An LP-based Heuristic Approach for Strategic Supply Chain Design

Abstract

A novel heuristic approach is proposed for solving a large scale facility location problem arising in supply chain design. The problem formulation includes many practical aspects such as a dynamic planning horizon, generic supply chain structure, inventory and distribution of goods, budget constraints, and storage limitations. Moreover, facility location decisions are modelled through the gradual relocation of existing facilities to new sites over a given planning horizon. The heuristic approach explores the solution of the linear relaxation of the problem. It successively rounds the fractional variables corresponding to the 0/1 decisions of changing the facilities’ status (i.e., open new / close existing facilities), and it is also used to roughly estimate the total number of facility configuration changes over the planning horizon. The proposed heuristic performs very well on a large set of randomly generated problems, producing feasible solutions that on average only deviate 1.4% from the optimum.