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Incorporating inventory control decisions into a strategic distribution network design model with stochastic demand

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  • Miranda, Pablo A.
  • Garrido, Rodrigo A.

Abstract

In this paper, we propose a simultaneous approach to incorporate inventory control decisions--such as economic order quantity and safety stock decisions--into typical facility location models, which are used to solve the distribution network design problem. A simultaneous model is developed considering a stochastic demand, modeling also the risk pooling phenomenon. We present a non-linear-mixed-integer model and a heuristic solution approach, based on Lagrangian relaxation and the sub-gradient method. In a numerical application, we found that the potential cost reduction, compared to the traditional approach, increases when the holding costs and/or the variability of demand are higher.

Suggested Citation

  • Miranda, Pablo A. & Garrido, Rodrigo A., 2004. "Incorporating inventory control decisions into a strategic distribution network design model with stochastic demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(3), pages 183-207, May.
    • Handle: RePEc:eee:transe:v:40:y:2004:i:3:p:183-207
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