Outsourcing policies for the Facility Location Problem with Bernoulli Demand

TL;DR

This paper investigates outsourcing policies in a stochastic facility location problem with Bernoulli demand, comparing four policies through mathematical models and extensive computational experiments to evaluate their effectiveness.

Contribution

It introduces four alternative outsourcing policies for the facility location problem under demand uncertainty and provides mathematical formulations and computational analysis for their comparison.

Findings

Different outsourcing policies vary in solution quality and computational performance.

Mathematical models effectively compare the efficiency of each policy.

Computational experiments highlight the strengths and weaknesses of each approach.

Abstract

This paper focuses on the Facility Location Problem with Bernoulli Demand, a discrete facility location problem with uncertainty where the joint distribution of the customers' demands is expressed by means of a set of possible scenarios. A two-stage stochastic program with recourse is used to select the facility locations and the a priori assignments of customers to open plants, together with the a posteriori strategy to apply in those realizations where the a priori solution is not feasible. Four alternative outsourcing policies are studied for the recourse action, and a mathematical programming formulation is presented for each of them. Extensive computational experiments have been carried-out to analyze the performance of each of the formulations and to compare the quality of the solutions produced by each of them relative to the other outsourcing policies.