A multi-stage stochastic programming approach for network capacity expansion with multiple sources of capacity

A multi-stage stochastic programming approach for network capacity expansion with multiple sources of capacity

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Article ID: iaor2017132
Volume: 63
Issue: 8
Start Page Number: 600
End Page Number: 614
Publication Date: Dec 2016
Journal: Naval Research Logistics (NRL)
Authors: ,
Keywords: stochastic processes, programming: multiple criteria, heuristics
Abstract:

In networks, there are often more than one sources of capacity. The capacities can be permanently or temporarily owned by the decision maker. Depending on the nature of sources, we identify the permanent capacity, spot market capacity, and contract capacity. We use a scenario tree to model the uncertainty, and build a multi‐stage stochastic integer program that can incorporate multiple sources and multiple types of capacities in a general network. We propose two solution methodologies for the problem. Firstly, we design an asymptotically convergent approximation algorithm. Secondly, we design a cutting plane algorithm based on Benders decomposition to find tight bounds for the problem. The numerical experiments show superb performance of the proposed algorithms compared with commercial software.

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