01 - Design of Supply Chain Networks With Multiphased

Journal of Information and Optimization Sciences
ISSN: 0252-2667 (Print) 2169-0103 (Online) Journal homepage: http://www.tandfonline.com/loi/tios20
Design of supply chain networks with multi-

phased discount price and service level:
formulation, complexity, and algorithm
Kuei-Hsien Chen , Jui-Tsung Wong & Chwen-Tzeng Su
To cite this article: Kuei-Hsien Chen , Jui-Tsung Wong & Chwen-Tzeng Su (2009) Design of
supply chain networks with multi-phased discount price and service level: formulation,
complexity, and algorithm, Journal of Information and Optimization Sciences, 30:2, 311-334,
DOI: 10.1080/02522667.2009.10699880
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Download by: [University of Nebraska, Lincoln] Date: 01 November 2015, At: 07:28
Design of supply chain networks with multi-phased discount price and
service level: formulation, complexity, and algorithm
Kuei-Hsien Chen 1
Jui-Tsung Wong 2, ∗
Chwen-Tzeng Su 1
1 Department of Industrial Engineering and Management

National Yunlin University of Science and Technology
Touliu, Yunlin
Taiwan, Republic of China
2 Department of International Business
Shih Chien University Kaohsiung Campus
Downloaded by [University of Nebraska, Lincoln] at 07:28 01 November 2015
Neimen Shiang, Kaohsiung

Taian, Republic of China
Abstract
A mixed integer programming problem is developed in this paper for the purpose of
choosing supply chain members. Most of such literature work used to focus on the multi-
objective programming (e.g., time and cost). However, in practice, it is not necessary to
minimize both time and cost in some cases. The key point in the supply chain planning of
perishable commodities is to efficiently meet customer’s demands before the commodities
are devaluated. Therefore, this paper proposes a supply chain network for perishable
commodities with multi-phased discount price and service level. The objective is to maximize
the total profit and demonstrate that the transportation problem of a single item with multi-
phased discount puce is NP-hard in the strong sense. This paper proposes a hybrid algorithm
based on particle swarm optimization and simulated annealing as a solution to the problem,
as well as a novel network encoding method. The operation of the proposed algorithm
includes the mutation position selection based on the regret vector. The solution remains
feasible even after the mutation execution. In the experiment and analysis, the Taguchi
method is used to analyze how the parameters in the algorithm affect the solution quality.
Sensitivity analysis of the parameters on the performance of the algorithm is also studied.
Keywords and phrases : Supply chain network, discount price, simulated annealing, particle swarm
optimization.
∗ E-mail: wongjt@mail.kh.usc.edu.tw
——————————–
Journal of Information & Optimization Sciences
Vol. 30 (2009), No. 2, pp. 311–334
°c Taru Publications
312 K. H. CHEN, J. T. WONG AND C. T. SU
1. Introduction
Global deployment has become the trend in the market in recent

years, initiating increasingly fierce competition among businesses. The
survival of the supply chain hinges on quick response to customers’ varied
demands. The design of the supply network is a critical subject in the
management of the supply chain. The decision involves determining the
members and flows in different stages from upstream to downstream. The
objective is in minimizing the total cost or maximizing the profit while the
demand is being satisfied. The total cost generally involves transportation
cost and production cost. Jayaraman and Ross [10] proposed a production,
logistics, outbound, transportation (PLOT) model, which is a mixed integer
programming problem whose objective is to minimize the total distribu-
tion cost through determining the nodes and flows while the demand is
satisfied. Yan et al. [25] modeled a supply chain design with bills of materials
(BOM) aiming to minimize the total cost, namely the production cost
and distribution cost. Literatures on supply network designs with single
objectives are proposed by Ross [19], Jayaraman and Pirkul [9], and Jang
et al. [8]. In addition, supply network design is also often solved under
the multi-objective model, which was performed by Sabri and Beamon
[20], Skriver and Andersen [22], Cakravastia et al. [1], and Chen and Lee
[2]. However, these problems did not take into consideration the discount
that comes with the deterioration of produce. In some cases, the multi-
objective programming that minimizes time and the cost does not work.
The problem that the policy maker faces is sometimes to minimize the
cost or maximize the profits while satisfying the due date. In practice,
numerous perishable commodities (such as fresh flowers, food, fruits and
seafood) and commodities with a limited useful life (such as magazines,
newspapers and popular items) suffer reduction in their prices over time.
This paper proposes a supply chain network for the perishable
commodity with multi-phased discount price and service level (SCN-
DP&SL). The organization of this paper is as follows. Section 2 formulates
the SCN-DP&SL problem, and proves that the transportation problem for
single commodity with multi-phased discount price is NP-hard in the
strong sense. Section 3 proposes a novel network encoding method and
constructs a hybrid algorithm (i.e., real-valued SA&PSO algorithm) based
on particle swarm optimization (PSO), and simulated annealing (SA) to solve
the SCN-DP&SL problem. In this algorithm, the mechanism that selects
DESIGN OF SUPPLY CHAIN NETWORKS 313
the mutation position based on the regret vector is developed. Section 4

uses the Taguchi method to analyze how the parameters in the algorithm
affect the solution quality and to find out the influence of the regret vector
on the algorithm performance. Section 5 presents the research findings and
suggestions for future researches.
2. The SCN-DP&SL problem
The SCN-DP&SL problem is the problem of the three stage supplier

network that includes a strongly NP-hard sub-problem.
2.1 Notation and assumptions
The SCN-DP&SL problem in this paper is a supply chain network

involving three stages: the supplier regional warehouses (SRW), the distribu-
tion centers (DC) and the retailers. The assumptions of this problem are as
follows:
(1) The SRW always receives a sufficient amount of material.

(2) DC has not limited capacity.
(3) In different stages, the task that each member performs cannot be
separated; that is, production and transportation of materials (or
finishing product) must be complete before moving to the next
stage.
(4) The penalty cost that arises from the inability to satisfy service level
constraint is a known constant.
The following notation is used throughout this paper:
• FTiC — the fixed transportation cost for operating SRW i .

• UTiCj — the unit transportation cost from SRW i to DC j .
• FTjC — the fixed transportation cost for operating DC j .
• FPjC — the fixed production cost for opening DC j .
• UThCjk — the unit transportation cost for product h from DC j to
retailer k .
• UPhCj — the unit production cost for product h at DC j .
• FTiT — the fixed transportation time for operating SRW i .
• UTiTj — the unit transportation time from SRW i to DC j .

• FTiT — the fixed production time for operating DC j .
• UTiTj — the unit production time for product h at DC j .
• FTjT — the fixed transportation time for operating DC j .
• UThTjk — the unit transportation time for product h from DC j to
retailer k .
• Dhk — demand for product h at retailer k .
• θ — customer service level. It is a parameter.
• PhS — the unit penalty cost for product h .
• P̃h — the original unit sale for product h .
• x̃is — 1 if SRW i is open, 0 otherwise.
• x̃ D
j — 1 if DC j is open, 0 otherwise.
• xi j — amount of material from SRW i to DC j .
• xh jk — amount of product h from DC j to retailer k .
2.2 Formulation of the SCN-DP&SL problem
The decision variables of this SCN-DP&SL problem are: the choice of

SRW, the DC, the amount of flow from the SRW to the DC, and the amount
of flow from the DC to the retailers. The objective is to maximize the
total profit as shown in equation (1). The total profit can be calculated by
subtracting the total cost from the total sales. The total cost includes SRW
cost, DC cost and the penalty cost for not satisfying the service level. The
formulation of the problem is as follows:
Max "
z = ∑ ∑ ∑ Ph ( TChTjk ) xh jk − ∑ FTiC x̃is + ∑ ∑ UTiCj xi j
h j k i i j
#
+ ∑ ( FTjC + FPjC ) x̃ D
j +∑∑∑ (UThCjk + UPhCj ) xh jk
j h j k
Ã !+
− ∑ ∑ PhS θ Dhk − ∑ xh jk . (1)
h k j
Total sale is calculated based on the item unit price multiplied by product
quantity. The determination of unit price relates to the length of operation
time. While the operation time becomes too long, the unit price reduces
associated with the drop of profit. Total cost consists of fixed costs from
SRWs and DCs, variable costs from SRWs to DCs and DCs to retailers.
Profits can suffer from not satisfying service level by replenishment
amount. If the value x in the penalty function (i.e., ( )+ ) is positive,
the output equals to x . However, if the value x in the penalty function
is negative, the output value is zero. Penalty function implies penalty
cost can only be generated if the service level can not be satisfied through
planned replenishment amount.
The constraints of the problem are expressed as follows.
Subject to:
(1) The supply of the material

The flow balance constraints of the material are as follows:
∑ ∑ xh jk ≤ ∑ xi j x̃iS ∀j (2)
j k i
(2) The constraints of sales volume in retailers
∑ xh jk ≤ Dhk ∀ h, k (3)
j
(3) Time needed to complete each task

This paper assumes that the task of each member throughout the
supply chain cannot be separated. That is, the production and trans-
portation of material or products in one stage must be complete before
moving onto the next stage of operation. Under this assumption, the
time of completion for the materials in the SRW to be transported to
DC can be calculated by the following equation:
max{ FTiT x̃iS + UTiTj xi j } = TC Tj ∀j (4)
i
The time needed to complete the production in DC is:
( )
max TC Tj + FPjT x̃ D T
j + ∑ UPh j x h jk = PC Tj ∀j (5)
h k
The completion time needed to transport the finishing product to the

retailer is:
PC Tj + FTjT x̃ D T T
j + UTh jk x h jk = TCh jk ∀ h, j, k (6)
(4) The unit price of the product


 if TChTjk ≤ b0h
 P̃h




 P̃h (1 − r1 ) if b0h < TChTjk ≤ b1h
T
Ph ( TCh jk ) = .. ∀ h, j, k (7)

 .




 P̃ (1 − r ) if b N −1,h < TChTjk
h N
where r1 ≤ r2 ≤ . . . ≤ r N , and bqh is the time point of item h which

triggers the q th price break.
(5) Variable constraints
xi j , xh jk ≥ 0 ∀ i, h, j, k (8)
xei , xej ∈ {0, 1} ∀ i, j (9)
Note that ( x)+ = x if x > 0 and 0 otherwise. This study found that
even if the supply chain network is only two-stage and involves only
one item for transportation under the consideration of multi-phased
discount price, the problem is NP-hard in the strong sense. The SCN-
DP&SL problem in this paper includes such a sub-problem.
Although the proposed DCs have not limited capacity, products stocked
in only few DCs can reduce price due to increasing operating time.
Theorem 1. If the supply chain network for the transportation of an item is a two-
stage problem with multi-phased discount price, then the problem is NP-hard in
the strong sense.
Proof. See Appendix A. ¤
3. Real-valued SA&PSO algorithm
SA is a local search procedure to solve combinatorial optimization

problems which are similar to the physical annealing of solids. During
the algorithm process, SA accepts worse solutions through a function.
Since Kirkpatrick et al. [14] used SA to solve combinatorial optimization
problems, SA has been extensively applied in various fields [17, 24, 13, 15].
PSO, first proposed by Kennedy and Eberhart [12], is a meta-heuristic
technique inspired by observations of animal behavior (e.g., bird flocking,
fish schooling, and swarm theory). PSO has memory during the process.
In each evolution, particles update their positions (solutions) based on
the best solution of individual particles and the best solution of overall
particles. Ever since PSO has been developed, it has often been used to
solve continuous optimization problems [16, 4, 5, 11].
Since SA has been widely applied in various fields for finding good
solution to an optimization problem, this paper uses SA to solve the SCN-
DP&SL problem. The PSO algorithm, proposed by Kennedy and Eberhart
in 1995, emphasizes its strength on solving continuous optimization
problems. The optimal solution for network flow can be a real value from
the proposed problem. Therefore, the methodology applies SA as solution
framework through PSO movement method.
This proposed approach applies the PSO concept to search the
neighborhood. To enhance the search efficiency, this paper develops a
single particle movement method. This paper solves the SCN-DP&SL
problem with a real-valued SA&PSO algorithm, which combines PSO and

SA. The hybrid algorithm considers a mutation operation and perturbed
particle velocity operation.
3.1 Solution representation
Here this paper proposes an encoding method using “edge and

flow”. The relationship between different stages in the supply chain and
its relationship with the linkage of transportation networks are under-
stood through the orders of the serial numbers in the edge encodings.
The encoding of the real numbers stands for the corresponding flows of
the edges. The encoding method proposed is an improvement over the
existing ones, such as edge encoding and vertex encoding (see [7]), that
fail to distinguish problems among the stage relationships.
Encoding methods of edge and vortex, such as Priifer number [7], are
commonly used for traditional encoding method. The proposed encod-
ing method mainly creates numerical and ordered relationship between
network framework and flow which is much easier for calculation on
the computer. The processes include two major steps: edge numbering
and edge ordering. Each DC node can be associated with two types of
edges, input and output. Initially each edge is appointed a corresponding
number. Number assignment is completed until all DC layer nodes are
covered. Since each DC node might have more than one input or output
edge, all input edges are arranged in descent order while the output ones
in ascent sequence. After completing edge ordering process on each node,
each DC node is associated with an output edge list with all output edges
arranged in ascent order and an input list with input ones arranged in
descent order. Such encoding method can clearly characterize relationship
of complicate network framework by providing numerical and ordering
representation of nodes and flows.
The encoding procedure is as follows.
Step 1. Assign a serial number to each edge, which generate e = [es | s =

1, . . . , S] , where S is the number of edges.
Step 2. Generate a (max{ Hes } + 1) × S matrix, where Hes is the number
of items at edge es . The vector of the first layer represents edge
codes, and the other vectors represent the codes of different
product/material flows.
The vector in the top layer of the generated matrix is for numbering edges
prepared while the rest is for item flows.
Step 3. Differentiate the edges of different stages. Divide the edges of SCN-
DP&SL problem into set E1 (i.e. the upstream stages) and set E2
(i.e. the downstream stages).
Prior to the step 4, differentiating edges on both up- and down-streams is

needed. The numbers from upstream edge arranges in ascent order while
those from downstream in descent order.
Step 4. Select and encode the output edges eO j ∈E2 of a node with ascend-
ing numbers in the DC layer. eO j is the set of the output edges of
node j which has both output and input edges. Next, encode the
input edges e I j ∈E1 of the same node with descending numbers. e I j
is the set of input edges of node j . Then the edge encoding of a
node is completed. Repeat the procedure until all of the edges are
encoded with numbers.
The edge encoding process is completed after Step 4, Up or downstream

edge can be easily identified through the mentioned encoding process.
The node belonging to the same DC layer can be found through the
search algorithm that identifies series of incremental numbers followed
by decremental ones.
Step 5. Arrange the real numbers which represent the flows into the
encoding of the corresponding edges.
Step 5 encodes each item flow located on each edge and completes the
entire encoding process.
Figure 1
An example of encode
Figure 1 is an encoding example of a three stage supply network.

As shown in Figure 1, the DC layer has two nodes: 3 and 4. Initially
the output edge e4 is assigned followed by assigning edge e1 . Edges e5
and e6 are two output edges for node 4.
Based on the incremental coding procedure, Edges e2 and e3 are
assigned to their corresponding nodes.
Whether the edges are connected to the same node can be determined
through the serial numbers which repeatedly increase and then decrease
progressively in the edge encoding. For instance, in the encoding example,
the second sequence of edge code, which increases and then decreases, is
[e5 , e6 , e3 , e2 ] . In this sequence, e3 and e2 (i.e., the sequence that decreases
progressively) belong to the edges of the upstream stages and are both the
input of node 4.
Finally edge flow is placed in the matrix where flow rate for edges e2
and e5 are 24 and rest of them are zero.
3.2 Moving process
The algorithm proposed is to search the neighborhood through the

PSO concept. Particle velocity renewal theory by Shi and Eberhart [21]
was used in this paper. The move implementation procedure is as follows:
Step 1. Randomly select the position (e5 = d, h = n) to perform the flow

move, where flow at edge d is larger than zero, and n ∼ discrete
U (1, Hd ) .
Step 2. Update the particle velocity of the position (es = d, h = n) as

follows:
ves h = wves h + φ1 r1 ( y1es h − y2es h ) + φ2 r2 ( y2es h − y3es h ) (10)
where w is an adjustable parameter, r1 and r2 are U (0, 1) , φ1
and φ2 are constants, ves h is the velocity in the product (materiel)
h in the edge es , Y 1 = [ y1e,h ] is the best solution, Y 2 = [ y2es h ] is the
present solution, Y 3 = [ y3es h ] is the new solution.
Step 3. The move of the solution is as follows:
y3es h = y2es h + ves h (11)
Step 4. Modify the solutions to ensure that Y 3 satisfies the flow balance
constraints and the constraints of sales volume.
While the move is the upstream edge, the move based on the same node
should be between the difference of total output and input flows and
infinity. While the move is the upstream edge, the move based on the same
node should he between zero and minimal value between difference of
total input and other total output flows, and unsatisfied need. If the flow
rate exceeds the above range after the move, the flow needs to be adjusted
to the boundary value.
PSO was used for movement method. Traditional PSO concept uses
the movement from present solution to search neighborhood solution.
Equations (10) and (11) utilize PSO concept skillfully. New solution y3e,h
was obtained by using present solution y2es h and velocity operation. Veloc-
ity can be derived from optimal solution, current and previously iterated
y3es h and velocity. Through the process, Y 1 is updated only when a better
solution is found. While solution of Y 3 is superior to Y 2 or is matching
the acceptance possibility, Y 2 is then being updated. The solution of Y 3
is updated after each iteration.
3.3 Mutation operation
Mutation operation is used to change the edge selection and to

perturb particle velocities. This method ensures a feasible solution, even
after the mutation. This paper adopts the concept of pheromone bound
by T’kindt et al. [23] for the selection of mutation edges. In addition, this
paper presents a regret vector as the basis of mutation position selection.
The procedure of mutation operation is as follows:
Step 1. Perturb the particle velocity, ves h = U (− B, B) , where B is a

constant.
Step 2. Set matrix ∆δ = [∆δi j | i = 1, 2 and j = 1, 2, . . . , S] , as followed:
Γ (Y 2 )
∆δ P( y2 ) j = (12)
j Q
where Γ(Y 2 ) is the objective function value of the present solution;
Q is an adjustable parameter; P( y2j ) equals to 1 if y2j is larger
than 0 and equals to 2 elsewhere. y2j represents the flow of present
solution.
Step 3. Update matrix δ = [δi j | i = 1, 2 and j = 1, 2, . . . , S ], as follows:

 if ρ(δi j + ∆δi j ) ≥ δmax
δmax

δi j = ρ(δi j + ∆δi j ) if δmax > ρ(δi j + ∆δi j ) ≥ δmin




δmin if otherwise
where δmax and δmin represent upper and lower bounds of δi j : ρ
is an adjustable parameter between 0 and 1.
Step 4. Generate regret vector ϑ = [ϑ j | j = 1, 2, . . . , S] as follows:
ϑ j = max{δi j } − δ P( y1 ) j (13)
i j
where P( y1j ) equals to 1 if y1j is larger than 0 and equals to 2

elsewhere. y1j represents the flow of best solution.
Step 5. Select the mutated edge m ∈ es by the roulette wheel selection
through regret vector ϑ .
Step 6. Implement the mutation operation of edge m based on the follow-
ing rules:
Rule 1. ( m ∈ E1 and f m > 0 ): If | Im | > 0 , randomly allocate f m

to Im until f m = 0 ; otherwise set f m = 0 and set the total
flow of Om = 0
Rule 2. ( m ∈ E1 and f m = 0) : f m = b ∼ U (0, a constant > 0 )
Rule 3. (m ∈ E2 and f m > 0) : f m = 0
Rule 4. ( m ∈ E2 and f m = 0 ): If |Om | > 0 , reduce the total flow
of Om by b ∼ U (0, the total flow of Om ) and f m = b ;
otherwise make, f m = b ∼ U (0, Dm ) and increase the total
flow of Im by b
where f m denotes the flow of edge m ; Im denotes the set of edges of the
input end that share the same node with edge m, m excluded; Om denotes
the set of edges of the output end that share the same node with edge
m, m excluded; Dm denotes to the corresponding demanded quantity of
edge m .
While considering this problem, mutation operator itself can generate
solution that is not satisfied with flow balance constraints as shown in
equation (2). Four rules proposed in the Step 6 can be used to keep
mutation operation of the total output less than total input flow.
3.4 Accept solution
This section elaborates on the method to update the present solution

Y 2 . In the annealing schedule, worse solutions are accepted by some

probability, and as the temperature T goes down, so does the accepting
probability. The procedure is as follows:
Step 1. Set profit = Γ(Y 3 ) − Γ(Y 2 ) .

Step 2. If profit ≥ 0 then Y 2 = Y 3 .
Step 3. If exp (profit) > r ∼ U (0, 1) then Y 2 = Y 3 .
3.5 Algorithm procedure
This paper proposes a hybrid algorithm based on SA and PSO to

solve the strongly NP-hard problem. In the frozen condition of this SA,
the temperature is lower or equal to the final temperature. The procedure
is as follows:
Step 1. (Initialization) Set ρ , φ1 , φ2 , [δ∈ = δmax /5, δmax = 1/1 − ρ] ,

initial temperature T0 , final temperature T f , temperature length
L , cooling rate α , Q , and mutation rate η .
Step 2. Generate an initial solution Y 3 , δi j = δmax , ves h = random
number, and set present temperature T = T0 .
Step 3. Calculate the objective function value Γ(Y 3 ) and set the present
solution Y 2 and the best solution Y 1 equal to Y 3 .
Step 4. (Outer-loop) While not yet frozen, do the following.
4.1. (Inner-loop) Implement the following loop L times.

4.1.1. Generate new solution Y 3 by move if p ∼ U (0, 1) ≥ η ,

generate new solution Y 3 by mutation otherwise.
4.1.2. Calculate objective function value Γ(Y 3 ) .
4.1.3. Update present solution Y 2 .
4.1.4. Update best solution Y 1 = Y 3 if Γ(Y 3 ) > Γ(Y 1 ) .
4.2. Update T = α T .
Step 5. Return Y 1 and end.
4. Experiment and analysis
This paper introduces an example to explain the applicable condi-

tions for the proposed hybrid algorithm. The Taguchi method is used to
find the proper algorithm parameters. More Taguchi method details can
be found in Ross [18]. Chopra and Meindl [3] used the Solver tool in Excel
to solve the problems of supply chain network. This paper also uses this
tool and the proposed algorithm to compare the solution qualities.
4.1 Illustrative example
Conventional DCs are mainly in charge of transportation, rather

than manufacturing or assembling. However, if the inventory does not
contain the items that the customer needs, the vendor will have to return
from the DC to the upstream suppliers for the right products, and then
transport them to the retailers. Much unnecessary cost occurs during
this process. Nowadays, businesses tend to cooperate multi-nationally,
which highlights the importance of transportation cost. The postponement
strategy adopted by businesses, together with the design for logistics
technology, enables the DC to manufacture, which thereby shortens the
leading time and achieves the goal of product customization. In this
case, QUICKNESS is a fictional seafood supplier, with supplier regional
warehouses all over the world.
To have the strength for quick responses, the DC of QUICKNESS is
capable of manufacturing. Now, three retailers Malaysia, Tokyo, Singapore
order seafood A, B, and C from QUICKNESS. QUICKNESS transports the
raw materials from each SRW to the DC, where the finishing products are
made and transported to the retailers. The supply network locations of the
main SRW, DC and retailers in this example are shown in Figure 2.
Figure 2
Supply network of illustrative example
The prices of the finishing products, depending on the freshness,

have three levels of P̃h × 1 (when time ≤ 80 ), P̃h × 0.7 (when 80 <
time ≤ 90), and P̃h × 0 (when 90 < time). Moreover, the service level
equals 1. The retailers’ demands, Dh,Malaysia , Dh,Tokyo , and Dh,Singapore ,
are 4.2, 3.0, and 3.3 respectively. The other parameters of the example are
shown in Table 1. When the discount price is taken into consideration, the
total profits of the near-optimal solution obtained through the real-valued
SA&PSO algorithm are 1333.1231, while without the discount price taken
into consideration, the total profits are 1623.7 (solution see Table 2). The
result shows that, influenced by the discount price, the lower cost path
will be replaced by the higher cost path to shorten transportation time.
The other way to reduce transportation time is to reduce flow. Higher
profits can be contributed by large quantity of unsatisfied demands.
4.2 Parameter analysis
In this proposed real-valued SA&PSO algorithm, the mutation rate

affects the frequency of path changing, and the frequency of the per-
turbation on particle velocity. Temperature length affects the scale of
neighborhood size at each degree. In addition, T0 and T f affect the
probability of worse solution acceptance respectively by the initial and
final temperatures. The acceptance rate is converted into temperatures as
the following:
∆ˆ
T= . (14)
ln( pr−1 )
Table 1
The operation time and cost of the supply network
Transportation of unit cost
From SRW to DC From DC to retailer
SRW DC Items Cost DC Retailer Items Cost
Philippines Taiwan Material 16 Taiwan Malaysa A, B and C 6
Indonesia Hokkaido Material 12 Taiwan Tokyo A, B and C 5
Bangladesh Hokkaido Material 17 Hokkaido Tokyo A, B and C 7
Bangladesh Shanghi Material 8 Shanghi Singapore A, B and C 4
Bangladesh Guangzhou Material 4 Guangzhou Singapore A, B and C 3
Vietnam Guangzhou Material 3
Fixed transportation cost Fixed product cost
SRW Cost DC Cost Taiwan Hokkaido Shanghi Guangzhou
Philippines 40 Taiwan 20 40 30 53 45
Indonesia 9 Hokkaido 70 Product of unit cost
Bangladesh 56 Shanghi 27 Taiwan Hokkaido Shanghi Guangzhou
DESIGN OF SUPPLY CHAIN NETWORKS
Vietnam 9 Guangzhou 45 20 15 17 39
Transportation of unit time
From SRW to DC From DC to retailer
SRW DC Items Time DC Retailer Items Time
Philippines Taiwan Material 3 Taiwan Malaysa A, B and C 1
Indonesia Hokkaido Material 6 Taiwan Tokyo A, B and C 6
Bangladesh Hokkaido Material 2 Hokkaido Tokyo A, B and C 1
Bangladesh Shanghi Material 3 Shanghi Singapore A, B and C 3
Bangladesh Guangzhou Material 1 Guangzhou Singapore A, B and C 4
Vietnam Guangzhou Material 1
Fixed transportation time Fixed product time
SRW Cost DC Cost Taiwan Hokkaido Shanghi Guangzhou
Philippines 8 Taiwan 10 9 14 5 12
Indonesia 8 Hokkaido 10 Product of unit time
Bangladesh 15 Shanghi 15 Taiwan Hokkaido Shanghi Guangzhou
Vietnam 15 Guangzhou 15 3 5 4 2
325
326
Table 2
Solutions to the illustrative examples
Without discount price With discount price
From SRW to DC From SRW to DC
SRW DC Item Flow Completion time SRW DC Item Flow Completion time
Philippines Taiwan Material 21.60000 Philippines Taiwan Material 12.06666

Bangladesh Shanghi Material 9.90000 Indonesia Hokkaido Material 4.95130
From DC to retailer Bangladesh Hokkaido Material 4.04870
SRW DC Item Flow Completion time Vietnam Guangzhou Material 9.90000
Taiwan Malaysia A 4.20000 117.60000 From DC to retailer
B 4.20000 117.60000 SRW DC Item Flow Completion time

C 4.20000 117.60000 Taiwan Malaysia A 3.66666 79.46670
Hokkaido Tokyo A 3.00000 131.40000 B 4.20000 80.00000
B 3.00000 131.40000 C 4.20000 80.00000
C 3.00000 131.40000 Hokkaido Tokyo A 3.00000 79.70780
Shanghi Singapore A 3.30000 87.80000 B 3.00000 79.70780
B 3.30000 87.80000 C 3.00000 79.70780
C 3.30000 87.80000 Guangzhou Singapore A 3.30000 71.70000
B 3.30000 71.70000
C 3.30000 71.70000
Note: The paths without records indicate no flows

K. H. CHEN, J. T. WONG AND C. T. SU
where ∆ ˆ denotes the estimated profit differences of the neighbor solu-

tions; pr denotes the acceptance rate.
To find the best combinations of the key parameters of these algo-
rithms, this paper uses the L9 (34 ) experiment by the Taguchi method.
The levels of each factor are set as in Table 3. The other parameters of the
algorithm in this experiment are ρ = 0.85 , φ1 = 2 , and φ2 = 1 .
Table 3
Set levels of each factor
Level
Factor 1 2 3
T0 3000 5000 10000
(0.85) (0.9) (0.95)
Tf 0.43 0.87 1.24

(0.01) (0.1) (0.2)
η 0.01 0.06 0.12
L 100 300 500
Note: ( ) is the acceptance rate of the worse solutions
The objective in the proposed problem is to maximize total profits. As

a result, the larger-the-better is used to find the best algorithm parameters
in this experiment. The calculation of signal-to-noise ( S/ N ) ratio is as in
equation (15). Table 4 shows the results of each parameter set in 4 runs.
" #
1 N 1
N i∑
S/N ratio = − 10 log10 2
(15)
=1 Bi
where Bi is the i th response value for a condition repeated N runs.
Figure 3 shows that the best levels of this algorithm parameter are
T0 = 10000 (i.e., the acceptance rate of the worse solutions = 0.95) ,
T f = 0.43 (i.e., the acceptance rate of the worse solutions = 0.01) ,
η = 0.12 , and L = 500 . Since this parameter set does not appear in the
experiment, a confirmation experiment is required. The estimated total
profits µ̂ of this parameter set are 1433.5596, as calculated in equation
(16). The result of the confirmation experiment is 1424.806, which implies
a successful experiment. In addition, figure 3 shows various results with
parameter η at different levels.
µ̂ = ȳ T 3 + ȳ T 1 + ȳη3 + ȳ L3 − 3 ȳ (16)
0 f
where ȳ gw is the average total profits when factor g is under level w .

Table 4
Result of the Taguchi method
L9 Factor S/N ratio Mean

T0 Tf η L
1 1 1 1 1 54.6646 738.4489
2 1 2 2 2 52.2923 706.1704
3 1 3 3 3 60.4509 1144.1682
4 2 1 2 3 62.0806 1274.7396
5 2 2 3 1 52.9247 755.5591
6 2 3 1 2 52.0976 567.0606
7 3 1 3 2 62.2981 1304.7404
8 3 2 1 3 47.9160 545.5215
9 3 3 2 1 59.3321 988.3070
Figure 3
Response analyses for algorithm parameters
Figure 4 presents the annealing processes of the proposed algorithm

under different parameters. A too high worse solution acceptance rate of
the final temperature will prevent the solution from attaining stability.
A too low mutation rate tends to make the solving process crave into local
optimum solutions, which in turn influences the convergence results.
4.3 Algorithm comparison
The hybrid algorithm (HA I) proposed in this paper uses a regret vec-
tor with memory as the basis for mutation. To understand the performance
of this vector, the experiment adopts the hybrid algorithm (HA II) with
vector ϑ j = a constant to make comparisons. Moreover, the Solver tool in
Excel is also used for comparison.
Figure 4
Implementation process of real-valued SA&PSO algorithm when
T0 = 10000 , L = 500 (a) T f = 0.43 and η = 0.12 ; (b) T f = 4
and η = 0.12 ; (c) T f = 0.43 and η = 0.03
This experiment tests the algorithm by using the three environmental

factors of service level ( F1 ) , the normal distribution with mean F2 and
variance F3 . The levels of F1 are 1 and 0.8, F2 , are 10 and 3; F3 , are 3
and 1. In addition, if the transportation completion time is [0,80], the price
equals P̃h × 1; (80, 90] , P̃h × 0.7 ; more than 90, P̃h × 0 .
Table 5 is the algorithm test results of each example in 30 runs. The re-
sults show that the solution quality of HA I, whether with smaller or larger
demand averages, is better than those of the other algorithms. Hence,
the regret vector designed as mutation basis aids in improving solution
quality. However, the performance of the Solver tool in Excel is less
desirable regarding the problems proposed for the solutions.
Table 5
Comparisons of each algorithm performances
Scenario Excel HA I HA II
( F1 , F2 , F3 ) Min Mean Max Min Mean Max
(1, 10, 3) 2195.81 4496.41 4859.97 5000.76 4103.91 4463.74 4763.37
(1, 10, 1) 2628.51 4209.94 4641.52 4872.32 3971.59 4396.59 4844.84
(1, 3, 1) 1024.83 922.89 1048.23 1231.95 693.12 954.74 1131.70
(0.8, 10, 3) 2707.31 4547.41 4777.25 4920.13 4411.60 4619.28 4875.80
(0.8, 10, 1) 2719.31 4480.65 4847.23 5039.91 4254.30 4663.87 5039.91
(0.8, 3, 1) 1118.25 942.18 1092.27 1241.89 341.44 910.02 1205.50
Figure 5 presents the sensitivity analysis results obtained by prolong-

ing each time duration on the basis of the original discount time frame
(i.e. [0, 80] , (80, 90) , and (90, ∞) ). The results show that as the discount
time shortens, the total profit loss of HA I is less than that of HA II, which
implies that the performance of the proposed algorithm is less influenced
by discount price.
Figure 5
Sensitivity analyses results
5. Conclusion
As businesses operate transnationally, supply chain management has

to be globalized as well. Thus, effective design of the supply network is
especially crucial. This paper proposes a supply chain network problem
based on consideration of the multi-phased discount price and service
level of perishable commodities. The problem proves to be strongly NP-
hard. An integration of SA and PSO is proposed for the solutions of
SCN-DP&SL problems. The example provided in this paper illustrates

the proper supply chain environment for the application. In addition, the
example illustrates that with discount price taken into consideration, the
transportation path is influenced by time, so it is better not to seek the
minimum transportation time. As for experiment analysis, this paper finds
the best parameter combination of the algorithm by the Taguchi method.
The result shows that inappropriate mutation rates induce the solving
process to crave local optimum solutions. Temperature lengths and final
temperatures are also key factors to solution quality. To understand the
contribution of the regret vector, the mutation basis, to performance, this
paper compares HA I with HA II, and the Solver tool in Excel. The result
shows that the algorithm proposed in this paper is superior to the others.
The sensitivity analysis also shows that the performance of HA I is less

affected by discount price. Future research can consider the constraints
on transport capacity or warehouse capacity under the framework of the
problems this paper presents. Besides, finding the key constraint that
reduces the problem complexity and developing the algorithm for the
optimal solution (e.g., the dynamic programming and the branch and
bound) are also important research topics.
The comparison of the proposed and other algorithms, such as
genetic, tabu search, and immune algorithms, and finding the difference
of output and optimal solutions will be in the future research topics.
The parametric study, such as Q and ρ , of the proposed algorithm also
requires further study.
Appendix A. Proof of Theorem 1
Proof. This paper shows that the bin packing problem, NP-complete in the
strong sense [6], can be reduced to the decision problem of the proposed
problem. The decision problems of the problem proposed and the bin
packing problem are as follows:
Bin packing problem
Instance: Finite set U of items uk , sizes s(uk ) ∈ Z + , a bin capacity

B ∈ Z + , and a R ∈ Z + .
Question. Is there an assignment of uk to bins U1 , U2 , . . . , UR such that
the sum of sizes of items in each bin is no greater than B ?
Proposed problem
Create a sub-problem composed of the transportation problems from

the DC to retailers as follows (i.e., the cost and time from SRW to the DC
are not taken into consideration):
FTiC = 0 ; UTiCj = 0 ; FTiT = 0 ; UTiTj = 0 ; D1k = S(uk ) . θ = 1 ;
P1 ( TC1Tjk ) = P̃1 if TC1Tjk ≤ B and 0 otherwise; P̃1 = 2 ; FTjC + FPjC = A ;
UT1Cjk + UT1Cj = ( D1k − A)/ D1k (Note that D1k > A ); FPjT = 0 ;
UT1Tj = 1 ; FTjT = 0 ; UT1Tjk = 0 ; P1s = ∞ . ∑∀k D1k = W .
Question. Is there a project plan with total profit = W or greater?
The problem transformation is in polynomial time. To solve this
question, this paper shows that there exists an assignment if and only if
there exists a network design such that the total profit is W or greater.
Since P1s = ∞ , all the demands need to be satisfied (i.e. ∑∀ j x1 jk = D1k
for ∀k ). Otherwise, the total profits will be negative. Moreover, the total
cost must not exceed W , so that the total profits equal to or surpass W .
The discussion is shown as follows.
First, the problem does not consider the time issue. Since for ∀ j, k
Γ( x̃ D D D
j , x1 jk ) = x1 jk for ( x̃ j = 0, x1 jk = 0 ) and ( x̃ j = 1, x1 jk = D1k ),
Γ( x̃ D D
j , x1 jk ) > x1 jk for ( x̃ j = 1, x1 jk < D1k ),
where Γ( x̃ D C C D C C
j , x1 jk ) = ( FT j + FPj ) x̃ j + (UT1 jk + UP1 j ) x1 jk + total penalty
cost, the total cost of a network design is:
∑ ∑ Γ(x̃Dj , x1 jk ) ≥ W
∀ j ∀k
There is a total cost exactly equal to W if and only if x1 jk ∈ {0, D1k } for
∀ j, k .
Second, the problem considers the time issue. There is a total profit
equal to W or greater if and only if ∑∀k x1 jk ≤ B for ∀ j , there exists an
assignment of D1k to DCs such that the sum of productions in each DC is
no greater than B .
The optimization problem of the proposed problem is not an NP
problem. Thus, the proposed problem is an NP-hard problem in the strong
sense. ¤
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Received April, 2008

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Journal of Information and Optimization Sciences

ISSN: 0252-2667 (Print) 2169-0103 (Online) Journal homepage: http://www.tandfonline.com/loi/tios20

Design of supply chain networks with multi-

Kuei-Hsien Chen , Jui-Tsung Wong & Chwen-Tzeng Su

To link to this article: http://dx.doi.org/10.1080/02522667.2009.10699880

Published online: 18 Jun 2013.

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1 Department of Industrial Engineering and Management

Neimen Shiang, Kaohsiung

Global deployment has become the trend in the market in recent

the mutation position based on the regret vector is developed. Section 4

2. The SCN-DP&SL problem

The SCN-DP&SL problem is the problem of the three stage supplier

2.1 Notation and assumptions

The SCN-DP&SL problem in this paper is a supply chain network

(1) The SRW always receives a sufficient amount of material.

The following notation is used throughout this paper:

• FTiC — the fixed transportation cost for operating SRW i .

• UTiTj — the unit transportation time from SRW i to DC j .

2.2 Formulation of the SCN-DP&SL problem

The decision variables of this SCN-DP&SL problem are: the choice of

(1) The supply of the material

(2) The constraints of sales volume in retailers

(3) Time needed to complete each task

The completion time needed to transport the finishing product to the

(4) The unit price of the product

where r1 ≤ r2 ≤ . . . ≤ r N , and bqh is the time point of item h which

Proof. See Appendix A. ¤

3. Real-valued SA&PSO algorithm

SA is a local search procedure to solve combinatorial optimization

problem with a real-valued SA&PSO algorithm, which combines PSO and

3.1 Solution representation

Here this paper proposes an encoding method using “edge and

Step 1. Assign a serial number to each edge, which generate e = [es | s =

Prior to the step 4, differentiating edges on both up- and down-streams is

The edge encoding process is completed after Step 4, Up or downstream

Figure 1 is an encoding example of a three stage supply network.

3.2 Moving process

The algorithm proposed is to search the neighborhood through the

Step 1. Randomly select the position (e5 = d, h = n) to perform the flow

Step 2. Update the particle velocity of the position (es = d, h = n) as

3.3 Mutation operation

Mutation operation is used to change the edge selection and to

Step 1. Perturb the particle velocity, ves h = U (− B, B) , where B is a

δi j = ρ(δi j + ∆δi j ) if δmax > ρ(δi j + ∆δi j ) ≥ δmin

where P( y1j ) equals to 1 if y1j is larger than 0 and equals to 2

Rule 1. ( m ∈ E1 and f m > 0 ): If | Im | > 0 , randomly allocate f m

3.4 Accept solution

This section elaborates on the method to update the present solution

Y 2 . In the annealing schedule, worse solutions are accepted by some

Step 1. Set profit = Γ(Y 3 ) − Γ(Y 2 ) .

3.5 Algorithm procedure

This paper proposes a hybrid algorithm based on SA and PSO to

Step 1. (Initialization) Set ρ , φ1 , φ2 , [δ∈ = δmax /5, δmax = 1/1 − ρ] ,

4.1. (Inner-loop) Implement the following loop L times.

4.1.1. Generate new solution Y 3 by move if p ∼ U (0, 1) ≥ η ,

Step 5. Return Y 1 and end.

4. Experiment and analysis

This paper introduces an example to explain the applicable condi-

4.1 Illustrative example