Reliable design of an integrated supply chain with expedited shipments under disruption risks

This paper studied the design of a two-echelon supply chain where a set of suppliers serve a set of terminals that receive uncertain customer demands. In particular, we considered probabilistic transportation disruptions that may halt product supply from certain suppliers. We formulated this problem into an integer nonlinear program to determine the optimal system design that minimizes the expected total cost. A customized solution algorithm based on Lagrangian relaxation was developed to efficiently solve this model. Several numerical examples were conducted to test the proposed model and draw managerial insights into how the key parameters affect the optimal system design.