Outsourcing policies for the Facility Location Problem with Bernoulli Demand

Abstract

This paper focuses on the Facility Location Problem with Bernoulli Demand, a discrete facility location problem with uncertainty where the joint distribution of the customers' demands is expressed by means of a set of possible scenarios. A two-stage stochastic program with recourse is used to select the facility locations and the a priori assignments of customers to open plants, together with the a posteriori strategy to apply in those realizations where the a priori solution is not feasible. Four alternative outsourcing policies are studied for the recourse action, and a mathematical programming formulation is presented for each of them. Extensive computational experiments have been carried-out to analyze the performance of each of the formulations and to compare the quality of the solutions produced by each of them relative to the other outsourcing policies.