A rolling horizon approach for a multi-stage stochastic fixed-charge transportation problem with transshipment

We study a fixed-charge transportation problem under stochastic and dynamic demand. We propose a multi-stage mixed integer stochastic programming formulation, where the first-stage decision is the delivery from the supplier to the retailers, while transshipment is used, in addition to classical backordering as recourse decision. The objective is the minimization of the total expected cost. We prove that this problem is NP-hard and, through a worst-case analysis, that transshipment can provide significant cost savings. Extensive computational studies are carried out to evaluate the performance of a rolling horizon approach with respect to the optimal cost. Numerical results show that this heuristic provides effective solutions in short computational time. Managerial insights are finally drawn. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

We study a fixed-charge transportation problem with stochastic and dynamic demand. Our proposed multi-stage mixed integer stochastic programming formulation proves that transshipment can provide significant cost savings. Computational studies demonstrate the effectiveness of our heuristic approach in providing efficient solutions in a short amount of time.