Track: Operations Management and Operations Research

Abstract

In supply chain practices, designing supply network is a strategic decision that affects the survival of an organization. Although demand and supply uncertainties are well observed in supply chains, it has not been addressed pro-actively in the design model.  Vast literatures on network design model had been dealing the problem using either deterministic (using mean value) or stochastic programming. We propose a mathematical model using robust approach where the variability of system performance is taken into account early in the modeling process.  Using this robust optimization approach, the knowledge of demand and supply distributions is not critical. Furthermore, only a small number of scenarios are needed to solve the problem and yet it is able to maintain the adequacy of the model. The result from an illustrative example shows that total costs vary following a normal distribution where its variance depends on the risk parameters.