A location-inventory model with supply disruptions

Abstract

We propose a facility location model that considers possible disruptions at the distribution centers (DCs) and the cost tradeoff between the inventory risk-pooling effect and dispersing facilities to minimize disruption risk. To solve this problem we use a Lagrangian relaxation algorithm. We propose an exact algorithm to solve the Lagrangian subproblem that uses a piecewise-linear approximation of the concave objective function. Computational results show that this algorithm solves the problem in a reasonable amount of CPU time. We compare this model with the location model with risk pooling (LMRP) and the reliability fixed-charge location problem (RFLP).