Robust supply chain design under uncertain demand in agile manufacturing

Feng Pan, Rakesh Nagi

Research output: Contribution to journalArticlepeer-review


This paper considers a supply chain design problem for a new market opportunity with uncertain demand in an agile manufacturing setting. We consider the integrated optimization of logistics and production costs associated with the supply chain members. These problems routinely occur in a wide variety of industries including semiconductor manufacturing, multi-tier automotive supply chains, and consumer appliances to name a few. There are two types of decision variables: binary variables for selection of companies to form the supply chain and continuous variables associated with production planning. A scenario approach is used to handle the uncertainty of demand. The formulation is a robust optimization model with three components in the objective function: expected total costs, cost variability due to demand uncertainty, and expected penalty for demand unmet at the end of the planning horizon. The increase of computational time with the numbers of echelons and members per echelon necessitates a heuristic. A heuristic based on a k-shortest path algorithm is developed by using a surrogate distance to denote the effectiveness of each member in the supply chain. The heuristic can find an optimal solution very quickly in some small- and medium-size cases. For large problems, a "good" solution with a small gap relative to our lower bound is obtained in a short computational time.

Original languageEnglish (US)
Pages (from-to)668-683
Number of pages16
JournalComputers and Operations Research
Issue number4
StatePublished - Apr 1 2010
Externally publishedYes


  • Integrated costs
  • Robust optimization
  • Supply chain formation
  • Uncertain demand

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research


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