This paper presents a generic stochastic model for the design of networks comprising both supply and return channels, organized in a closed loop system. Such situations are typical for manufacturing/re-manufacturing type of systems in reverse logistics. The model accounts for a number of alternative scenarios, which may be constructed based on critical levels of design parameters such as demand or returns. We propose a decomposition approach for this model based on the branch and cut procedure known as the integer L-shaped method. Computational results show a consistent performance efficiency of the method for the addressed location problem. The stochastic solutions obtained in a numerical setting generate a significant improvement in terms of average performance over the individual scenario solutions. A solution methodology as presented here can contribute to overcoming notorious challenges of stochastic network design models, such as increased problem sizes and computational difficulty.

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Econometric Institute Research Papers
Erasmus School of Economics

Listes, O. (2002). A decomposition approach to a stochastic model for supply-and-return network design (No. EI 2002-43). Econometric Institute Research Papers. Retrieved from