set of all lines in a two-dimension plane has low VC-dimension. We present computational results on several instances of sizes ranging from 40 to 500 retailers. Our solution technique can be applied to a wide range of other concave cost-minimization problems.

Suggested Citation

  • Jia Shu & Chung-Piaw Teo & Zuo-Jun Max Shen, 2005. "Stochastic Transportation-Inventory Network Design Problem," Operations Research, INFORMS, vol. 53(1), pages 48-60, February.
    • Handle: RePEc:inm:oropre:v:53:y:2005:i:1:p:48-60
    DOI: 10.1287/opre.1040.0140
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    References listed on IDEAS

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    1. A. K. Chakravarty & J. B. Orlin & U. G. Rothblum, 1985. "Consecutive Optimizers for a Partitioning Problem with Applications to Optimal Inventory Groupings for Joint Replenishment," Operations Research, INFORMS, vol. 33(4), pages 820-834, August.
    2. Mark Daskin & Collette Coullard & Zuo-Jun Shen, 2002. "An Inventory-Location Model: Formulation, Solution Algorithm and Computational Results," Annals of Operations Research, Springer, vol. 110(1), pages 83-106, February.
    3. Arthur M. Geoffrion & Richard F. Powers, 1995. "Twenty Years of Strategic Distribution System Design: An Evolutionary Perspective," Interfaces, INFORMS, vol. 25(5), pages 105-127, October.
    4. Joseph Geunes & Zuo‐Jun Shen & H. Edwin Romeijn, 2004. "Economic ordering decisions with market choice flexibility," Naval Research Logistics (NRL), John Wiley & Sons, vol. 51(1), pages 117-136, February.
    5. Gary D. Eppen, 1979. "Note--Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem," Management Science, INFORMS, vol. 25(5), pages 498-501, May.
    6. Shmuel Onn & Leonard J. Schulman, 2001. "The Vector Partition Problem for Convex Objective Functions," Mathematics of Operations Research, INFORMS, vol. 26(3), pages 583-590, August.
    7. Zuo-Jun Max Shen & Collette Coullard & Mark S. Daskin, 2003. "A Joint Location-Inventory Model," Transportation Science, INFORMS, vol. 37(1), pages 40-55, February.
    Full references (including those not matched with items on IDEAS)

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