A two‐stage stochastic programming method for designing multi‐stage global supply chains with stochastic demand

This paper encompasses the design of a multi‐stage global supply chain with stochastic demand. The network consists of manufacturing sites, distribution centres and retail zones situated at both domestic and international locations. Tactical level decisions to be made are the selection of international outsourcing partners, transportation modes and the capacity of each facility. To provide a practical decision support tool for the design of global supply chains, we consider the existence of exchange rate variations and the presence of economies of scale in production which lead to different capacity expansion and outsourcing policies. We formulate the problem as a mixed‐integer programming (MIP) model with the objective of minimising the overall costs and maximising the expected average service level. A two‐stage stochastic programming method is used to handle the stochasticity in demand. Finally, the proposed model is applied to various cases to demonstrate its applicability in facilitating decision making for managers.