Efficient Production-Distribution System Design

The production-distribution system design is an integral part of the general supply chain design. This paper proposes a novel solution methodology for this problem that is based on Lagrangean relaxation, interior-point methods, and branch and bound. Unlike classical approaches, Lagrangean relaxation is applied in a two-level hierarchy, branch and bound is based on a Lagrangean lower bound and column generation (branch and price), while interior-point methods are used within a cutting-plane context (analytic centre cutting-plane method—ACCPM). Numerical results demonstrate that the two-level approach outperforms the classical approach and provides a very sharp lower bound that is the (proven) optimal in most cases.