European Journal of Operational Research 202 (2010) 686–695

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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Production, Manufacturing and Logistics

Vendor managed inventory for environments with stochastic product usage

Vera Hemmelmayr a, Karl F. Doerner a,*, Richard F. Hartl a, Martin W.P. Savelsbergh b
a
Department of Business Administration, University of Vienna, Bruenner Strasse 72, 1210 Vienna, Austria
b
Supply Chain and Logistics Institute, Georgia Institute of Technology, Atlanta, GA 30332-0205, USA

a r t i c l e i n f o a b s t r a c t

Article history: We develop technology to plan delivery routes for the supply of blood products to hospitals by a blood
Received 8 July 2008 bank. The technology produces low cost, robust plans that hedge against the natural uncertainty associ-
Accepted 3 June 2009 ated with blood product usage at hospitals. The technology relies on sampling-based approaches involv-
Available online 9 June 2009
ing integer programming and variable neighborhood search. An extensive computational study shows the
efficacy of the two approaches and highlights the impact of product usage uncertainty on the resulting
Keywords: delivery plans.
Inventory routing
Ó 2009 Elsevier B.V. All rights reserved.
Demand uncertainty
Variable neighborhood search
Sampling

1. Introduction We examine a number of recourse policies, each progressively

We are investigating vendor managed inventory resupply poli-
cies for the delivery of blood products to hospitals in Eastern Aus-
tria by the Austrian Red Cross (ARC). For practical reasons, the ARC
wants to construct 2-week plans as it allows for advanced notifica-
tion of volunteers and for ensuring the availability of necessary
delivery vehicles. An initial assessment of the benefits for the
ARC of changing to vendor managed inventory resupply is dis-
cussed in Hemmelmayr et al. (in press). This initial assessment
was carried out assuming known and deterministic blood product
usage by the hospitals. This is acceptable for an initial assessment,
but it is, of course, not completely realistic. The blood product
needs for scheduled surgeries can be predicted fairly accurately,
but it is far more difficult to predict blood product needs for emer-
gency surgeries. In this paper, we investigate vendor managed
inventory resupply policies in the presence of stochastic product
usage.
When product usage is stochastic, it is no longer possible to cre-
ate a cost-effective plan that is guaranteed to be feasible for every
possible realization of product usage in the 2-week period. There-
fore, it is necessary to introduce a recourse policy for handling
product shortfall during the 2-week period. The chosen recourse
policy with its associated costs has to be incorporated in the con-
struction and evaluation of the 2-week plan. The chosen recourse
policy not only affects the expected cost of the 2-week plan, but
it also impacts the complexity of the construction of a 2-week plan.
* Corresponding author.
E-mail addresses: Vera.Hemmelmayr@univie.ac.at (V. Hemmelmayr), Karl.
Doerner@univie.ac.at (K.F. Doerner), Richard.Hartl@univie.ac.at (R.F. Hartl), martin.
savelsbergh@isye.gatech.edu (M.W.P. Savelsbergh).
more cost-effective, but also more complex from a planning per-
spective, and conduct an empirical study to analyze the perfor-
mance of each.
In Hemmelmayr et al. (in press), two solution approaches are
introduced, an integer programming approach and a Variable
Neighborhood Search (VNS) approach. We extend both approaches
so that they can handle stochastic product usage, in both cases
using external sampling to convert the two-stage stochastic opti-
mization problem into a deterministic optimization problem.
An extensive simulation study demonstrates the value of
explicitly taking stochastic product usage into account during plan
construction and shows that employing a simple recourse policy is
sufficient to provide a reliable and cost-efficient blood supply. Sim-
ple recourse strategies have obvious practical advantages.
The remainder of the paper is organized as follows. In Section 2,
we briefly point the reader to some relevant literature. In Section 3,
we describe the environment under consideration and present a
variety of planning strategies. In Section 4, we discuss two ap-
proaches for constructing high-quality plans. In Section 5, we pres-
ent and interpret the results of a simulation study conducted using
real-life data. Finally, in Section 6, we provide some concluding
remarks.
2. Relevant literature
The seminal paper in the area of inventory routing is (Bell et al.,
1983), which studies the problem of distributing industrial gases in
a vendor managed inventory resupply environment. At the heart of
the approach of (Bell et al., 1983) is an integer programming (IP)
formulation producing a short-term schedule, specifying which

0377-2217/$ - see front matter Ó 2009 Elsevier B.V. All rights reserved.
doi:10.1016/j.ejor.2009.06.003
 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695
customers to visit in the next few days and how much to deliver to
them. A set of possible delivery routes is computed in advance and
used in the IP, which is solved using Lagrangian relaxation
techniques.
There are a few early inventory routing papers that consider
uncertainty of demand. Federgruen and Zipkin (1984) consider
an inventory routing problem for a single-day in which customer
demand is random. Inventory holding cost and shortage cost,
which can be determined at the end of the day, are minimized in
addition to transportation cost. The problem is modeled as a non-
linear integer program and methods for the deterministic vehicle
routing problem are extended to handle the random demand.
Golden et al. (1984) also consider a single-day inventory routing
problem with random demand. They develop a heuristic that relies
on a measure of the urgency of a visit for every customer. Custom-
ers with an urgency below a certain threshold are not visited. For
the remaining customers a large TSP tour is constructed, which is
subsequently split into feasible routes.
Recently, a number of papers considering stochastic variants of
inventory routing problems have appeared. Berman and Larson
(2001) study the decision that a driver faces when he arrives at a
customer and observes the actual demand (as opposed to the fore-
casted demand) and then needs to decide how much to deliver to
the customer while taking into account the needs of the customers
that are visited later. A solution approach based on stochastic dy-
namic programming is developed. Jaillet et al. (2002) analyze opti-
mal replenishment policies for a single customer and then derive
incremental cost estimates for deviating from the optimal replen-
ishment policies. These incremental cost estimates are used to se-
lect the set of customers to be served in the next few days. The
procedure is subsequently embedded in a rolling horizon frame-
work (which is similar to the one presented in Bard et al.
(1998)). Kleywegt et al. (2002) consider the stochastic inventory
routing problem with direct deliveries. The problem is formulated
as a discrete-time Markov decision process and is solved using
approximate dynamic programming techniques. In Kleywegt
et al. (2004) this approach is extended to incorporate multiple
deliveries per trip. Their approach relies on decomposition and
optimization to approximate the value function. The policies pro-
duced by their approach outperform others proposed in the
literature.
Comprehensive literature reviews of the inventory routing
problem (IRP) are provided in Campbell et al. (1998), Kleywegt
et al. (2002), Cordeau et al. (2007) and Bertazzi et al. (2008).
3. Problem description and solution strategies
We consider the delivery of blood products to medical regional
hospitals. Blood products are crucial for hospitals as they are re-
quired for surgeries and for the treatment of patients with
chronic illnesses. Blood products are delivered to hospitals on a
regular basis in order to ensure that an adequate supply of the re-
quired blood products is available. On the other hand, as blood is
a perishable good, the inventory of blood products has to be man-
aged carefully to avoid spoilage. Therefore a blood bank has to
regularly supply a set of hospitals (outpatient facilities, clinics,
etc.) with certain products (blood conserves) which are consumed
at different rates. Any delivery policy should be such that no
shortfall of products occur at the hospitals, but at the same time
spoilage of products is kept at a minimum. Of course, a blood
bank also wants a delivery policy that has low costs. As the size
of a bag with a blood product is very small, vehicle capacity is
never restricting.
Planning of blood product deliveries is complicated by the sto-
chastic nature of blood product usage (among others because of
687
the occurrence of emergency surgeries). Handling the stochasticity
of blood product usage is the focus of this paper. Stochasticity of
product usage complicates ensuring blood product availability as
well as controlling blood product spoilage.
When usage is deterministic and constant, spoilage can be
avoided simply by calculating the total product usage during
the spoilage period and ensuring that the inventory at a hospital
never exceeds this quantity. When usage is stochastic (a random
variable supported on a bounded interval), spoilage can be
avoided similarly by summing the minimum daily usage quanti-
ties during the spoilage period and keeping the inventory at a
hospital below this quantity. However, this will likely result in
frequent hospital visits, which will significantly increase delivery
costs. To balance delivery costs and spoilage costs, we have cho-
sen to limit the probability that spoilage occurs to at most 5%.
More specifically, we sample product usage during the spoilage
period and take the 5% quantile as the maximum inventory level
at the hospital; we denote this inventory level with Si and refer to
it as the spoilage capacity.
More importantly, when usage is stochastic it becomes prohib-
itive (or maybe even impossible) to construct 2-week delivery
plans that guarantee that no product shortage occur. Therefore,
some recovery or recourse mechanism needs to be created to han-
dle shortages if they occur. Recourse actions tend to be expensive
as they need to be organized on short notice and the planning
problem needs to incorporate expected recourse cost when evalu-
ating a 2-week delivery plan.
We consider a two-stage stochastic program with recourse. Gi-
ven a set of first stage decisions (regular delivery decisions in our
case) and a particular realization, from our sample, we can com-
pute second stage or recourse decisions and costs. We have a
deterministic problem for each realization in the sample. The stan-
dard objective function of a recourse optimization problem is
gðxÞ þ Ex ½f ðx; xÞ, where x represents first stage decision variables
and x represents a realization of the random variables. In our case,
the first term corresponds to the cost of the regular deliveries,
while the second term is the cost of the recourse actions (which
depend on both the regular delivery decisions and the product
usage realization), which we approximate using sampling. More
precisely, the cost of the recourse action is evaluated by drawing
P
R samples and averaging their costs, i.e., 1R Rr¼1 f ðxr ; xÞ. We con-
sider four recourse actions, defined in more detail below. We as-
sume that product usage at the hospitals is independently
distributed and that at the beginning of the day information about
the inventory of each hospital is available at the distribution
center.
 The first recourse action changes the quantities of planned deliv-
eries. This is the simplest recourse action that can be imagined.
On planned delivery days, the planned delivery quantity for a
hospital is increased or decreased based on product usage up
to that day. Because the opportunities for adjusting the 2-week
plan are limited, these plans may still be expensive (even though
the costs of the recourse action are nihil).
 The second recourse action introduces out-and-back emergency
deliveries to hospitals that are likely to experience a shortage
(based on the inventory at the beginning of the day). Even
though out-and-back emergency deliveries increase the delivery
flexibility, they do so at a high cost (out-and-back emergency
deliveries are assumed to be costly).
 The third recourse action introduces an emergency delivery
route. More precisely, there is a single emergency delivery route
for each day visiting all hospitals that are likely to run out of
product on that day. Emergency deliveries come at a cost, but
the cost is not as high as with out-and-back emergency deliver-
ies as the costs are, in a sense, shared.
688 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695

 The fourth recourse action introduces emergency deliveries into tional study with small sample sizes (R ¼ 10) primarily to provide
the regularly planned delivery routes. The distribution center a baseline for comparison with the VNS approach.
inserts emergency deliveries in the planned delivery routes for For the sake of completeness, we present the integer program-
that day. Emergency deliveries come at a cost, but the cost is ming formulation introduced in Hemmelmayr et al. (in press) and
low as these deliveries are combined with regular deliveries. subsequently discuss how it was modified to handle stochastic de-
mands. The parameters and variables are defined and described in
There are various trade-offs that have to be considered when Table 1.
deciding on the most appropriate recourse action. The recourse ac- For the routing component, the integer programming model re-
tions are presented in increasing order of operational complexity. lies on short cutting a pre-determined fixed route in both, deter-
It is rather simple to adjust the quantities before the vehicles leave ministic and stochastic, cases. Experimentation has shown that
the distribution center for their daily delivery routes. It is much this provides adequate flexibility for constructing daily delivery
more complicated to introduce emergency deliveries into the routes. Under the assumption that the hospitals are indexed from
planned daily delivery routes. The expected delivery costs for the 1 to n according to the order in which they are visited on the fixed
2-week period vary depending on the sophistication of the re- route, the formulation is:
course action. XX
min t ij xtij
In the remainder of the paper, we examine if and how the solu-
t i;j
tion approaches introduced in Hemmelmayr et al. (in press) can be t
adapted to handle these recourse actions and perform a computa- subject to Itþ1
i ¼ Iti  uti þ di i ¼ 1; .. .; n; t ¼ 1;. .. ; T ð1Þ
tional study to see the impact on the 2-week delivery plans. IiTþ1 P I1i i ¼ 1; .. .; n ð2Þ
Iti 6 C i i ¼ 1; .. .; n; t ¼ 1; .. .; T ð3Þ
4. Solution approaches
X
tþk2 1

Iti 6 usi i ¼ 1;. .. ;n; t ¼ 1;. .. ;T ð4Þ

In Hemmelmayr et al. (in press) two solution approaches were s¼t
introduced and evaluated: an integer programming based ap- I1i ¼ qi i ¼ 1;. .. ;n ð5Þ
proach and a VNS approach. In this section, we describe how we
adapted these approaches to handle stochastic product usage. Iti P 0 i ¼ 1; .. .; n; t ¼ 1; .. .; T þ 1 ð6Þ
t
di 6 C i yti i ¼ 1; .. .; n; t ¼ 1; .. .; T ð7Þ
4.1. Integer programming approach t
di P 0 i ¼ 1; .. .; n; t ¼ 1;. .. ; T ð8Þ
As mentioned in the introduction, a sampling-based approach is xij P yti þ ytj  1
t

taken to handle stochastic product usage. Suppose a sample con- X

j1

sisting of R product usage realizations for the 2-week planning per-  ytk i ¼ 0;. .. ;n; j ¼ 1;. .. ; n þ 1; t ¼ 1; .. .; T ð9Þ
k¼iþ1
iod is available. The integer program will have two sets of variables:
variables representing decisions related to the 2-week delivery
nþ1 X
X nþ1 X
n
t ij xtij þ yti si 6 D t ¼ 1; .. .; T ð10Þ
plan, which are common to the R realizations, and variables repre-
i¼0 j¼0 i¼1
senting recourse actions, which are specific to each of the R realiza-
yt0 ¼ ytnþ1 ¼ 1 t ¼ 1; .. .; T ð11Þ
tions. The size of the integer program thus increases rapidly with
the number of realizations in the sample. Consequently, the integer yti ; xtij 2 f0;1g i ¼ 0;. .. ;n þ 1; j ¼ 0; .. . ;n þ 1; t ¼ 1;. .. ;T
programming approach is not likely to provide a computationally ð12Þ
viable option. We describe it here and include it in our computa-

Table 1
Notation.

Variables
t
di A continuous variable indicating the quantity of blood delivered to hospital i on day t
t
dir A continuous variable indicating the quantity of blood delivered to hospital i on day t in realization r
et
d A continuous variable indicating the quantity of blood delivered by an emergency delivery to hospital i on day t in realization r
ir
yti A 0–1 variable indicating whether or not a hospital is visited on day t
y tir
e A 0–1 variable indicating whether or not hospital i receives an emergency delivery on day t in realization r
Iti A continuous variable indicating the quantity of blood in inventory at hospital i at the beginning of day t
Itir A continuous variable indicating the quantity of blood in inventory at hospital i at the beginning of day t in realization r
xtij A 0–1 variable indicating whether or not the delivery vehicle travels from hospital i to hospital j on day t (where 0 and n þ 1 denote the Red Cross distribution center)
x tijr
e A 0–1 variable indicating whether or not the delivery vehicle travels from hospital i to hospital j on day t in realization r (where 0 and n þ 1 denote the Red Cross
distribution center)

Parameters
tij Travel time between two locations i and j
et i Out-and-back travel cost to hospital i
si Service time at hospital i
uti The product usage at hospital i on day t
utir The product usage at hospital i on day t in realization r
Ci Storage capacity at hospital i
D maximum route duration
k1 Days of inventory available for safety stock
k2 Length of spoilage period
qi Initial inventory at hospital i
Si Maximum spoilage level for hospital i
 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695 689

The objective minimizes total travel distance during the planning
period. Constraints (1) ensure inventory balance from period to per-
iod. Constraints (2) ensure that the inventory at the end of the plan-
ning period is greater or equal to the inventory at the beginning of
the planning period. Without such a constraint no deliveries would
be made towards the end of the planning period. Furthermore we
consider our problem as a periodic problem which is repeated every
T time units. Constraints (3) ensure that inventory never exceeds
the storage capacity. Constraints (4) ensure that inventory does
not spoil. Constraints (5) state that the initial inventory is given.
Constraints (6) ensure that there are no product shortages. Con-
straints (7) and (8) ensure that delivery quantities are nonnegative
and that deliveries can only be made when a hospital is visited.
Constraints (9) capture short cutting of the fixed route. Finally, con-
straints (10) limit route duration and constraints (11) state that the
distribution center is visited every day.
To accommodate different realizations of product usage at hos-
pitals in the integer programming formulation, we introduce a sub-
script r to represent a realization, we change the parameter
representing product usage to utir , and the variables representing
inventory to Itir . The constraints related to inventory are adapted
accordingly.
4.1.1. First recourse action – delivery quantity adjustment
The first recourse action changes the delivery quantities of
planned deliveries. This implies that there is a delivery quantity
for each realization r and therefore the variable representing the
t t
delivery quantity is changed to dir . Constraints (9)–(12) remain un-
Furthermore, we have to force the indicator variables e
y tir to be 1 in
case a hospital receives an emergency delivery, i.e.,
e
d tir 6 C i e
y tir i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð22Þ
e
d tir P 0 i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð23Þ
y tir 2 f0; 1g i ¼ 0; . . . ; n þ 1; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R
e ð24Þ
Finally, constraints (9)–(12), (14)–(19) and (20) are also needed.
4.1.3. Third recourse action – emergency delivery tour
The third recourse action introduces an emergency delivery
route, which is a single emergency delivery route visiting all hospi-
tals that are about to run out of product on a particular day. As
with the second recourse action, for each realization new variables
are introduced to capture emergency deliveries. However, it is no
longer sufficient to know that a hospital i receives an emergency
delivery (ey tir ) on day t in realization r plus the associated delivery
quantity ( ed tir ). The emergency delivery route needs to be deter-
mined as well as how it impacts the costs. Therefore, we introduce
variables ex tijr , indicating whether hospital j is visited directly after
hospital i in the emergency route of day t for realization r.
The objective function minimizes the planned delivery costs
plus the expected cost of emergency deliveries, which is approxi-
mated as the average cost of the emergency delivery routes, where
we average over the realizations, i.e.,
XX 1XXX
min tij xtij þ x tijr :
tij e
R r t
i;j i;j

changed, but constraints (1)–(8) are replaced by: As in the basic model, we assume that a fixed emergency route vis-
t
Itþ1
ir ¼ Itir  utir þ dir i ¼ 1; :::; n; t ¼ 1; :::; T; r ¼ 1; :::; R ð13Þ iting all hospitals is available and that the emergency delivery route
ITþ1 P I1ir i ¼ 1; . . . ; n; r ¼ 1; . . . ; R ð14Þ performed on a given day is determined by short cutting. Short cut-
ir
ting of the emergency route is captured in (25). Constraints (26)
Itir 6 C i i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð15Þ state that the depot is included in every emergency route and tour
Itir 6 Si i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð16Þ length restriction for emergency routes are given in (27), i.e.,
I1ir ¼ qi i ¼ 1; . . . ; n; r ¼ 1; . . . ; R ð17Þ x tijr P e
e y tir þ e
y tjr  1
Itir P 0 i ¼ 1; . . . ; n; t ¼ 1; . . . ; T þ 1; r ¼ 1; . . . ; R ð18Þ X
j1

t
 y tkr
e i ¼ 0; . . . ; n; j ¼ 1; . . . ; n þ 1;
dir 6 C i yti i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð19Þ k¼iþ1
t
dir P 0 i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð20Þ ¼ 1; . . . ; T r ¼ 1; . . . ; R ð25Þ
y t0r ¼ e
e y tnþ1;r ¼ 1 t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð26Þ
Note that constraints (16), which limit spoilage at hospitals, use the
pre-computed spoilage capacity Si (which was defined in Section 3). X
nþ1 X
nþ1 X
n
x tijr þ
t ij e y tir si 6 D t ¼ 1; . . . ; T; r ¼ 1; . . . ; R
e ð27Þ
i¼0 j¼0 i¼1
4.1.2. Second recourse action – out-and-back emergency deliveries
The second recourse action introduces out-and-back emergency
x tijr 2 f0; 1g i ¼ 0; . . . ; n þ 1; j ¼ 0; . . . ; n þ 1;
e
deliveries to hospitals that are about to experience a shortage. There- t ¼ 1; . . . ; T; r ¼ 1; . . . ; R ð28Þ
fore, for each realization new variables need to be introduced to cap-
Finally, constraints (9)–(12), (14)–(23) and (24) are also needed.
ture emergency deliveries. More specifically, the delivery quantity
e
d tir , associated with an emergency delivery to hospital i on day t in
4.1.4. Fourth recourse action – integrated emergency deliveries
realization r, and the indicator e y tir , tracking whether or not hospital
The fourth recourse action introduces emergency deliveries into
i receives an emergency delivery in realization s on day t.
the regularly planned delivery routes. The objective function min-
The objective function minimizes the planned delivery costs
imizes the expected routing cost averaged over all realizations, i.e.,
plus the expected cost of emergency deliveries, which is approxi-
mated as the average cost of out-and-back emergency deliveries, 1XXX
min x tijr :
tij e
where we average over the realizations. Note that the cost et i of R r t i;j
an out-and-back emergency delivery to hospital i is simply
t 0i þ t i0 . Therefore, we have To model short cutting we need to consider regular visits and emer-
XX 1XXX te gency visits at the same time. Hospital j is visited directly after hos-
min tij xtij þ e
y ir t i : pital i on day t in realization r when hospital i and hospital j receive
t i;j
R r t i
either a regular or an emergency delivery and none of the hospitals
The inventory balance constraints have to be extended to cover the in between receive a regular or an emergency delivery, i.e.,
emergency deliveries, i.e.,
 t   t  X
j1
 t 
x tijr P e
e y ir þ yti þ e
y jr þ ytj  1  y kr þ ytk i ¼ 0; . . . ; n;
e
þe
t
Itþ1
ir ¼ Itir  utir þ dir d tir i ¼ 1; . . . ; n; t ¼ 1; . . . ; T; k¼iþ1
r ¼ 1; . . . ; R: ð21Þ j ¼ 1; . . . ; n þ 1; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R: ð29Þ
690 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695
Of course, on a particular day in a given realization, a hospital can-
not receive a regular delivery and an emergency delivery, so
y tir þ yti 6 1 i ¼ 0; . . . ; n; t ¼ 1; . . . ; T; r ¼ 1; . . . ; R:
e ð30Þ
Furthermore, in our computational experiments we have imposed a
limit on the tour length, i.e.,
X
nþ1 X
nþ1 X
n
 
x tijr þ
tij e yti þ e
y tir si 6 D t ¼ 1; . . . ; T; r ¼ 1; . . . ; R;
i¼0 j¼0 i¼1
ð31Þ
where si denotes the stopping time at hospital i. Finally, constraints
(9)–(12), (14)–(24) and (28) are also needed. Note that due to our
modeling choices, i.e., short cutting of a fixed route, emergency
deliveries are no more expensive than regular deliveries, which
causes the role of the base plan to be limited.
4.2. Variable neighborhood search
Because the size of the integer program is huge for any reason-
able sample size, it is unlikely that the integer programming ap-
proach will be computationally viable for all but the smallest
instances. It is much more likely that the VNS approach can be
adapted successfully. Metaheuristics for stochastic optimization
problems have been studied, among others, in Alrefaei and Andra-
dottir (1999) and Gutjahr and Pflug (1996).
VNS is based on a systematic change of neighborhoods; larger
and larger neighborhoods of the incumbent solution are explored
(Mladenović and Hansen, 1997; Hansen and Mladenović, 2001).
In each iteration, the current solution is modified by a neighbor-
hood move, followed by a local improvement procedure. After-
wards, the solution is accepted as the new incumbent solution or
not. If no improving solution was found, the search proceeds to
the next larger neighborhood, otherwise the search continues in
the same neighborhood. A solution can simply be accepted if it im-
proves the incumbent solution, but for complex problems it often
pays to have a strategy that sometimes accepts non-improving
moves to avoid that the search gets stuck in a local optimum.
Fig. 1 shows the steps of a basic VNS, where N j ðj ¼ 1; . . . ; jmax Þ
is the set of neighborhoods. The stopping condition can be a limit
on CPU time, a limit on the number of iterations, or a limit on
the number of iterations between two improvements.
In the VNS approach of Hemmelmayr et al. (in press), the plan-
ning of routes for the delivery of blood products is modeled as a
Periodic Vehicle Routing Problem (PVRP). In the PVRP, each cus-
tomer indicates a service frequency ei , which specifies on how
Fig. 1. Steps of the VNS (c.f. (Hansen and Mladenović, 2001)).
many days of the planing period T a visit is required, and a set C i
of allowable visit-day combinations. The goal is to choose visit-
day combinations for all customers such that the sum of the daily
routing costs is minimized. These daily routing costs are obtained
by solving a vehicle routing problem for each day for the set of cus-
tomers to be visited on that day. For the planning of routes for the
delivery of blood products, the service frequency for a hospital is
not pre-specified, but chosen during the search. A set of feasible
service frequencies with associated sets of feasible visit-day com-
binations is pre-computed; visit-day combinations are feasible if
they do not lead to product shortage or product spoilage.
We start the VNS from an initial solution in which every hospi-
tal is visited every day (the feasible visit-day combination with the
highest frequency). Visit frequencies for every hospital are gener-
ated in a preprocessing phase and have to be feasible with respect
to inventory constraints. Then routes are built for every day using
the savings algorithm (Clarke and Wright, 1964).
Three operators were chosen to define our neighborhoods:
move, cross-exchange and change-combination.
 In a move, a segment of customers of one route is incorporated in
a different route of the same day.
 In a cross-exchange, two segments of different routes are chosen
and exchanged.
 When performing a change-combination, as the name suggests, a
new visit-day combination (and possibly a new frequency) is
assigned to one or more hospitals.
These operators are used to define 15 neighborhoods. Each
neighborhood has a parameter k that limits the number of hospi-
tals that can be affected by the operator. The first six neighbor-
hoods involve the operator change-combination, the next three
neighborhoods involve the operator move, and the final six neigh-
borhoods involve the cross-exchange neighborhood. The number of
hospitals to be assigned a new visit-day combination in change-
combination is randomly chosen between 1 and k. In the move
and cross-exchange neighborhoods the length of the segment(s)
to be moved or exchanged is chosen similarly.
For the acceptance decision, a scheme inspired by simulated
annealing (Kirkpatrick et al., 1983) is used. Improving solutions
are always accepted and inferior solutions are accepted with a
0
probability exp ðf ðx TÞf ðxÞÞ, where f ðxÞ is the cost of solution x and
T is the temperature.
To adapt the VNS approach to the variant with stochastic prod-
uct usage it is necessary to properly incorporate and account for
any recourse actions. Handling the first two recourse actions is
 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695
relatively easy because a recourse action at one hospital does not
interact with recourse actions at other hospitals, and a recourse ac-
tion at a hospital does not impact the regular delivery routes. Han-
dling of the last two recourse actions is more complex because a
recourse action at one hospital does affect the cost of recourse ac-
tions at other hospitals and, in the case of the fourth recourse ac-
tion, even affects the regular delivery routes.
As in the integer programming approach external sampling is
used to convert the two-stage stochastic program into a determin-
istic optimization problem. Again, we suppose that we have a sam-
ple consisting of R product usage realizations for the 2-week
planning period and a delivery plan is considered feasible if there
are no product shortfalls for any of the realizations in the sample
(which may of course require recourse actions).
4.2.1. First recourse action – robust plan
Adjusting the delivery quantities based on up-to-date informa-
tion on the actual inventory level at a hospital is implemented in
the VNS approach by always delivering the maximum quantity
possible when a delivery is made, i.e., the inventory is filled up
to the physical storage capacity or to the inventory level that guar-
antees that no product spoilage will occur. As a result, for a given
realization it is easy to establish whether a given visit-day combi-
nation results in product shortfalls or not. Consequently, in the
pre-computing phase, we can easily identify those visit-day combi-
nations that do not result in a product shortfall for all realizations
in the sample. Only those visit-day combinations are considered in
the VNS.
The operator change-combination is similar to the one used for
the deterministic case. A frequency is selected randomly (with a
bias to frequencies that are lower than the incumbent, as the high-
est visit frequency is assigned to a customer in the initial solution).
Once a frequency has been picked, a visit-day combination of that
frequency is chosen. The selection of the visit-day combination is
biased by the visit-day combinations of nearby hospitals. That is,
if a visit-day combination contains days on which nearby hospitals
are visited, it is more likely that this visit-day combination is cho-
sen. Since the operators move and cross-exchange only influence the
routing decision, they are the same as in the deterministic case.
4.2.2. Second recourse action – out-and-back
The second recourse action introduces out-and-back emergency
deliveries to hospitals that are about to experience a shortage. Be-
cause the recourse action for a hospital is independent of recourse
actions of other hospitals, it can be handled in the pre-computing
phase. For a given visit-day combination and a given realization,
we can easily determine the number of emergency deliveries that
are required and thus the emergency delivery costs. Therefore, we
can compute the expected emergency delivery costs for a visit-day
combination simply by averaging over the different realizations.
The expected emergency delivery costs associated with a visit-
day combination are incorporated in the evaluation of a neighbor-
hood move. Note that all visit-day combinations are feasible with
this recourse action, because any visit-day combination can be
made feasible by the introduction of emergency deliveries.
The VNS for the variant with deterministic product usage has a
bias for selecting visit-day combinations with a lower frequency
than the frequency of the current solutions because such combina-
tions will reduce the cost substantially. Due to the expected emer-
gency delivery costs associated with a visit-day combination this
may no longer be true. In fact, by changing to a higher frequency,
emergency delivery costs may be reduced significantly or even
eliminated. Therefore, the bias for lower frequencies is removed
from the change-combination neighborhoods.
Moreover, the deterministic VNS clusters hospitals and biases
the selection of visit-day combinations by the visit-combinations
691
of other hospitals in the same cluster. More precisely, if a combina-
tion consists of days on which the other hospitals in the cluster are
visited, then it is more likely that this combination is chosen. In the
stochastic case another bias is introduced. If a combination con-
sists of days on which other hospitals in the cluster are visited,
but these hospitals have high emergency delivery costs, then it is
less likely that this combination is chosen. The common visit-day
bias is stronger than the emergency cost delivery bias.
4.2.3. Third recourse action – separate tour
The third recourse action introduces an emergency delivery
route. For every day there is a single emergency delivery route vis-
iting all hospitals that are about to run out of product on that day.
Because the cost of an emergency delivery at a hospital is no longer
independent of emergency deliveries at other hospitals, the ex-
pected costs of emergency deliveries can no longer be computed
in advance. Changing the visit-day combination for a hospital not
only impacts its own emergency delivery costs and the costs of
the regular delivery routes, but may also impact the emergency
delivery costs of many other hospitals (in a non-trivial way).
The only proper way to handle this situation is to compute the
expected emergency delivery costs when evaluating a 2-week
delivery plan, i.e., by computing the emergency delivery costs for
each realization in the sample and averaging these costs, which in-
volves for each realization and for each day in the planning horizon
identifying the hospitals that require an emergency delivery and
solving the resulting routing problem. Because such an evaluation
has to be done each time a change-combination move is per-
formed, this may become computationally prohibitive.
4.2.4. Fourth recourse action – emergency insertion
The fourth recourse action introduces emergency deliveries into
the regularly planned delivery routes. This situation is similar to
the previous one. Again, the only proper way to handle this situa-
tion is to compute the expected emergency delivery costs when
evaluating a 2-week delivery plan, i.e., by computing the emer-
gency delivery costs for each realization in the sample and averag-
ing these costs. In this case, computing the emergency delivery
costs involves for each realization and for each day in the planning
horizon identifying the hospitals that require an emergency deliv-
ery and inserting them in the cheapest position in the regular
delivery routes.
The VNS for deterministic instances employs a temperature to
decide whether or not to accept neighborhood moves that worsen
the quality of the solution, similar to the use of temperature in sim-
ulated annealing. Experiments have shown that for the stochastic
VNS a higher starting temperature is needed to converge consis-
tently to high-quality solutions.
The VNS for deterministic instances has a fixed number of iter-
ations before it completes. Experiments have shown that for the
stochastic VNS the number of iterations needs to be larger to con-
verge consistently to high-quality solutions. This is an indication
that it is harder to identify a portion of the search space where high
quality solutions reside (compared to deterministic instances).
5. Computational study
A variety of computational experiments has been conducted to
assess the impact of uncertainty on the distribution costs, the ef-
fect of the choice of recourse strategy, and the quality of the pro-
posed solution approaches.
The VNS algorithm was implemented in C and compiled with
the GNU C compiler version 4.1.0. The VNS runs were performed
on a high performance computing cluster with 2.4 GHz processors.
The integer programs were solved on a 3.2 GHz Pentium 4
692 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695
processor running the Windows XP operating system and using
Xpress-Optimizer 2007.
Our computational analysis uses nine data sets. All data sets are
derived from a year’s worth of real-life data. Eight of the data sets
are derived from the product usage in a particular month, where
the months were chosen in such a way that they cover the spec-
trum from a very low demand month to a very high demand
month. The final data set is derived from the product usage during
the entire year. For each data set, the average daily product usage
for each hospital is computed; this quantity will be referred to as
the deterministic demand. Next, two stochastic demand distribu-
tions are created: a continuous uniform distribution in an interval
around the deterministic demand (default setting) and a truncated
normal distribution in the same interval. To simulate low levels of
uncertainty as well as high levels of uncertainty, the length of the
interval was varied between ±10%, ±25% (default setting), ±50% of
the deterministic demand. Product usage at hospitals is assumed
to be independent and identically-distributed over time.
Furthermore, we consider three different levels of storage
capacity at the hospitals; specifically 50%, 75% and 100% of the ac-
tual storage capacity. Finally, a spoilage period of 41 days is as-
sumed and the initial inventory is equal to half of the storage
capacity at each hospital.
To evaluate a 2-week plan, we perform a simple simulation. A
product usage realization for the 2-week period is generated for
each hospital using the appropriate distribution. The 2-week plan
is then used to supply product to the hospitals performing recourse
actions as needed. This process is repeated 100,000 times. The fol-
lowing statistics are collected for the 2-week period: average
emergency delivery costs (and thus average total costs), average
number of hospital visits per day, and average number of emer-
gency hospital visits per day. When evaluating a 2-week plan using
recourse action 1, stock-outs may occur so in that setting we also
keep track of the number of stock-outs.
The sample size has a dramatic effect on the size of the integer
programs that need to be solved. It has been clear from the start
that only relatively small sample sizes can be used with the inte-
ger programming approach; in the order of 10–20. The situation
is more complicated for the VNS. For the first two recourse ac-
tions, the expected emergency delivery costs for a hospital for a
particular visit-day combination can easily and efficiently be
computed in the preprocessing phase, so large sample sizes can
be accommodated without a significant increase in computation
time. On the other hand, for the last two recourse actions, the ex-
pected emergency delivery costs incurred for a hospital for a par-
ticular visit-day combination depend on the visit-day
combinations of the other hospitals, and have to be computed
from scratch after every change in a visit-day combination
(regardless of the hospital for which the change occurs). Conse-
quently, only relatively small sample sizes can be accommodated
efficiently. As the impact is less severe than for the integer pro-
grams, we have decided to use an increasing sample size for
the last two recourse actions; we start out with a small sample
size and slowly increase the sample size during the course of
the execution. This balances the need to do a large number of
iterations and the need to have a reasonable sample size when fi-
nal decisions are being made. In our implementation we start
with a sample size of 10, which is increased to a sample size of
50 during the course of the algorithm.
The average run time for the VNS for recourse action 1 using a
sample size of 100,000 is 10.12 minutes, for recourse action 2 it is
9.77 minutes, for recourse action 3 it is 3.49 hours, and for re-
course action 4 it is 9.15 hours. (The difference in run time be-
tween recourse action 3 and 4 is due to the fact that for
recourse action 3, the expected emergency delivery costs has to
be recomputed only after a change visit-combination, whereas
for recourse action 4, the expected emergency delivery costs has
to be recomputed after a move, cross-exchange, and change vis-
it-combination.)
5.1. Algorithm tuning
Our first sets of experiments focus on the impact of the chosen
sample sizes. Table 2 shows the average total delivery cost for the
2-week plans produced by the VNS with recourse action 2. Recall
that for recourse action 2 sampling is used in the preprocessing
step, so increasing the sample size raises the run time only by a
small amount. Experiments were conducted with sample sizes of
103 , 104 , 105 and 106 . The third row in Table 2 shows the deviation
(as a percentage) from the average total delivery cost obtained
with sample size 106 for each sample size. We observe that the dif-
ferences in average total delivery cost are negligible.
Table 3 shows the effect of different sample sizes for the IP with
recourse action 2 for two instances, and sample sizes of 20 and 50.
A time limit of 4 hours was imposed. We report the total delivery
cost (from the evaluation of the best solution found within the
time limit) and the number of nodes explored in the search tree.
The impact of the sample size is clear when we consider the num-
ber of nodes explored in the search tree. Far fewer nodes are ex-
plored with a sample size of 50 than with a sample size of 20.
Most likely, this explains the difference in total delivery cost of
the 2-week plans produced. With a sample size of 50, the search
may not have reached the best possible solution yet, and this is re-
flected in the total delivery cost of the 2-week plans produced. For
recourse action 3 and 4, the computational requirements of the IP
become prohibitive even with a sample size of 20 and thus we
decided not to include these settings in the remaining experi-
ments. The runtime of the IP in the remaining experiments was
limited to 2 hours.
To reduce the run time of the VNS for recourse actions 3 and 4 a
smaller sample size has to be used. Unfortunately, this means that
the evaluation of emergency delivery costs becomes less accurate.
Experimentation revealed that using the same sample to deter-
mine emergency delivery costs during the course of the search
leads to better results than using a different sample in each itera-
tion. When a different sample is used in each iteration, it seems
that the VNS ‘‘exploits” the presence of low product usage realiza-
tions, or ‘‘adjusts” based on the presence of low product usage real-
izations, instead of converging to robust 2-week plans. To be able
to use different samples in each iteration, it appears to be neces-
sary to use a large sample size, which leads to unacceptable run
times. We also experimented with a single large sample from
which a random subset was selected at each iteration, but the
effect was the same.
Table 2
Comparison of different sample sizes for VNS with recourse action 2.
Sample size 106 105 104 103
Avg. cost 2464.28 2472.30 2466.24 2467.08
Deviation from 106 (in %) 0 0.33 0.08 0.11
Table 3
Comparison of different sample sizes for IP with recourse action 2.
Capacity Total delivery cost Nodes examined
R = 20 R = 50 R = 20 R = 50
50 3230.89 3282.93 591,145 169,100
75 2531.02 2575.10 544,248 241,750
100 1837.31 1837.79 620,400 162,300
 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695 693

Table 4 can be made. First, the VNS with recourse action 2 estimates the
Evaluation of various 2-week plans. expected emergency delivery costs extremely well. There is hardly
Capacity RA 2 RA 3 RA 4 any difference between the expected emergency delivery costs and
RA2 50 3241.85 3440.65 3747.67 the realized emergency delivery costs for all levels of capacity. The
75 2313.91 2384.94 2557.73 VNS does a reasonably good job for recourse actions 3 and 4, but
100 1861.16 1877.02 1919.37 seems to underestimate the emergency delivery costs slightly.
avg. 2472.31 2567.54 2741.59 The IP performs fine at low levels of capacity, but seems to sub-
RA3 50 3215.69 3173.95 3440.98 stantially underestimate emergency delivery costs for higher levels
75 2310.03 2293.06 2366.94 of capacity. It is also clear that for low levels of capacity a larger
100 1856.93 1851.01 1897.23
avg. 2460.88 2439.34 2568.38
percentage of the total costs is due to emergency delivery costs.
This is to be expected. The smaller the storage capacity is at the
RA4 50 3202.00 3162.86 3088.57
75 2306.93 2288.83 2278.69
hospitals, the more costly it will be to ensure product availability
100 1853.77 1850.61 1847.87 using only regular deliveries. It will be necessary to make many
avg. 2454.23 2434.10 2405.04 deliveries to protect against unexpected high product usage. On
the other hand, when it is possible to make emergency deliveries,
even though they are more expensive, it is possible to take ‘‘risks.”
5.2. Analysis of the various recourse actions The cost-effective base plan can be used in most situations, but if
product usage happens to be substantially higher than normal, a
Next, we study the impact of the different recourse actions on more expensive emergency delivery option is available to handle
the 2-week plans generated. More specifically, we construct three that. We also observe the influence of the recourse actions them-
2-week plans using the VNS with recourse actions 2, 3, and 4. Then selves. Recourse action 2 is the most expensive, because emer-
we reevaluate the given 2-week plans by using recourse actions 2, gency deliveries to hospitals are handled independently, whereas
3, and 4. The results are presented in Table 4, where the column recourse actions 3 and 4 are less expensive, because emergency
header indicates which recourse action (RA) was used to generate deliveries to hospitals are coordinated. As a result, more ‘‘risks”
the plan and the row header indicates which recourse action is are taken with recourse actions 3 and 4, and a larger portion of
used to evaluate the plan. Recourse action 1 is not included in this the total delivery costs is due to emergency delivery costs. It also
experiment, because 2-week plans that are not specifically gener- seems that the solutions produced by the IP are more conservative,
ated for recourse action 1 result in stock-outs during evaluation, in the sense that a smaller portion of the total delivery costs is due
which makes cost comparisons meaningless. First, we observe that to the emergency delivery costs. This is probably due to the fact
when we evaluate using a particular recourse action, the 2-week that the VNS is more restricted in constructing the 2-week plan,
plan generated using that same resource action always results in because each hospital has only a limited list of visit frequencies
the lowest total cost. This is what one expects, but provides valida- and associated visit-day combinations.
tion that the VNS is able to generate 2-week plans that are geared Now that we have validated and analyzed the performance of
towards the recourse action they are intended for. Second, we see the solution approaches, we return to the main focus of the paper.
that, again as expected, the most cost-effective 2-week delivery It is intuitively clear that a delivery operation that faces demand
plan is obtained when the most involved recourse action, namely variability will be more costly than a delivery operation that faces
recourse action 4, is used. For all capacity levels, this setting results no demand variability, i.e., when demand is deterministic. The re-
in the least total cost. However, the differences are not that large, sults in Table 6 allow us to assess the price, in terms of increased
especially not at the 100% capacity level. The differences get larger delivery costs, the blood bank has to pay to handle product usage
when the capacity is tighter. This is not surprising as emergency variability. Table 6 shows the delivery costs assuming determinis-
delivery costs are likely to play a bigger role in the total cost. tic product usage, the delivery costs assuming stochastic product
Another way to assess the performance of our solution usage and operating the various recourse actions (with for recourse
approaches is to compare the expected emergency delivery costs action 1 between parentheses the average number of stock-outs).
of the 2-week plans produced with the realized emergency deliv- The results show that for the default stochastic setting, i.e., product
ery costs when the 2-week plan are evaluated (simulated). Table usage is drawn from a continuous uniform distribution on an inter-
5 depicts fixed delivery costs, expected emergency delivery costs val [25%, +25%] around the deterministic demand. When using
as estimated by the solution approach, the realized emergency recourse action 2 the delivery costs increase about 7% (average)
delivery cost, and what percentage of total delivery costs is made whereas with recourse action 4 the delivery costs increase about
up by the emergency delivery costs. A few interesting observations 4% (average). It is interesting to observe that the VNS for recourse

Table 5
Expected versus realized emergency delivery costs.

Recourse action Capacity Fixed costs Expected emergency costs Realized emergency costs Emergency costs percentage
IP RA 2 50 2991.96 220.91 217.80 6.83
75 2241.41 105.40 120.66 5.14
100 1818.57 81.94 102.22 5.23
VNS RA 2 50 2821.24 420.54 420.61 12.21
75 2213.92 100.10 100.00 4.21
100 1757.43 103.54 103.72 5.25
VNS RA 3 50 2564.74 591.45 609.21 19.03
75 2081.29 205.27 211.77 8.97
100 1700.95 146.28 150.07 7.66
VNS RA 4 50 2450.34 614.33 638.23 20.55
75 2025.52 242.41 253.17 10.76
100 1697.64 144.54 150.23 7.76
694 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695

Table 6
Delivery costs with deterministic and stochastic product usage.

Capacity IP VNS
Deterministic costs RA 1 costs RA 2 costs Deterministic costs RA 1 costs RA 2 costs RA 3 costs RA 4 costs
50 2961.69 3218.95 (0.04) 3209.75 3075.43 3837.39 (0.00) 3241.85 3173.95 3088.57
75 2212.19 2388.74 (0.03) 2362.07 2139.14 2664.92 (0.00) 2313.91 2293.06 2278.69
100 1817.09 1948.16 (0.03) 1920.79 1742.13 2090.43 (0.00) 1861.16 1851.01 1847.87
Avg. 2330.32 2518.61 (0.03) 2497.54 2318.90 2864.25 (0.00) 2472.31 2439.34 2405.04

action 1 is able to construct a 2-week plan that avoids stock-outs
during the evaluation, whereas the IP is unable to do so. This is
likely due to the difference in sample size used. The IP uses a sam-
ple size of 10, whereas the VNS uses a sample size of 100,000.
However, it is also clear that it is costly to avoid stock-outs using
the limited recourse action 1. The total delivery costs of recourse
action 1 are 2864.25 (average) compared to 2472.31 (average)
when recourse action 2 is used.
We now look at the cost of assuming that product usage is
deterministic when creating a 2-week plan (i.e., when creating a
2-week plan assuming that daily product usage is equal to the
mean of product usage in the planning period). In Table 7, we com-
pare the costs of the 2-week plan generated assuming determinis-
tic demand to the 2-week plan generated assuming stochastic
product usage, with recourse action 2 as the mechanism for deal-
ing with shortfalls when both plans are evaluated. We see that sub-
stantial savings can be achieved when explicitly taking stochastic
usage into account. More precisely, about 5% for the IP and about
8% for the VNS.
5.3. Analysis of delivery plan characteristics
Next, we examine more detailed statistics related to the actual
deliveries. In Tables 8 and 9, we show the average number of reg-
ular (i.e., planned) hospital visits per day and the average number
of emergency hospital visits per day, respectively for the VNS and
the IP.
We see that when the recourse action is more involved and is
more cost-effective, then more emergency deliveries are per-
emergency deliveries than the 2-week plans produced by the VNS,
but have lower delivery costs (3209.75 versus 3241.85). Even
though the 2-week plans produced by the VNS have fewer emer-
gency deliveries, the emergency deliveries are expensive; they go
to hospitals that are relatively far away from the distribution cen-
ter. Since in the VNS only periodic visit-day combinations are used,
it can be cheaper to schedule emergency visits to hospitals with a
high probability of a stock-out than to include them in the regular
routes. The IP has more flexibility when constructing delivery
routes, so certain ‘‘emergency” visits are included in the base plan.
As a result, the 2-week plans produced by the IP appear as more
conservative.
5.4. Product usage variability and multiple blood products
Next, we study the effect of the size of the variability of product
usage. More specifically, in Table 10, we show the total delivery
costs for the VNS with recourse action 2 for different levels of var-
iability in product usage, and in Table 11, we show the emergency
delivery costs as a percentage of the total delivery costs.
The results are as expected: both the total and the emergency
delivery costs increase when the variability of product usage in-
creases. Furthermore, the total delivery costs (and emergency
Table 9
Average number of emergency hospital visits per day.
VNS IP

formed and fewer regular deliveries are made. This behavior is RA 1 RA 2 RA 3 RA 4 RA 1 RA 2

more pronounced for lower capacity levels, where ensuring prod- 50 0.00 0.32 1.00 1.41 0.04 0.41
uct availability is more challenging. It is interesting to see that 75 0.00 0.08 0.33 0.49 0.03 0.23
for recourse action 2 and for a capacity level of 50%, the 2-week 100 0.00 0.08 0.14 0.20 0.03 0.11
Avg. 0.00 0.16 0.49 0.70 0.03 0.25
plans produced by the IP result in more regular deliveries and more

Table 7 Table 10
The cost of using deterministic demand. Total cost for VNS with recourse action 2 for various demand distributions.

Capacity IP VNS Capacity Normal distribution Uniform distribution

Deterministic RA 2 Deterministic RA 2 ±10% ±25% ±50% ±10% ±25% ±50%

50 3285.96 3209.75 3491.52 3241.85 50 3068.43 3123.84 3214.41 3094.23 3241.85 3384.69
75 2536.55 2362.07 2611.99 2313.91 75 2216.22 2261.76 2284.14 2249.45 2313.91 2416.52
100 2060.24 1920.79 1997.50 1861.16 100 1763.06 1780.14 1846.55 1791.56 1861.16 1963.29
Avg. 2627.58 2497.54 2700.34 2472.30 Avg. 2349.23 2388.58 2448.37 2378.41 2472.31 2588.16

Table 8 Table 11
Average number of regular hospital visits per day. Emergency cost for VNS with recourse action 2 for various demand distributions.

VNS IP Capacity Normal distribution Uniform distribution

RA 1 RA 2 RA 3 RA 4 RA 1 RA 2 ±10% ±25% ±50% ±10% ±25% ±50%
50 8.12 7.09 6.53 5.88 7.93 7.44 50 8.75 8.80 12.53 9.48 12.21 16.78
75 5.99 5.30 5.13 4.94 5.94 5.72 75 1.54 2.38 4.15 1.12 4.21 7.93
100 4.91 4.46 4.43 4.34 4.98 4.71 100 0.96 1.76 4.16 2.18 5.25 6.48
Avg. 6.34 5.62 5.36 5.05 6.29 5.96 Avg. 3.75 4.31 6.95 4.26 7.22 10.40
 V. Hemmelmayr et al. / European Journal of Operational Research 202 (2010) 686–695 695

Table 12 for both recourse action 3 and 4. (The evaluation is performed

The effect on costs of aggregating usage of different blood types. using the appropriate recourse action.) The results show that the
Capacity 1 4 8 % dev. 1–4 % dev. 1–8 proxies work very well for the 100% capacity level, but that the
50 3241.85 3369.90 3402.24 3.95 4.95 performance degrades slightly for smaller capacity levels. This
75 2313.91 2397.60 2399.10 3.62 3.68 shows that further tuning is necessary for those capacity levels
100 1861.16 1917.74 1925.75 3.04 3.47 and that the scaling factor will likely have to depend on the capac-
Avg. 2472.31 2561.75 2575.70 3.54 4.03 ity level.

Table 13
Approximating recourse actions.
Capacity RA 3 proxy RA 3 RA 4 proxy
50.00 3212.44 3173.95 3189.31
75.00 2299.32 2293.06 2295.19
100.00 1854.24 1851.01 1850.66
Avg. 2455.33 2439.34 2445.05
delivery costs) are higher for the continuous uniform distribution
than for the truncated normal on the same interval, because prod-
uct usage is more concentrated around the deterministic demand.
In practice, of course, hospitals use various blood products, each
with its own stochastic usage. To assess the impact of multiple
blood products, each with stochastic product usage, on the delivery
costs, we have conducted a final computational experiment in
which we distinguish eight blood types (blood groups A, B, AB,
and O, and rhesus factor + or ). In our simulation, we sample
the daily usage of each blood type separately, and if a particular
hospital will run out of one of them an emergency delivery is
scheduled. When a hospital receives an emergency delivery, the
inventory of all blood types is re-stocked up to a pre-specified or-
der-up-to level. The order-up-to level is based on a partitioning of
the hospital’s storage capacity according to the average usage of
the various blood types at that hospital. Table 12 shows results ob-
tained with the VNS with recourse action 2. We compare the costs
of aggregating over all blood types (a single usage), aggregating
over blood groups (four usages), and no aggregation (eight usages).
In all cases, we assume that usage is random variable with
bounded support, where the support is an interval around the
mean usage ([mean 25%, mean +25%] in the default case). This
choice can be criticized because the distribution of the sum of
the random variables of product usages is not the same as the dis-
tribution of the random variable of aggregate product usage. How-
ever, this choice ensures that the expected cost in each setting is
almost the same. We see that the delivery costs increase when
we distinguish between blood types, but that the cost increase is
relatively small, i.e., about 4%.
5.5. Approximating recourse actions 3 and 4
Our last experiment focuses on approximating recourse actions
3 and 4 using recourse action 2. Since the computational require-
ments of the VNS is so much higher for recourse actions 3 and 4
than for recourse action 2 (because sampling can no longer be done
in the preprocessing phase), we prefer to use recourse action 2.
Furthermore, the difference in total delivery costs is relatively
small, so it may not be so bad to use recourse action 2 as a proxy.
We simply scale down the emergency delivery costs incurred
when using recourse action 2, to approximate the emergency
delivery costs of recourse action 3 and 4. We have chosen a factor
of 0.9 (after experimenting with values 0.7, 0.8, 0.9 and 1.0). In Ta-
ble 13, we show the total delivery costs when evaluating the 2-
week schedule produced by the proxy for the recourse action
and the 2-week schedule produced by the true recourse action
6. Concluding remarks
We have developed technology to plan delivery routes for the
RA 4
supply of blood products to hospitals by a blood bank. The technol-
ogy is sampling-based and explicitly accounts for the variability in
3088.57
2278.69
blood product usage at the hospitals. To control the delivery costs,
1847.87 while still being able to guarantee product availability at the hos-
2405.04 pitals, a variety of emergency delivery options are considered. We
have presented an extensive computational study that analyzes
the efficacy of our technology and the impact of product usage
uncertainty on the resulting delivery plans.
Acknowledgement
Financial support by Grant #11187 from the Oesterreichische
Nationalbank (OeNB) and by Grant # P20342-N13 the Austrian Sci-
ence Fund (FWF) is gratefully acknowledged.
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