EURO 2024 Copenhagen
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4381. The Value of Flexibility in Robust Supply Chain Network Design

Invited abstract in session WD-35: Optimization under Uncertainty in Manufacturing and Supply Chain Management, stream Stochastic, Robust and Distributionally Robust Optimization.

Wednesday, 14:30-16:00
Room: 44 (building: 303A)

Authors (first author is the speaker)

1. Amin Ahmadi Digehsara
Faculty of Management, The University of British Columbia
2. Amir Ardestani-Jaafari
Management, UBC

Abstract

The study addresses the supply chain network design problem (SCNDP), focusing on strategic, long-term decisions that integrate flexibility and demand information to enhance cost efficiency. We examine five policies that incorporate new flexibilities at strategic and operational levels to optimize the SCNDP. Initially, we explore a model where local production meets demand. We expand this to include scenarios where production capacity
can satisfy demands across different locations and shared among facilities with preestablished links. Unlike traditional models that fix production capacity early, we also consider policies allowing production decisions to be deferred until demand is known, favoring a make-to-order strategy. Our analysis employs a two-stage robust optimization framework for which we introduce a novel computationally efficient exact (based on Column-and-Constraint Generation (C&CG)) and multiple approximation techniques (based on Linear Decision Rules). Our findings reveal that capacity sharing significantly reduces costs and shortage risks, showcasing its superiority over delayed production decisions, particularly under moderate uncertainty. The study concludes by applying these insights to a real-world case, offering practical design recommendations.

Keywords

Status: accepted

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