Strategic design of competing supply chain networks for inelastic demand

Abstract

A model for designing the network of a new entrant supply chain under inelastic demand and in the presence of pre-existing competing chains is proposed. These supply chains provide an identical product for a market area. The model considers the location of distribution centres and retail outlets on a discrete set of potential locations. The assumptions of the model are: (1) static competition between the new and pre-existing chains and (2) a probabilistic customer behaviour based on an attraction function depending on both the location and the quality of the retailers. This model also incorporates the impact of the facilities’ location decisions on the operational inventory and shipment decisions. The resulting model is formulated as a mixed integer non-linear programme (MINLP). To solve the MINLP it is transformed to a linear one. We illustrate the model, discuss the results of a real-world case, and investigate the effectiveness of the proposed algorithm using randomly generated examples.

Keywords:

• supply chains
• network design
• mixed integer non-linear programming
• static competition

Acknowledgements

We thank the anonymous referee whose valuable comments helped to significantly improve this paper.