A Modified Benders Decomposition Approach for Supply Chain Network Design with Risk Consideration

In today’s competitive business environment, the design and management of supply chain network is one of the most important challenges that managers encounter.The supply chain network should be designed such that the customer demands satisfy and the total system costs minimize. This paper presents a multi-period multi-stage supply chain network design problem under demand uncertainty. The problem is formulated as a two-stage stochastic program. In the first-stage, strategic location decisions are made, while the second-stage contains the operational decisions. In our developed model, ConditionalValue-at-Risk (CVaR) as an effective risk measure is used to produce first-stage decisions in which the loss cost in the second-stage is to be minimized. In addition, a modified Benders’ decomposition approach is developed to solve the model exactly. In addition, the performance of the proposed algorithm in terms of the solution quality is evaluated on aset of randomly generated problem instances.

Keywords:

Supply chain network design , Uncertain demand , Two-stage stochastic programming , Benders decomposition , Conditional Value-at-Risk