Title: A two-stage stochastic programming method for designing multi-stage global supply chains with stochastic demand

Authors: Behnaz Saboonchi, Guoqing Zhang

Addresses: Department of Industrial and Manufacturing Systems Engineering, University of Windsor, Windsor, Ontario N9B 3P4, Canada. ' Department of Industrial and Manufacturing Systems Engineering, University of Windsor, Windsor, Ontario N9B 3P4, Canada

Abstract: This paper encompasses the design of a multi-stage global supply chain with stochastic demand. The network consists of manufacturing sites, distribution centres and retail zones situated at both domestic and international locations. Tactical level decisions to be made are the selection of international outsourcing partners, transportation modes and the capacity of each facility. To provide a practical decision support tool for the design of global supply chains, we consider the existence of exchange rate variations and the presence of economies of scale in production which lead to different capacity expansion and outsourcing policies. We formulate the problem as a mixed-integer programming (MIP) model with the objective of minimising the overall costs and maximising the expected average service level. A two-stage stochastic programming method is used to handle the stochasticity in demand. Finally, the proposed model is applied to various cases to demonstrate its applicability in facilitating decision making for managers.

Keywords: global supply chains; supply chain management; SCM; stochastic programming; mixed-integer programming; supply chain design; multi-stage supply chains; stochastic demand; selection; outsourcing partners; decision making; exchange rate variations; economies of scale; capacity expansion; transport modes; facility capacity; decision support systems; DSS; overall costs; average service levels.

DOI: 10.1504/IJOR.2010.036289

International Journal of Operational Research, 2010 Vol.9 No.4, pp.409 - 425

Published online: 01 Nov 2010 *

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