Robust supply chain networks design and ambiguous risk preferences

Abstract

In this paper, a robust stochastic optimisation model for regret minimising is proposed for supply chain networks design. The model emphasises the ambiguity lying in both the risk preference and the probability distribution. A duality theory for the model is derived and the random utility functions are identified as the Lagrange multipliers. In addition, a tractable relaxation based on reformulation-linearisation technique is presented for the computational aspects of the model. The numerical experiments show that our regret minimising model can make a well balance between the conservativeness of a pure robust optimisation model and the optimism of risk-neutrality. We also present a case study to demonstrate the applicability of the proposed model.

Keywords:

• supply chain networks design
• ambiguity
• uncertainty
• risk preferences
• duality