Taking market forces into account in the design of production-distribution networks: A positioning by anticipation approach

Abstract

This paper presents an approach to take into account market opportunities when designing production-distribution networks. Three types of sub-markets found in several industrial contexts are analyzed: spot markets. contracts and Vendor Managed Inventory (VMI) agreements. For contracts and VMI agreements, customer preferences with respect to different logistics policies are considered. A price-supply function is proposed to model the spot market behavior. The production-distribution network design problem is formulated as a two-stage stochastic program with fixed recourse. Finally, a sample average approximation method (SAA), based on Monte Carlo sampling techniques, is used to solve the model.