Warehouse location and two-echelon inventory management with concave operating cost

Jia Shu, Ting Wu and Kaike Zhang

International Journal of Production Research, 2015, vol. 53, issue 9, 2718-2729

Abstract: In this paper, we study a location–inventory network design problem which jointly optimises the warehouse location, the warehouse–retailer assignments, the warehouse–retailer echelon inventory replenishment and the safety stock-level decisions over an infinite planning horizon. The consideration of the facility operating cost, the safety stock cost and the two-echelon inventory cost results in an MIP model with several nonlinear terms. Due to the complex trade-offs among the various costs and multiple nonlinear terms in the model, traditional solution approaches no longer work for this problem. We outline a polymatroid cutting-plane approach based on the submodular property of the cost terms to address this problem. Computational results demonstrate that the cutting-plane method based on polymatroid inequalities can efficiently solve randomly generated instances with moderate sizes.

Date: 2015
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DOI: 10.1080/00207543.2014.977456

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