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: | Huang Kai, Taghavi Majid |
Keywords: | stochastic processes, programming: multiple criteria, heuristics |
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.