Embedding the production policy in location-allocation decisions
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Embedding the production policy in location-allocation decisions Emilio Carrizosa1 · Alba V. Olivares-Nadal2
· Pepa Ramírez-Cobo3
Received: 16 January 2019 / Revised: 20 July 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract This paper investigates how the production policy, as well as other factors, affect the facility location-allocation decisions. We focus on a p-median location problem in which one single perishable product is to be produced and shipped to a set of users. The time-correlated demands of the clients are generated by autoregressive processes, and they are forecasted from historical data. Empirically, we show that: (i) embedding the production policy in the location-allocation decision problem may lead to a facilities-clients assignment which does not necessarily correspond to the minimum cost allocation, but produces better profits, (ii) taking into account the autocorrelation of the demand can significantly improve the performance of the supply chain, and (iii) the variability of the demand strongly affects the performance of the supply chain, so a careful choice of production strategy is especially recommended in this case. Keywords Facility layout · Allocation · Robust newsvendor · Autoregressive processes · Forecasting Mathematics Subject Classification 90B80 · 90C10 · 90B30
This research is supported by Projects P11-FQM-7603 and FQM329 (Junta de Andalucía) and MTM2015-65915-R (Ministerio de Economía y Competitividad, Spain), all with ERD Funds. The authors are also supported by the project “Cost-sensitive classification. A Mathematical Optimization approach”, financed by BBVA Foundation.
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Alba V. Olivares-Nadal [email protected]
1
Institute of Mathematics of the University of Seville (IMUS), Sevilla, Spain
2
Booth School of Business, University of Chicago, 5807 S Woodlawn Ave, Chicago, IL 60637, USA
3
Department of Statistics and Operational Research, University of Cádiz, Cádiz, Spain
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1 Introduction Demand uncertainty affects decisions in supply chain management at two levels: strategic (location decisions) and tactical (production and inventory management), see for example Snyder (2006) and Melo et al. (2009). Although tactical decisions depend on the choice of the production policy, the research devoted to analyzing the impact of such a choice on strategic decisions is lacking. The work presented in this paper aims to alleviate the scarcity on this research topic by empirically analyzing whether or not production policies should affect the design of the supply chain. Although similar studies such as Güllü (1997) and Chen et al. (2000) have been carried out previously, they analyze the benefits of considering demand autocorrelation in a supply chain which is already set. Throughout our manuscript, we will compare the conclusions attained in our empirical work not only against these inventory studies, but also against the numerical results of various joint location-inventory works (Snyder et al. 2007; Shen and Qi 2007
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