Optimal Supply Chain Design and Operations Under Multi-Scale Uncertainties: Nested Stochastic Robust Optimization Modeling Framework and Solution Algorithm

Although strategic and operational uncertainties differ in their significance of impact, a one-size-fits-all approach has been typically used to tackle all types of uncertainty in the optimal design and operations of supply chains. In this work, we propose a stochastic robust optimization model that handles multi-scale uncertainties in a holistic framework, aiming to optimize the expected economic performance while ensuring the robustness of operations. Stochastic programming and robust optimization approaches are integrated in a nested manner to reflect the decision maker's different levels of conservativeness toward strategic and operational uncertainties. The resulting multi-level mixed-integer linear programming model is solved by a decomposition-based column-and-constraint generation algorithm. To illustrate the application, a county-level case study on optimal design and operations of a spatially-explicit biofuel supply chain in Illinois is presented, which demonstrates the advantages and flexibility of the proposed modeling framework and efficiency of the solution algorithm. (C) 2016 American Institute of Chemical Engineers